Sienna Biopharmaceuticals 10K 2018 Annual report

Sienna Biopharmaceuticals (SNNAQ) 10-K2018 FY Annual report

Content analysis

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

For the fiscal year ended December 31, 2018

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

For the transition period from to

Commission file number:001-38155

Sienna Biopharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware		27-3364627
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

30699 Russell Ranch Road, Suite 140 Westlake Village, California		91362
(Address of Principal Executive Offices)		(Zip Code)

(818) 629-2256

(Registrant’s Telephone Number, Including Area Code)

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


Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.0001 par value per share		The Nasdaq Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act: None

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” inRule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant was not a public company as of the last business day of its most recently completed second fiscal quarter and, therefore, cannot calculate the aggregate market value of its voting andnon-voting common equity held bynon-affiliates as of such date.

As of March 8, 2019, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 30,375,820.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s Proxy Statement for the registrant’s 2019 Annual Meeting of Stockholders will be filed with the Commission within 120 days after the close of the registrant’s 2018 fiscal year and are incorporated by reference in Part III.

Sienna Biopharmaceuticals, Inc.

Index


		Page
PART I

ITEM 1.	Business		3
ITEM 1A.	Risk Factors		55
ITEM 1B.	Unresolved Staff Comments		104
ITEM 2.	Properties		104
ITEM 3.	Legal Proceedings		105
ITEM 4.	Mine Safety Disclosures		105

PART II

ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		106
ITEM 6.	Selected Financial Data		108
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		109
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk		127
ITEM 8.	Financial Statements and Supplementary Data		128
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		128
ITEM 9A.	Controls and Procedures		128
ITEM 9B.	Other Information		129

PART III

ITEM 10.	Directors, Executive Officers and Corporate Governance		130
ITEM 11.	Executive Compensation		130
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		130
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence		130
ITEM 14.	Principal Accounting Fees and Services		130

PART IV

ITEM 15.	Exhibits, Financial Statement Schedules		131

Signatures

Special Note Regarding Forward-Looking Statements

This Annual Report onForm 10-K, including “Business” in Part I Item I and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II Item 7, contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

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our expectations regarding the potential market size and size of the potential patient populations for our product candidates, if approved or cleared for commercial use;

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our clinical and regulatory development plans for our product candidates;

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our expectations with regard to our platform technologies and our ability to utilize these platforms to discover, develop and advance additional product candidates;

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the timing of commencement of future nonclinical studies and clinical trials and research and development programs;

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our ability to acquire, discover, develop and advance product candidates into, and successfully complete, clinical trials;

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our intentions and our ability to establish collaborations and/or partnerships;

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the timing or likelihood of regulatory filings and approvals or clearances for our product candidates;

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our commercialization, marketing and manufacturing capabilities and expectations;

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our intentions with respect to the commercialization of our product candidates;

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the pricing and reimbursement of our product candidates, if approved;

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the implementation of our business model and strategic plans for our business, product candidates and technology platforms, including additional indications for which we may pursue;

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the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates, including the projected terms of patent protection;

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

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our future financial performance; and

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developments and projections relating to our competitors and our industry, including competing therapies and procedures.

These statements relate 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 “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form10-K. Any forward-looking statement in this Annual Report on Form10-K reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, industry and future growth. 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 Form10-K also contains estimates, projections and other information concerning our industry, our business, and the markets for our product candidates, including data regarding the estimated patient population and market size for our product candidates, as well as data regarding market research, estimates and forecasts prepared by our management. Information that is based on estimates, forecasts, projections 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 third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

PART I

ITEM 1.

Business.

Overview

We are a clinical-stage biopharmaceutical company focused on bringing unconventional scientific innovations to patients whose lives remain burdened by their disease. We draw upon our deep knowledge and experience in drug development across multiple therapeutic areas as we build a unique, diversified, multi-asset portfolio of therapies in inflammation and immunology that target select pathways in specific tissues, with our initial focus on one of the most important ‘immune’ tissues, the skin. Utilizing our novel technology platform, we apply a scientific design process to create potent targeted pharmacologically active molecules that are directed toward a specific target tissue and a select disease pathway, and with minimal to no systemic exposure. Our lead candidate from this platform,SNA-120 (pegcantratinib), is afirst-in-class inhibitor of Tropomyosin receptor kinase A (TrkA) for which we intend to initiate two Phase 3 pivotal clinical trials for the treatment of psoriasis, as well as the associated pruritus (itch), subject to securing sufficient capital to complete both trials. Our second product candidate,SNA-125, is a dual Janus kinase 3 (JAK3)/TrkA inhibitor for which we intend to initiate Phase 2 clinical trials for the treatment of atopic dermatitis, psoriasis and the associated pruritus, subject to securing sufficient capital. Additionally,SNA-001, a silver photoparticle technology derived from our Topical Photoparticle Therapy™ platform to be used in conjunction with commonly used commercial lasers, recently completed the last of six pivotal clinical trials for the reduction of unwanted light-pigmented hair and for the treatment of acne. We are seeking a strategic partner to maximize the value ofSNA-001. We believe our management team is well-positioned to execute on our objectives, having served in clinical, commercial and other leadership roles at several marquee biotechnology and pharmaceutical companies, including Kythera, Amgen, Allergan, Medicis, and Celgene.

There is a significant opportunity to address the historical lack of innovation for treating inflammatory skin disorders in a targeted fashion without systemic exposure. Recent advances in biotechnology have enabled the development of novel, biologic drugs which act on specific molecular targets and pathways, and have been utilized to address inflammatory disorders. However, despite having shown impressive efficacy, use of these drugs has been limited to patients with more severe forms of disease due to the potentially significant side effects associated with systemic administration and their relatively high cost. Accordingly, the80-90% of patients with inflammatory skin disease who present withmild-to-moderate disease severity or more localized disease have not benefitted from these advances. Today, such patients typically resort tonon-specific, topical therapies such as corticosteroids and emollients, which are either marginally effective or unsuitable for chronic administration due to their side effects. We are initially focused on filling this innovation gap in inflammatory diseases of the skin by developing targeted products with minimal to no systemic exposure that are suitable for chronic administration.

Through our novel proprietary technology platform we develop targeted treatments for inflammatory skin diseases and other inflammatory conditions by creating new chemical entities (NCEs) based on small molecules with well understood mechanisms of action. Using this technology, we site-selectively direct the conjugation of small polyethylene glycol (PEG) polymers to selected pharmacologically active compounds. This modification alters the pharmacological activity of the active compound to refine its target selectivity while also changing its physicochemical profile. The resulting NCEs are designed to permeate the skin or other targeted surfaces, such as the gastrointestinal (GI) tract, the eye or the lung, for highly localized drug concentration against the selected targets or pathway, while minimizing systemic exposure. By utilizing this targeted approach, we create therapies that are specifically designed to be highly effective and suitable for chronic administration. Our lead product candidates from our technology platform are:

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SNA-120 (pegcantratinib), afirst-in-class TrkA inhibitor for the topical treatment of psoriasis, as well as the associated pruritus. TrkA is the high-affinity receptor for nerve growth factor (NGF). Targeting thisNGF-TrkA pathway is a novel mechanism of action that enablesSNA-120 to impact key

components of psoriasis, including neurogenic inflammation, keratinocyte hyperproliferation and pruritus. A Phase 2b clinical trial was completed forSNA-120 that demonstrated statistically significant improvements in psoriasis disease severity, as measured by the modified Psoriasis Area and Severity Index (mPASI), as well as the associated pruritus, as measured by the Visual Analog Scale (VAS), in a subset of the full study population reporting at least moderate pruritus at baseline. The effect on psoriasis, as measured by the Investigator’s Global Assessment (IGA), was not statistically significant. We conducted a second Phase 2b clinical trial in order to expand our understanding ofSNA-120 in psoriasis and the associated pruritus and provide additional endpoint evaluation and validation. In December 2018, we reportedtop-line results from this second Phase 2b clinical trial. In this trial, subjects treated withSNA-120 (0.05%) achieved statistical significance, compared to vehicle, on importantpre-specified endpoints of psoriasis disease severity, including the proportion of subjects achieving a2-grade improvement from baseline and 0 (clear) or 1 (almost clear) on the IGA (IGA2-grade composite), which has been the Phase 3 primary endpoint for recent topical psoriasis drugs approved by the U.S. Food and Drug Administration (FDA). Subjects treated withSNA-120 (0.05%) also experienced a meaningful reduction in pruritus (approximately 57% from baseline), although the result did not reach statistical significance against vehicle.SNA-120 has been administered to more than 500 subjects for up to 12 weeks and has been well tolerated across all trials, with minimal to no demonstrated systemic bioavailability. Following anEnd-of-Phase 2 (EOP2) meeting with the FDA scheduled for April 2019, we intend to initiate two Phase 3 pivotal clinical trials, subject to securing sufficient capital to complete both trials, in the second half of 2019.

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SNA-125, a topical JAK3/TrkA inhibitor with the potential to treat various inflammatory conditions, including atopic dermatitis, psoriasis and the associated pruritus. Nonclinical studies have demonstrated anti-inflammatory activity in several animal models. In August 2018, we reported results from afirst-in-human, exploratory study ofSNA-125 with a prototype gel formulation in 15 subjects with psoriasis, using a microplaque model. In this study treating a limited area for a short duration,SNA-125 was well tolerated and showed no safety signals.SNA-125 applied once daily for 10 days did not reduce the inflammatory skin infiltrate thickness from baseline. However, histological and biomarker analyses showed a modest, statistically significant reduction withSNA-125 (0.2%) in epidermal thickness (approximately 17% from baseline), as well as modulation of certain psoriasis-relevant biomarkers and gene expression profiles. In December 2018, we reported results from another exploratory study ofSNA-125 treating a limited area for a short duration with a prototype gel formulation in 30 subjects with atopic dermatitis, using a target lesion model.SNA-125 was well tolerated in this study as well and showed no safety signals. Similar, small reductions in clinical scores of target lesions were observed for bothSNA-125 and vehicle following once-daily application for 14 days. However, certain histological and biomarker changes indicated a modest drug effect withSNA-125. We intend to initiate a Phase 2 study with a more optimal cream formulation ofSNA-125 first in atopic dermatitis, subject to securing sufficient capital to complete the trial.

Our second technology platform, Topical Photoparticle Therapy^TM, utilizes silver particles applied to the skin to direct the light from commercially available lasers to the hair follicle or sebaceous gland to cause selective photothermolysis, a method of using light energy to produce heat in a specific tissue and facilitate local tissue injury.SNA-001, our lead product candidate from this platform, is a topical suspension of silver particles under development as apre-treatment to be used in conjunction with commercial lasers for the reduction of unwanted light-pigmented hair, including white, gray, blonde, light red and light brown hair, and for the treatment of acne. In the case of light or mixed pigmented hair, which cannot be removed adequately with lasers alone,SNA-001 targets the hair follicle. In the case of acne,SNA-001 targets one of the key structures implicated in the pathogenesis of acne, the sebaceous gland. In February 2019, we reportedtop-line results from three pivotal clinical trials for the reduction of light-pigmented hair and from the third and final pivotal clinical trial in acne. The data showedSNA-001 met the primary endpoint ofnon-inferiority in hair reduction. In additional analyses,SNA-001 in conjunction with an 810 nm Diode laser was statistically superior compared to vehicle+Laser, demonstrating up to a 32 percent reduction of light hair from baseline.SNA-001 in conjunction

with a 1064 Nd:YAG and 755 nm Alexandrite laser for the reduction of light hair also showed a significant reduction from baseline. These results, however, were less differentiated from the vehicle+Laser group compared to the 810 nm Diode laser study results. The third and final pivotal trial ofSNA-001 in acne demonstratedSNA-001 wasnon-inferior to laser therapy. In all of these trials,SNA-001 was well tolerated, with no unexpected, treatment-related adverse events (AEs) observed. These results provide a potential path to regulatory clearance forSNA-001, and we are seeking a strategic partner to maximize its value.

Prescription medical dermatology products represented an approximately $38 billion global market in 2017, which is projected to grow by more than 6% annually through 2028. Prescription drugs indicated for the treatment of psoriasis and atopic dermatitis represented an approximately $15 billion global market in 2016, with the psoriasis market forecast to grow by more than 9% annually through 2022 and the market for atopic dermatitis expected to grow by approximately 90% by 2025. Demand for treatments of dermatologic conditions is driven, in part, by the highly visible nature of skin disease and distressing symptoms the patient experiences, such as itch, burning or pain, all of which negatively impact quality of life. As new products are developed to address these unmet needs, we believe patients, physicians and payors will prefer the use of effective targeted treatments with minimal to no systemic exposure that are suitable for chronic use in the broader patient population. We design and develop our products with these criteria in mind, and believe they will play an important role in the treatment of various underserved skin conditions in the future.

The global market fornon-surgical aesthetic procedures was estimated at approximately $17 billion in 2016, and is characterized by the significant willingness of patients to pay out of pocket for aesthetic improvements. Our Topical Photoparticle Therapy^TM platform targets an aesthetic market opportunity in the reduction of unwanted light-pigmented hair in particular, and we believe our Topical Photoparticle Therapy^TM product candidateSNA-001, if cleared, will play an important role in the market fornon-surgical aesthetic procedures.

We have chosen to initially focus our development efforts on inflammatory skin disorders. In comparison to many other segments of the biopharmaceutical industry, we believe that product development and commercialization in medical dermatology can be relatively efficient in terms of time and cost. In many cases, clinical studies to evaluate efficacy and safety are conducted using well established endpoints and regulatory pathways that allow for comparatively modest sample sizes and shorter durations of therapy. Additionally, the prescribing base of dermatologists in the United States is relatively concentrated compared to other medical specialties. We believe a targeted, specialty sales and marketing organization focused on dermatologists will allow us to directly address these physicians and capture market share for our product candidates in North America. To realize the full commercial potential of our product candidates in certain geographic markets and sales channels, we will evaluate alternate commercialization strategies, including licensing andco-commercialization agreements with third parties. We believe that these industry dynamics provide an attractive backdrop to establish ourselves as a leader in product development and commercialization.

We have assembled a management team with extensive experience in product development, commercialization and other leadership roles at several leading biotechnology and pharmaceutical companies, including Kythera, Amgen, Allergan, Medicis and Celgene. In these roles, members of our senior management team were integrally involved in securing regulatory approval from the FDA for multiple new dermatology and aesthetic products, and establishing several leading global brands, including Botox, Juvederm, Kybella, Latisse, Dysport, Restylane, and Solodyn. We believe this collective experience and achievement provides us with significant and differentiated insight into scientific, regulatory and commercial aspects of drug development that can influence our overall success, as well as a broad network of relationships with leaders within the industry and medical community.

Our Strategy

Our strategy is to develop and commercialize a multi-asset pipeline of innovative and differentiated therapies that target autoimmune and inflammatory conditions and that we believe can be successful in the marketplace. The key components of our strategy are to:

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Leverage our proprietary technology platform to design and develop therapies that target select pathways in specific tissues, initially in inflammatory skin disorders. There is an untapped opportunity to bring innovative therapies to the80-90% of dermatology patients withmild-to-moderate inflammatory disease severity, for whom systemic therapies are inappropriate and existing topical therapies are marginally effective or unsuitable for chronic administration. We believe that our proprietary technology platform is positioned to yield multiple products for this large underserved population, as well as potentially in other therapeutic areas where approaches that target select pathways in specific tissues with minimal to no systemic exposure may provide clinical benefit. Importantly, by applying our platform technology to well understood biological targets and pathways with minimal to no systemic exposure, we may be able to reduce the risks associated with the development of novel, targeted topical therapies.

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Rapidly advance our existing product candidates through clinical development. Our lead product candidate,SNA-120, demonstrated statistically significant and clinically meaningful reductions in psoriasis, including the IGA2-grade composite, which has been the Phase 3 primary endpoint for recent topical psoriasis drugs approved by the FDA, as well as a meaningful reduction in the associated pruritus (approximately 57% from baseline, although the result did not reach statistical significance against vehicle), in a recent Phase 2b trial. Following an EOP2 meeting with the FDA scheduled in April 2019, we intend to initiate two Phase 3 pivotal clinical trials, subject to securing sufficient capital to complete both trials, in the second half of 2019. We reported results from two exploratory studies for our next product candidate,SNA-125, in August 2018 for psoriasis and in December 2018 for atopic dermatitis. In both studies,SNA-125 was well tolerated and showed no safety signals, and histological and biomarker analyses showed a modest drug effect with a prototype gel formulation. We intend to initiate a Phase 2 study with a more optimal cream formulation ofSNA-125 first in atopic dermatitis, subject to securing sufficient capital to complete the trial. We believe these highly differentiated topical therapies have the potential to address multi-billion dollar market opportunities across atopic dermatitis, psoriasis and the associated pruritus.

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Continue building a diversified multi-asset pipeline of novel therapies that target autoimmune and inflammatory conditions. Our objective is to build a well-balanced, multi-asset portfolio of targeted therapies, initially focusing on one of the most important ‘immune’ tissues, the skin, and with a strong focus on large patient populations with unmet needs. To achieve this, we intend to selectively pursue development of our current product candidatesSNA-120 andSNA-125 in additional indications where they could have meaningful impact while, over time, selecting additional clinical development candidates from our preclinical pipeline of NCEs based on our proprietary platform technology. We also intend to invest in our internal research efforts to bring forth new product candidates to address unmet needs in inflammation and immunology in which highly localized drug concentration with minimal to no systemic exposure could provide clinical benefit. Our internal research efforts are led by the scientific team that originally developed the platform technology. In addition to our internal discovery efforts, we may choose to selectivelyin-license or acquire complementary, external product candidates by leveraging the insights, network and experience of our management team.

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Maximize the global commercial potential of our product candidates.We retain worldwide commercial rights to all of our product candidates. If approved, we intend to commercialize our product candidates independently by establishing specialized field medical, sales and marketing organization in North America, initially focused on dermatologists. In certain sales channels and geographies, we will evaluate alternate strategies to maximize the potential value of our assets, such as licensing andco-commercialization agreements with third parties. For example, we would consider a

strategic partner forSNA-120 outside of North America. For our Topical Photoparticle Therapy™ platform andSNA-001 product candidate, we are seeking a strategic partner to maximize its value.

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Leverage the extensive experience of our management team in developing and commercializing multiple leading global brands. We have assembled a management team with extensive experience in product development, commercialization and other leadership roles at several leading biotechnology and pharmaceutical companies, including Kythera, Amgen, Allergan, Medicis and Celgene. Our Chief Executive Officer and Chief Medical Officer are physician scientists and practicing dermatologists whose close proximity to patients provides them with deep insight into the needs of patients as well as the changing treatment landscape. We have long-standing experience in the dermatology and research communities and strong relationships with opinion leaders, regulatory agencies, advocacy groups and medical practitioners. In addition, our team has established credibility from a track record of success working with regulators to attain approval of multiple products, many of which werefirst-in-class and required the development and validation of new endpoints and agreement on the development pathways. These experiences enable us to better understand unmet medical needs, design and execute efficient clinical trial programs, craft effective regulatory strategies and identify new development opportunities. Recent consolidation in the medical dermatology and aesthetics industry has created an opportunity for us to work closely with physicians to identify unmet needs and deliver innovative products to patients.

Our Pipeline

Our current product candidates derived from our two technology platforms that we believe will address significant unmet needs are summarized in Figure 1 below:

Figure 1. Our Pipeline

LOGO

Focus Area Research Pre-clinical Phase 1 Phase 2 Phase 3 Anticipated MilestonesThe Skin SNA-1201: TrkA Inhibitor (psoriasis and associated pruritus) SNA-1251: JAK3/TrkA Inhibitor (atopic dermatitis and associated pruritus) SNA-1251: JAK3/TrkA Inhibitor (psoriasis and associated pruritus) Initiate Phase 3 trial in 2H19Focus Area Research Pre-clinical Phase 1 Phase 2 Phase 3 Anticipated MilestonesThe GI Tract SNA-1251: JAK3/TrakA Inhibitor (Inflammatory bowel disease) Focus Area Research Pre-clinical Proof-of-Concept Pivotal Anticipated MilestonesOther SNA-0012 (unwanted light-pigmented hair reduction and acne-1064nm, 810 nm and 755nm) Seeking a Strategic Partner

1.	Regulated as a drug pursuant to a new drug application (NDA) regulatory pathway.

2.	Regulated as a Class II medical device under 510(k) marketing clearance pathway.

Proprietary Technology Platform

Our proprietary technology platform is designed to create potent targeted pharmacologically active molecules that are directed toward a specific target tissue and a select disease pathway to treat autoimmune and

inflammatory conditions while minimizing exposure to the systemic circulation. Applying this technology, we have created a pipeline of drug candidates with unique pharmacological profiles that are designed for highly localized drug concentration against known biologic targets and to be suitable for chronic administration. The principal innovation of the platform technology is the linkage of a short polymer to a pharmacologically active compound, typically a small molecule, through a bridging unit, resulting in an NCE, as illustrated in Figure 2 below.

Figure 2. Creation of New Chemical Entities with Our Proprietary Technology Platform

LOGO

The active compound is selected based on the target or pathway of interest. For example, one of our lead product candidates,SNA-125, targets JAK3, which is a validated target in atopic dermatitis and psoriasis. In a single chemical transformation, a short polymer is covalently linked to the small molecule through a bridging unit. Both the polymer, a short PEG tail, and the bridging unit define the pharmacology of the compound and refine its target selectivity. Furthermore, the polymer changes the physicochemical characteristics of the new molecule. This platform technology creates new molecules; it is not a drug-delivery system, nor does it create prodrugs. The drug candidates derived from the platform technology are necessarily amphiphilic, soluble in both aqueous and lipid environments. This enables sufficient permeation into the skin or other target tissues, where the drug effect is desired, and achievement of high local drug concentrations with low systemic absorption. To the extent there is any systemic absorption, in our nonclinical studies the drug candidates have demonstrated pharmacokinetics (PK) consistent with rapid clearance by the kidneys. In our clinical studies to date, we have not detected systemic bioavailability, except in our maximal use and PK safety study ofSNA-120 (0.5% w/w). In that study, the majority of subjects had no detectable levels (less than 0.5 ng/mL) ofSNA-120 in the plasma (66.7% of subjects on Day 1, 67.9% percent of subjects on Day 29). The levels detected in the remaining subjects (33.3% of subjects on Day 1, 32.1% of subjects on Day 29) were less than 2.5ng/mL (1nM). There was no accumulation ofSNA-120 in the plasma.

Clinically, the advantageous physicochemical properties resulting in high resident drug concentration in the target tissue and low systemic exposure may allow for concentrated, local treatment of autoimmune and inflammatory conditions by efficiently addressing validated targets while maintaining a favorable safety profile. Further, these drug candidates, if successfully developed and approved, may be eligible for regulatory exclusivity as NCEs. Our initial focus is the development of drug candidates for inflammatory skin disorders. However, we believe that our platform technology may also address other therapeutic needs in inflammation and immunology where highly localized drug concentration that avoids systemic exposure is desirable, such as gastrointestinal, ophthalmological, or respiratory conditions. To the extent we believe applications beyond inflammatory skin disorders are viable, we may explore alternatives to maximize the value of our technology platform.

Our lead product candidates developed through our technology platform areSNA-120 andSNA-125.

SNA-120

SNA-120 is designed to selectively inhibit TrkA, the high-affinity receptor for NGF, and is being developed for the treatment of psoriasis and the associated pruritus. There is a strong rationale and evidence in both the basic science and clinical literature, as well as in our own study data, for the involvement of nerves/neuropeptides, particularly NGF and TrkA, in the pathogenesis of psoriasis and associated pruritus. Increased local concentrations of NGF, acting via TrkA, play an important role in the neurogenic inflammation, keratinocyte hyperproliferation and pruritus associated with psoriasis.

In psoriatic skin, NGF expression is increased in the epidermis, and via engagement with TrkA leads to keratinocyte hyperproliferation. Nerve growth factor, released in increased amounts by proliferating keratinocytes, sensitizes and stimulates sprouting of skin nerve fibers,up-regulates their expression of sensory neuropeptides and receptors and leads to neurogenic inflammation. This is substantiated by several observations, such as symmetric distribution of psoriatic plaques, disease exacerbations during periods of stress, marked proliferation of terminal cutaneous nerves andup-regulation of neuropeptides in psoriatic plaques compared to normal skin. In psoriatic plaques that are itchy, there is even greater expression of both TrkA and NGF. Psoriatic skin in patients with pruritus is more richly innervated in the superficial dermis and in the epidermis compared to psoriatic skin in patients without pruritus. There are also significantly higher numbers ofNGF-immunoreactive keratinocytes and NGF contents in lesional skin, as well as increased expression of TrkA in the epidermis and dermal nerve fibers, in psoriatic patients with itchy psoriatic plaques compared to those without associated pruritus. Additionally, binding of NGF to TrkA induces TrkA autophosphorylation and leads to the activation of transient receptor potential cation channel subfamily V member 1 (TRPV1), resulting in the transmission of pain, burning and itch sensation to the central nervous system by peripheral sensory nerves. Furthermore, there is a significant correlation in psoriatic patients with pruritus between pruritus severity andNGF-immunoreactive keratinocytes, expression of TrkA in the epidermis and immunoreactive intraepidermal nerve fibers.

While the pathophysiology of psoriasis and associated pruritus is complex and involves the interplay of nerves/neurogenic inflammation, immune cells, cytokines and keratinocytes, NGF and TrkA have been clearly shown to play an important role in the pathogenesis of both psoriasis and associated chronic pruritus. In fact, pruritus may be a clinical biomarker forNGF-mediated psoriasis. These cumulative data from the literature and the clinic support the rationale that plaque psoriasis patients with at least moderate associated pruritus have the highest NGF and TrkA levels, an important neurogenic inflammatory component contributing to their disease, and are therefore ideally suited for a treatment targeting theNGF-TrkA pathway.

We believe thatSNA-120 has the potential to treat psoriasis, as well as the associated pruritus, while being suitable for chronic administration.SNA-120 has demonstrated statistically significant and clinically meaningful reductions in psoriasis in itchy patients, as well as a consistent reduction of pruritus from baseline, in two Phase 2b clinical trials.SNA-120 has been administered to more than 500 subjects for up to 12 weeks and has been well tolerated across all trials, with minimal to no demonstrated systemic bioavailability. Following an EOP2 meeting with the FDA scheduled for April 2019, we intend to initiate two Phase 3 pivotal clinical trials (n~300 per trial), subject to securing sufficient capital to complete both trials, in the second half of 2019.

Psoriasis Market and Prevalence of Associated Pruritus

Psoriasis vulgaris is a chronic inflammatory skin disease that affects approximately2-3% of the global population. Psoriasis is characterized by thickened plaques of inflamed, itchy, red skin covered with thick, silvery scales typically found at the elbows, knees, trunk and scalp. Patients are generally categorized as mild, moderate or severe, with approximately80-90% of patients having mild or moderate forms of the disease according to GlobalData. The disease ranges from a single, small, localized lesion in some patients to a severe generalized eruption with complete body coverage. It is a chronic, complex, multifactorial immune-mediated

disease that requires long-term treatment. According to Grand View Research, sales of drugs for the treatment of psoriasis globally were $11.3 billion in 2016 and expected to grow to $19.4 billion by 2022. Drug spend is driven largely by the recent introductions of new systemic biologic therapies, which can be highly effective in reducing the appearance of plaques, but are only prescribed for the roughly10-20% of the psoriasis population with more severe disease. The majority of patients use at least one topical therapy and pricing for these topicals is approximately$500-950 per 60g tube, which generally represents aone-month supply of a single therapy for mild disease.

Pruritus is a common and persistent symptom of many inflammatory skin diseases, including psoriasis, and is often described as one of the most distressing symptoms. In fact, the word “psoriasis” originates from the Greek wordpsora, which means “to itch.” Chronic pruritus poses specific problems and is a particularly relevant clinical and patient concern as resultant scratch can lead to the appearance of new plaques or the exacerbation of existing psoriatic plaques, a well described process known as the Koebner phenomenon. Additionally, pruritus may be a clinical biomarker forNGF-mediated psoriasis. A National Psoriasis Foundation study of 17,488 patients found that pruritus was experienced by 79% of patients, making it the second most commonly reported symptom, after scaling (94%). In a clinical study we conducted of 160 psoriatic patients, 97.4% of patients had pruritus and 68.7% had at least moderate pruritus at baseline.

Limitations of Current Therapies

The typical psoriasis patient has moderately itchy plaques covering less than 10% body surface area and is prescribed topical medication. The most common topicals are corticosteroids, Vitamin D derivatives, such as Dovonex, Vitamin A derivatives, such as Tazorac, and crude coal tar preparations. None of these topical therapies adequately treat the important and often neglected symptom of pruritus associated with psoriasis. Our research indicates that patients often seek relief from pruritus by using an array of topical products available over the counter, or OTC, and without prescription. However, OTC medications like antihistamines offer little relief for the pruritus associated with psoriasis.

Corticosteroids, as monotherapy or in combination with Vitamin D derivatives, are the most effective topicals for treating plaques and may modestly impact pruritus in some patients, but are limited to short-term use because of association with localized atrophy or thinning of the skin and the potential to systemically suppress the body’s ability to make normal amounts of endogenous corticosteroids.Non-steroidal topicals, such as Vitamin D derivatives, have moderate efficacy and can cause skin irritation with some patients reporting burning sensations associated with their use, potentially exacerbating itchy symptoms.

Ultraviolet (UV) light therapy is recommended for those patients who are not well managed with topical therapy and/or have more widespread and diffuse psoriatic plaque involvement. These treatments can be effective but require multiple visits to the doctor’s office each week and have been shown to increase patients’ risk of developing skin cancer. For patients with more severe psoriatic plaque involvement, those who do not respond to UV therapy or seeking more rapid onset of relief, systemic drugs may be prescribed. The most common oral treatments are the immunosuppressive drug methotrexate, cyclosporine, and the Vitamin A derivative acitretin. These treatments are associated with systemic side effects including liver toxicity, hypertension, renal impairment, and, in the case of acitretin, the risk of birth defects, and therefore require routine monitoring. More recently, the Phosphodiesterase type 4 (PDE4), inhibitor apremilast has been approved as a systemic therapy formoderate-to-severe psoriasis with good efficacy, however side effects including neutropenia and depression have been reported. Moreover, despite improvement in visible plaques, based on patient reports, these treatments may not be adequately effective in treating the pruritus associated with psoriasis. This is particularly relevant given that studies have found no correlation between visible psoriasis plaque severity and pruritus disease severity in patients.

For patients that have moderate psoriasis and do not respond to oral treatments or UV therapy, or for patients that have severe psoriasis, physicians prescribe injectable biologic treatments. A number of injectable or

intravenous biologic drugs have been approved over the years, including Enbrel, Humira, Remicade, Stelara, Cosentyx and Taltz. Many of these drugs are monoclonal antibodies, a type of complex protein molecule. Some of these drugs act by inhibitingTNF-alpha,IL-17 orIL-12/IL-23. While these injectable biologic drugs can have exceptional efficacy in reducing the appearance of plaques, they may have potentially life-threatening side effects resulting from infection or cancer, especially when used as a chronic treatment. Furthermore, these drugs are very expensive, costing tens of thousands of dollars annually, and as such are reserved for the severe patient populations or those patients with extensive body surface area coverage that do not respond to other treatments. Despite significant reductions in the visible plaques of patients on injectable biologic drugs, some patients still have persistent pruritus. Figure 3 below illustrates the current paradigm for the treatment of psoriasis.

Figure 3. Current Psoriasis Treatment Paradigm

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Psoriasis Limited Body Surface Area and/or Mild-to-Moderate DiseaseTopical Therapies Vitamin D analogs Calcineurin inhibitors Tazarotene Corticosteroids Over the counter monographed topicals, e.g., Coal Tar, Salicylic Acid Extensive Body Surface Area and/or Moderate-to-Severe DiseaseTopical Therapies Oral Systemic Therapies Includes methotrexate, acitretin, cyclosporine A, apremilastBiologic Therapies Anti TNF-alpha Adalimumab (Humira) Infliximab (Remicade) Etanercept (Enbrel)Anti IL-17A Secukinumab (Cosentyx) Ixekizumab (Taltz) Anti IL-17 Receptor Brodalumab (Siliq) Anti IL-I2/IL-23 Ustekinumab (Stelara)Phototherapy Includes NB-UVB and PUVA therapies

Our Solution:SNA-120

SNA-120 is our topical product candidate for the treatment of psoriasis and the associated pruritus. We are studyingSNA-120 inmild-to-moderate psoriasis patients with at least moderate pruritus. If approved,SNA-120 could be the first topical innovation to market in more than a decade and represent a global market opportunity in excess of $1 billion.SNA-120 is designed to address the biology of the psoriasis disease, including neurogenic inflammation and keratinocyte hyperproliferation, as well as the associated pruritus.

The target ofSNA-120 is TrkA, the high-affinity receptor for NGF. There is a strong rationale and evidence in both the basic science and clinical literature, as well as in our own study data, for the involvement of

nerves/neuropeptides, particularly NGF and TrkA, in the pathogenesis of psoriasis and associated pruritus. Increased local concentrations of NGF, acting via TrkA, play an important role in the neurogenic inflammation, keratinocyte hyperproliferation and pruritus associated with psoriasis.

In psoriatic skin, NGF expression is increased in the epidermis, and via engagement with TrkA leads to keratinocyte hyperproliferation. Nerve growth factor, released in increased amounts by proliferating keratinocytes, sensitizes and stimulates sprouting of skin nerve fibers,up-regulates their expression of sensory neuropeptides and receptors and leads to neurogenic inflammation. This is substantiated by several observations, such as symmetric distribution of psoriatic plaques, disease exacerbations during periods of stress, marked proliferation of terminal cutaneous nerves andup-regulation of neuropeptides in psoriatic plaques compared to normal skin. In psoriatic plaques that are itchy, there is even greater expression of both TrkA and NGF. Psoriatic skin in patients with pruritus is more richly innervated in the superficial dermis and in the epidermis compared to psoriatic skin in patients without pruritus. There are also significantly higher numbers ofNGF-immunoreactive keratinocytes and NGF contents in lesional skin, as well as increased expression of TrkA in the epidermis and dermal nerve fibers, in psoriatic patients with itchy psoriatic plaques compared to those without associated pruritus. Additionally, binding of NGF to TrkA induces TrkA autophosphorylation and leads to the activation of TRPV1, resulting in the transmission of pain, burning and itch sensation to the central nervous system by peripheral sensory nerves. Furthermore, there is a significant correlation in psoriatic patients with pruritus between pruritus severity andNGF-immunoreactive keratinocytes, expression of TrkA in the epidermis and immunoreactive intraepidermal nerve fibers.

We believe thatSNA-120 also has the potential to address the underlying pathophysiology of psoriatic lesion development in addition to its effect on the associated pruritus, while being suitable for chronic administration. Figure 4 below illustrates the pathophysiology of psoriasis and psoriatic pruritus and the mechanism of action ofSNA-120.

Figure 4. Pathophysiology of Psoriasis and Psoriatic Pruritus and the Mechanism of Action ofSNA-120

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SNA-120 Clinical Development

SNA-120 is being developed for the treatment ofmild-to-moderate psoriasis and the associated pruritus. We initiated a second Phase 2b clinical trial in October 2017 in order to expand our understanding ofSNA-120 in the treatment of psoriasis and the associated pruritus and to provide additional endpoint evaluation and validation, and reported results in December 2018. An investigational new drug application (IND) forSNA-120 was submitted to the FDA in July 2010 for evaluation in the treatment ofmild-to-moderate psoriasis by Creabilis, which remains the IND sponsor. To date, nine sponsor-initiated clinical trials and one investigator-initiated trial have been completed, five in Phase 1 and five in Phase 2.SNA-120 has been administered to more than 500 subjects for up to 12 weeks and has been well tolerated across all trials, with minimal to no demonstrated systemic bioavailability. Additionally,SNA-120 has demonstrated statistically significant and clinically meaningful reductions in psoriasis in itchy patients, as well as a consistent reduction of pruritus from baseline, in two Phase 2b clinical trials.

The key attributes ofSNA-120 observed in our development program to date are:

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Statistically significant and clinically meaningful reductions in psoriasis in itchy patients;

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Meaningful relief of chronic pruritus associated with psoriasis (approximately 60% reduction from baseline in two Phase 2b trials, as well as a maximal use PK and safety study); and

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Acceptable safety profile, having been well tolerated across all trials with minimal to no demonstrated systemic bioavailability, potentially enabling chronic use across a wide range of patients.

Clinical Development Plan

We reported results from a second Phase 2b clinical trial in December 2018. We conducted this Phase 2b trial in order to further inform the patient population, clinical endpoints, duration of treatment and dose for our anticipated Phase 3 pivotal clinical trials. In this Phase 2b trial we evaluatedSNA-120 efficacy, safety and tolerability in a refined target population, focusing on patients withmild-to-moderate psoriasis and at least

moderate pruritus, exploring two doses across multiple endpoints for 12 weeks, validating the use of the11-point itch Numeric Rating Scale(I-NRS) for measuring pruritus severity and capturing more extensive patient and clinician reported data on the impact of psoriasis and pruritus on patient HRQoL.

We have an EOP2 meeting with the FDA scheduled for April 2019 to further refine our clinical and nonclinical development plans forSNA-120. Following the EOP2 meeting, we may seek a special protocol assessment (SPA) for our Phase 3 protocols, and intend to initiate two Phase 3 pivotal clinical trials (n~300 per trial), subject to securing sufficient capital to complete both trials, in the second half of 2019. We are also conducting additional nonclinical chronic toxicity studies and additional manufacturing work, which we expect to complete prior to commencing our Phase 3 trials.

To gain approval ofSNA-120, we must submit nonclinical, clinical and chemistry data that adequately demonstrate the safety, purity, potency, efficacy and compliant manufacturing of the product in a NDA or other applicable regulatory filing. Nonclinical studies forSNA-120 required for NDA submission include safety pharmacology, pharmacokinetics/bioavailability and single/repeat-dose toxicity studies, including chronic studies of up to nine months duration, atwo-year dermal carcinogenicity study, genotoxicity, local tolerance and relevant reproductive toxicity testing.

We must also submit two adequate and well-controlled Phase 3 clinical trials, of similar design, with statistically significant results to demonstrate the safety and efficacy of the drug. As with all topical drug products, satisfactory data on dermal safety and maximal use conditions withSNA-120 must be provided.SNA-120 is an NCE; thus, data from a cardiovascular safety study to measure the effect of the drug on the QT interval, or evidence supporting a waiver for this study, must be provided.SNA-120 is intended for long-term intermittent use; therefore, data from a long-term safety study must be submitted.

Planned Phase 3 Trials

We have an EOP2 meeting with the FDA scheduled for April 2019 to further refine our clinical and nonclinical development plans forSNA-120. Following the EOP2 meeting, we may seek a SPA for our Phase 3 protocols, and intend to initiate two Phase 3 pivotal clinical trials (n~300 per trial) formild-to-moderate psoriasis and the associated pruritus, subject to securing sufficient capital to complete both trials, in the second half of 2019.

We currently plan to study subjects withmild-to-moderate psoriasis and at least moderate pruritus in these two trials, treating twice daily (BID) for at least 12 weeks withSNA-120 (0.05% w/w) or vehicle, similar to our recent Phase 2b trial. We currently expect the primary endpoint to be the IGA2-grade composite, as this has been the Phase 3 primary endpoint for recent topical psoriasis drugs approved by the FDA. Secondary endpoints would likely include theI-NRS, PASI 75 (proportion of subjects achieving a 75% reduction from baseline on the PASI) and others.

Recent Phase 2b Trial

We completed a multicenter, randomized, double-blind, vehicle-controlled, Phase 2b trial (StudySNA-120-201) to evaluate the efficacy, safety and tolerability ofSNA-120 in subjects withmild-to-moderate psoriasis vulgaris and at least moderate pruritus. The primary objectives of this study were to characterize the efficacy ofSNA-120 at two doses, 0.05% and 0.5% w/w, where w/w denotes the mass fraction, as compared to placebo when administered topically BID for 12 weeks (rather than 8 weeks as in the previously completed Creabilis Phase 2b trial, Study CT327-2003, described in more detail below) for the treatment of psoriasis and the associated pruritus. The 0.05% and 0.5% w/w doses were the low and high doses from Study CT327-2003.

Pruritus severity was assessed using the11-pointI-NRS where 10 corresponds to “worst itch imaginable” and 0 corresponds to “no itch.” Additionally, the patient-administered 100 mm itch VAS, a continuous scale with

100 mm corresponding to the “worst possible itch” and 0 mm corresponding to “no itch,” was assessed for concordance with theI-NRS. Psoriasis disease severity was measured using both the5-point IGA, from 0 (clear) to 4 (severe), as well as the PASI, which is a weighted sum of symptom scores for erythema, scaling and plaque thickness over different parts of the body. Scores for the PASI range from 0 (no disease) to 72 (maximal disease).

We enrolled 208 subjects that were over the age of 18 with stable,mild-to-moderate psoriasis affecting up to 10% body surface area and pruritus severity³5 on theI-NRS.Pre-specified efficacy measures included:

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Improvement of pruritus severity as measured byI-NRS (primary endpoint);

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Overall management of psoriasis as measured by IGA (key secondary endpoint); and

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Improvement of psoriasis severity as measured by PASI (key secondary endpoint).

Otherpre-specified measures included:

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Improvement of pruritus severity as measured by VAS; and

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Several new patient-reported outcome (PRO) measures that specifically assess:

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Psoriasis signs and symptoms, such as bleeding, burning, flaking and pain;

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Impacts of psoriasis on self-perceptions (including self-perceived bother, embarrassment, self-consciousness, and attractiveness);

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Impact of psoriasis and pruritus on patient HRQoL; and

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Impact of pruritus on sleep.

Subjects treated withSNA-120 (0.05% w/w) achieved statistical significance compared to vehicle control on importantpre-specified endpoints of psoriasis disease severity, and the efficacy on these endpoints improved throughout the trial, whereas vehicle effect plateaued beyond Week 8. The proportion of subjects that achieved success on the IGA2-grade composite at Week 12 was 29%, compared to 13% with vehicle (p=0.036). Additionally, 27% of subjects achieved success on PASI 75 at Week 12, compared to 13% with vehicle (p=0.045). These similar results on two stringent endpoints that are measured in different ways give us confidence in the robustness of the data. Subjects treated withSNA-120 also experienced a meaningful reduction in pruritus, a mean4.2-point (57%) reduction from baseline on theI-NRS at Week 8 (p<0.001), although the result did not reach statistical significance against vehicle (p=0.362), which showed a mean3.9-point (55%) reduction. Figures 5 and 6 below set forth the proportion of subjects achieving success on the IGA2-grade composite and PASI 75, respectively, in allSNA-120 treatment groups in StudySNA-120-201. Figure 7 below sets forth the mean reductions from baselineI-NRS in allSNA-120 treatment groups in StudySNA-120-201.

The 0.5% dose was not as effective as the 0.05% dose and not differentiated from vehicle. The proportion of subjects treated withSNA-120 (0.5% w/w) that achieved success on the IGA2-grade composite at Week 12 was 5% (not statistically significant), with 10% of subjects achieving success on PASI 75 at Week 12 (not statistically significant). Additionally, subjects experienced a mean3.6-point (48%) reduction from baseline on theI-NRS at Week 8 (not statistically significant compared to vehicle).

For purposes of the presentation of the statistical results, ap-value is a measure of statistical significance of the observed results, or the probability that the observed results was achieved purely by chance. By convention, ap-value of 0.05 or lower is commonly considered statistically significant (e.g., ap-value of£0.05 means that there is a 5% chance that the observed result was purely due to chance). The FDA utilizes the reported statistical measures when evaluating the results of a clinical trial, including statistical significance as measured byp-value as an evidentiary standard of efficacy, to evaluate the reported evidence of a drug product’s safety and efficacy.

Figure 5. Impact ofSNA-120 on Psoriasis IGA2-Grade Composite Compared to Vehicle in StudySNA-120-201 (N=208)

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1.	SEM = Standard Error of the Mean

Figure 6. Impact ofSNA-120 on Psoriasis PASI 75 Compared to Vehicle in StudySNA-120-201 (N=208)

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Figure 7. Impact ofSNA-120 on PruritusI-NRS Compared to Vehicle in StudySNA-120-201 (N=208)

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Study SNA-120-201 Primary EndpointTreatment Group SNA-120(0.05%) VehicleI-NRS at Baseline (mean) 7.3 7.4I-NRS Change at Week 8 (SD1)-4.3 (2.4) -4.0 (2.6)

1.	SD = Standard Deviation

The proportion of subjects treated withSNA-120 (0.05% w/w) that achieved a 50% reduction from baseline in PASI (PASI 50) at Week 12 was 54%, compared to 37% with vehicle (p=0.057). Efficacy improved throughout the trial, and the vehicle effect plateaued beyond Week 8. Additionally, 16% of subjects treated withSNA-120 achieved PASI 50 at Week 1, and 30% achieved PASI 50 at Week 2, which we believe suggests a meaningful benefit without the use of steroids. Overall, the vehicle effect on this endpoint was greater than on the more stringent PASI 75, but this is not surprising for a topical, as a more stringent endpoint is better able to distinguish the benefit of the active drug from the emollient effect of the vehicle. Figure 8 below sets forth the proportion of subjects achieving success on PASI 50 inSNA-120 (0.05% w/w) compared to vehicle in StudySNA-120-201.

Figure 8. Impact ofSNA-120 (0.05% w/w) on Psoriasis PASI 50 Compared to Vehicle in StudySNA-120-201 (N=208)

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Figure 9 below sets forth the proportion of subjects achieving success on PASI 50 withSNA-120 (0.05% w/w) compared to vehicle in 108 subjects reporting at least moderate pruritus (VAS³40 mm) at baseline in the previously completed Study CT327-2003 alongside StudySNA-120-201. These results are consistent to Week 8, withSNA-120 (0.05% w/w) demonstrating continued improvement to Week 12 and greater overall improvement in StudySNA-120-201.

Figure 9. Impact ofSNA-120 (0.05% w/w) on Psoriasis PASI 50 Compared to Vehicle in Study CT327-2003 Subgroup with Baseline Pruritus VAS³40 mm (N=108) alongside StudySNA-120-201 (N=208)

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Figure 10 below sets forth the mean reductions from baseline pruritus on the VAS withSNA-120 (0.05% w/w) compared to vehicle in the Study CT327-2003 subgroup with baseline VAS³40 mm alongside StudySNA-120-201. These results are consistent to Week 8, withSNA-120 (0.05% w/w) demonstrating continued improvement to Week 12 and greater overall improvement in StudySNA-120-201. Subjects treated withSNA-120 experienced a meaningful reduction in pruritus, a mean 41 mm (52%) reduction from baseline on the VAS at Week 8 (p<0.001) in StudySNA-120-201, although the result did not reach statistical significance against vehicle (p=0.526), which showed a mean 42 mm (55%) reduction. Additionally, the overall VAS results withSNA-120 (0.05% w/w) correlate with theI-NRS results, as expected.

The overall vehicle effect in pruritus observed in StudySNA-120-201 compared to Study CT327-2003 was notably different. We believe that this is due primarily to an exaggerated placebo effect. According to the literature, pruritus can be particularly sensitive to a placebo effect. In fact, subjects expect topical treatments to work better on pruritus than oral systemic or even injectable therapies. Additionally, pruritus was a focus as well as the primary endpoint in StudySNA-120-201, and was assessed daily. In Study CT327-2003, pruritus was one of several secondary endpoints and assessed during office visits at Weeks 2, 4, 8 and 12. Moreover, theSNA-120 vehicle, which was the same in both Phase 2b trials, provides a real emollient effect. According to the literature, expectations combined with conditioning can result in both psychological processes and biological mechanisms, and we believe subjects in StudySNA-120-201 experienced a notable placebo effect, which when added to the vehicle emollient effect yielded the higher overall vehicle effect in pruritus.

In our Phase 3 trials, pruritus will be an important secondary endpoint, but not the basis for FDA approval. To maximize our ability to show significance compared to vehicle and add pruritus data to a potential FDA label, we modified our Phase 3 trial design to limit expectation setting around pruritus in subjects and reduce the resulting placebo effect. For example, we would likely assess pruritus as one of several secondary endpoints during periodic office visits, similar to Study CT327-2003.

Figure 10. Impact ofSNA-120 (0.05% w/w) on Pruritus VAS Compared to Vehicle in Study CT327-2003 Subgroup with Baseline Pruritus VAS³40 mm (N=108) alongside StudySNA-120-201 (N=208)

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The better performance of the lower dose compared to the higher dose in this trial was not unexpected. We observed this in Study CT327-2003 as well, and believed that our selected dose range was likely at or beyond the top of the dose-response curve. We also saw the lower dose outperform the higher dose in our preclinical and exploratory Phase 1/2 studies withSNA-125. In fact, there are a number of kinase inhibitors, such as Pfizer’s tofacitinib, Asana’s ASN002 and AbbVie’s upadacitinib, that have bell-shaped dose-response curves, that is, demonstrated efficacy that increases with dose to a certain point and then decreasing efficacy beyond that point.

In this trial,SNA-120 was well tolerated with no serious treatment-related AEs. Specifically, we observed the following:

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Treatment-related AEs were observed in only two subjects and included dermatitis (0.5% group) and pain and pruritus (vehicle group);

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Most common AEs (³ 2 subjects) in any group were nasopharyngitis, nausea, diarrhea, cellulitis and urinary tract infection;

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Majority of treatment-emergent AEs (TEAEs) were mild to moderate;

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There were six serious AEs in three subjects, but none were considered drug related; and

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Minimal to no systemic bioavailability in plasma levels; only 1 subject had a detectable level of 0.652ng/ml (subnanomolar) at Week 2.

Figure 11 below sets forth the incidence and types of AEs experienced by subjects in StudySNA-120-201.

Figure 11. StudySNA-120-201 Adverse Events (Incidence³ 2 Subjects), Number (%) of Subjects


Adverse Event	SNA-120 0.05% N=70	SNA-120 0.5% N=69	Vehicle N=69
Total TEAEs	26 (37.1)	35 (50.7)	22 (31.9)
Diarrhoea	3 (4.3)	3 (4.3)	2 (2.9)
Nasopharyngitis	2 (2.9)	3 (4.3)	3 (4.3)
Urinary tract infection	2 (2.9)	4 (5.8)	1 (1.4)
Haematuria	1 (1.4)	3 (4.3)	1 (1.4)
Cough	1 (1.4)	0	3 (4.3)
Proteinuria	0	3 (4.3)	1 (1.4)
Application site pruritus	0	2 (2.9)	1 (1.4)
Bronchitis	1 (1.4)	2 (2.9)	0
Nausea	3 (4.3)	0	0
Headache	2 (2.9)	1 (1.4)	0
Hypertension	1 (1.4)	2 (2.9)	0
Upper respiratory tract infection	1 (1.4)	2 (2.9)	0
Arthralgia	0	2 (2.9)	0
Cellulitis	0	2 (2.9)	0
Foot fracture	0	2 (2.9)	0

Creabilis Phase 2b Trial

SNA-120 was evaluated in a multicenter, randomized, double-blind, placebo-controlled Phase 2b clinical trial (Study CT327-2003) in 160 subjects that were 18 years of age and older with stable,mild-to-severe psoriasis affecting up to 10% body surface area. The primary efficacy objective of this trial was to characterize the efficacy ofSNA-120 at three doses (0.05%, 0.1% and 0.5% w/w) as compared to placebo when administered topically BID for eight weeks for the treatment of psoriasis. There were threepre-specified efficacy measures:

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Overall management of psoriasis as measured by IGA (primary endpoint);

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Improvement of psoriasis severity as measured by mPASI (secondary endpoint); and

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Improvement in the psoriatic pruritus subpopulation as measured by VAS (secondary endpoint)

No significant improvements in disease response rates were observed forSNA-120 as measured by IGA. However, after eight weeks,SNA-120 treatment groups achieved a mean reduction in disease severity as measured by mPASI between 37.1% and 42.8%, with one dose (0.05% w/w) reaching statistical significance (p=0.0180) as compared to vehicle control.

Thepre-specified pruritus secondary endpoint, specifically, the change from baseline in pruritus VAS score in subjects with at least moderate psoriasis-related pruritus at baseline, was included in Study CT327-2003 due to the understood role of theNGF-TrkA-TRPV1 axis in signaling pruritus through sensory nerves. Additionally, we believed that inclusion of this endpoint was important based on increasing evidence that the incidence and severity of chronic pruritus was substantially under-reported in psoriasis.

In the108-subject subset, or 70.6 % of the full study population, reporting at least moderate pruritus (VAS³40 mm) at baseline, a reduction in pruritus VAS was observed for allSNA-120 treatment groups, with statistical significance compared to vehicle reached for the 0.05% (p=0.0067) and 0.5% (p=0.0124) dose groups at Week 8 (secondary endpoint). The mean changes in baseline VAS for the 0.05%, 0.1% and 0.5% doses at Week 8 were-37.1mm,-31.5 mm, and-36.4 mm, respectively, compared with vehicle at-16.1 mm. Figure 12 below sets forth the mean reductions from baseline VAS in allSNA-120 treatment groups in Study CT327-2003.

Figure 12. Impact ofSNA-120 on Pruritus VAS Compared to Vehicle in Subgroup with Baseline Pruritus VAS³40 mm (N=108)

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Study CT327-2003 also resulted in the following findings:

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SNA-120 treated subjects with at least moderate baseline pruritus experienced43-59% reduction in pruritus severity from baseline to Week 8;

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62-69% ofSNA-120 treated subjects in the itchy population had mild or no pruritus by end of treatment as measured by VAS compared with 41% of subjects treated with vehicle; and

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46-62% ofSNA-120 treated subjects had at least a 50% reduction in VAS from baseline at Week 8 compared to 32% of subjects on vehicle.

Post-Hoc Analysis of Psoriasis Disease Severity in Study CT327-2003

We also conducted apost-hoc analysis of psoriasis disease severity among subjects reporting at least moderate pruritus (VAS³40 mm) at baseline. This analysis revealed that at Week 8 allSNA-120 treatment groups experienced greater mean reductions in total mPASI scores than the vehicle group. Statistical significance was reached for the 0.05% (p<0.001) and 0.5% (p<0.02) dose groups. Subjects treated withSNA-120 experienced about a 40% reduction in baseline disease severity, as measured by mPASI, compared to a 17% reduction for vehicle treated subjects. In conjunction with the effect on pruritus in this population, we believe these data suggest thatSNA-120 improves both pruritus and the underlying psoriasis. Improvement in psoriasis may reflect the anti-proliferative effects of TrkA inhibition bySNA-120 on neurogenic inflammation and keratinocyte proliferation. It also may be a consequence of inhibiting pruritus, by blocking ofNGF-TrkA-TRPV1 signaling in sensory neurons, and breaking the “itch-scratch” cycle. Figure 13 below sets forth the mean reductions from baseline mPASI total score in allSNA-120 treatment groups in Study CT327-2003.

Figure 13. Impact ofSNA-120 on mPASI Total Score Compared to Vehicle in Subgroup with Baseline Pruritus VAS³40 mm (N=108)

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To explore a potential dose range, the doses selected for Study CT327-2003 of 0.5% and 0.05% w/w were above and below the dose studied in a previously completed Phase 2a trial (0.1% w/w). Study CT327-2003 was not powered to detect differences in doses, and the results demonstrated no significant difference in efficacy between the three doses in assessments of either psoriasis disease severity or pruritus severity. However, the lowest dose (0.05% w/w) appeared similar to or more effective than the highest dose (0.5% w/w).

These findings were consistent with our selected dose range being at or beyond the top of the dose-response curve. Nonclinical work undertaken in parallel with the trial provided some rationale for this conclusion. At the lowest concentration of 0.05%,SNA-120 reached levels in the skin that elicited greater than 90% inhibition of the target kinase.

In this trial,SNA-120 exhibited an acceptable safety profile. Specifically, we observed the following:

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Low incidence of AEs, which were characterized as mostly mild or moderate;

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NoSNA-120 was detected in blood samples down to a detection limit of 2.5ng/ml; and

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No drug-related application site AEs were observed.

In the safety population of 160 subjects, 73 experienced TEAEs. TEAEs occurred in33-55% of subjects in theSNA-120 group and 53% of subjects in the vehicle group. The most frequently reported AEs were pruritus, headache, nasopharyngitis and diarrhea. Figure 14 below sets forth the incidence and types of adverse events experienced by subjects in Study CT327-2003.

Figure 14. Study CT327-2003 Adverse Events (Incidence³ 5%), Number (%) of Subjects


Adverse Event	SNA-120 0.05% N=40	SNA-120 0.1% N=40	SNA-120 0.5% N=40	SNA-120 Overall N=120	Vehicle N=40
Total TEAEs^a	13 (33)	17 (43)	22 (55)	52 (43)	21 (53)
Nasopharyngitis	1 (3)	0	3 (8)	4 (3)	1 (3)
Headache	2 (5)	2 (5)	1 (3)	5 (4)	0
Diarrhea	0	1 (3)	2 (5)	3 (3)	1 (3)
Psoriasis	0	0	2 (5)	2 (2)	1 (3)
URTI	0	0	0	0	2 (5)
Pruritus	4 (10)	2 (5)	3 (8)	9 (7.5)	6 (15)
Back pain	0	2 (5)	0	2 (2)	0
Fatigue	2 (5)	0	0	2 (2)	0
Cough	2 (5)	0	0	2 (2)	0

^a	Counting is by subject, not event.

Pruritus was reported as an AE in nine(7.5%) SNA-120 subjects and six (15%) vehicle subjects. Five (12.5%) study subjects withdrew due to this AE in the vehicle arm as compared to the withdrawal of three (2.5%) subjects in theSNA-120 arm. There were no drug-related serious AEs (SAEs).

Maximal use pharmacokinetics and safety study

SNA-120 was evaluated in a multicenter, open-label Phase 1b maximal use PK and safety study in 30 subjects 18 years of age and older withmoderate-to-severe psoriasis covering 20% or more body surface area and at least moderate pruritus.SNA-120 (0.5% w/w) was administered topically BID for four weeks.

The majority of subjects had no detectable levels (less than 0.5 ng/mL) ofSNA-120 in the plasma (66.7% of subjects on Day 1, 67.9% percent of subjects on Day 29). The levels detected in the remaining subjects (33.3% of subjects on Day 1, 32.1% of subjects on Day 29) were less than 2.5ng/mL (1nM). There was no accumulation ofSNA-120 in the plasma. Additionally, there were no associated clinically relevant changes in overall safety parameters (e.g., laboratory assessments, vital signs and electrocardiograms [QTc duration]). A total of nine subjects reported 12 AEs, only one of which was deemed related to the study drug and which was categorized as mild pruritus. There were no dermal tolerability issues, no subject discontinuations due to an AE and no severe AEs or serious AEs (SAEs).

These findings, observed with topical administration of the high dose ofSNA-120 in amaximal-use context to subjects with an average body surface area of approximately 30%, further validate theminimal-to-no systemic exposure proposition ofSNA-120 and our proprietary technology platform.

Summary of safety profile forSNA-120

SNA-120 has been administered to more than 500 subjects (36 healthy subjects and 482 patients) in nine sponsor-initiated and one investigator-initiated Phase 1 and Phase 2 studies for up to 12 weeks BID at concentrations up to 0.5% w/w and has been well tolerated across all trials, with minimal to no demonstrated systemic bioavailability.

The most common AEs reported across the nine sponsor-initiated clinical studies conducted to date were pruritus, eczema, headache, nasopharyngitis, nausea, diarrhea, cellulitis, urinary tract infection, upper respiratory tract infection, haematuria, bronchitis and hypertension. Reported AEs were mostly mild to moderate in severity. The frequency of events does not appear to be dose dependent.

AEs related toSNA-120 that occurred more than once across all subjects exposed to the study drug included application site pruritus, application site pain and application site dermatitis. These AEs were reported in <1% of subjects (five subjects in total) and were considered not to be severe.

Human plasma from over 500 patients treated withSNA-120 has been analyzed for concentrations ofSNA-120, its putative metabolite (the amide ofSNA-120) and K252a, the unconjugated parent compound ofSNA-120. None of the samples analyzed have been found to have plasma levels above the lower level of quantification forSNA-120, amide ofSNA-120 or K252a, following single and multiple administrations. These clinical data are generally consistent with nonclinicalin vivo experiments detecting very limited levels ofSNA-120 or its derivatives in plasma following epicutaneous administration.SNA-120 is rapidly cleared following intravenous delivery. The PK profile reveals a volume of distribution similar to blood volume, meaning once in the blood it does not appear to be distributed out of the blood and into tissues readily. Because the drug remains in the systemic circulation once there, and its molecular size is below the threshold limit for glomerular filtration, it is rapidly cleared by the renal system. Taken together, this evidence supports our belief that drug candidates produced from our proprietary technology platform demonstrate low systemic exposure.

Other Planned Studies

We intend to conduct additional studies to support the clinical development and regulatory submission package. In addition to two Phase 3 pivotal trials to demonstrate safety and efficacy, these studies may include dermal safety studies, a drug-drug interaction study, a concomitant use study with a topical reference drug, studies in the pediatric population, a thorough QT study and a long-term safety study.

Market Opportunity forSNA-120

We anticipate thatSNA-120, if approved, would be marketed to dermatologists with a strong focus on medical conditions. In the United States, there are approximately 7.5 million psoriasis patients, of which approximately 80% have pruritus. Of particular focus forSNA-120 are the majority of patients who seek chronic management of the signs and symptoms of disease while avoiding the use of corticosteroids or systemic therapy.

We have not yet conducted anyhead-to-head clinical studies ofSNA-120 compared to othernon-steroidal topical drugs intended for chronic use, such as Vitamin D analogues, but in clinical trials to date we have seenSNA-120’s improvement of psoriasis disease severity at a level consistent with or beyond that seen in third-party studies of those othernon-steroidal topicals. In fact, in our recent Phase 2b trial,SNA-120 demonstrated improvement of psoriasis disease severity at a level consistent with or beyond that seen in third-party studies ofmid-potency corticosteroids. We have also observed a consistent approximately 60% improvement in pruritus from baseline in clinical trials to date. Reduced itching is a primary benefit sought by psoriatic patients, on par with reduced flaking and scaling, when considering new treatments according to a FDA patient panel. Based on these factors, we believe that physicians could prescribeSNA-120 as a first-line treatment for psoriasis, thereby helping patients avoid the use of topical corticosteroids.

If approved, we expectSNA-120 to be priced in line with branded topical medications for psoriasis including Taclonex, Dovonex and Tazorac. Branded topical pricing is well established, and payors are supportive of cost-effective therapies that can address patient needs without having to resort to expensive biologics.

Over time, there could be an opportunity to expand the addressable opportunity forSNA-120 by broadening the label to other indications in which NGF is thought to play a role, such as prurigo nodularis, and/or other populations. Other opportunities could include developing additional formulations for specific areas such as the scalp. Finally, we could expand the opportunity through a sales force targeting physicians beyond dermatology, such as primary care, likely through partnerships.

SNA-125

Our second lead product candidate derived from our proprietary technology platform isSNA-125. It is a dual kinase inhibitor (JAK3/TrkA) in clinical development for the treatment of atopic dermatitis, psoriasis, and the associated pruritus.SNA-125 represents a novel approach to the treatment of inflammatory skin diseases and the associated pruritus through a validated pathway, JAK3, that is well understood in this disease setting.SNA-125 also inhibits TrkA at a higher level of potency thanSNA-120. JAK3 is required for immune cell development, and published literature supports that inhibition of JAK3 blocks the signaling of key cytokines, such asIL-2,IL-4,IL-15 andIL-21, in T cells and NK cells, and results in a reduction in the severity of autoimmune and inflammatory diseases in which those cytokines play a pivotal role. In anin vitro profiling study on human cells,SNA-125 was observed to decrease the release of keypro-inflammatory cytokines such as IL17A,IL-17F andIL-2, as well asTNF-a. In a nonclinical study, we have observed anti-inflammatory effects ofSNA-125 consistent with inhibition of JAK3, including the reduction of immune cell infiltration in a rabbit scar model. Additionally, in exploratory Phase 1/2 studies withSNA-125 treating a limited area for a short duration using a prototype gel formulation, histological and biomarker analyses showed a modest drug effect in both atopic dermatitis and psoriasis. Figure 15 below shows the JAK3 signaling pathway and the point ofSNA-125 inhibitory action.

Figure 15. Inhibitory Action ofSNA-125 on JAK3 Pathway

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There is clinical evidence to support the role of topical JAK3 inhibitors, such as tofacitinib, for the treatment of atopic dermatitis and/or psoriasis. In a randomized, double-blind, prospective, vehicle-controlled Phase 2 study of 69 subjects with atopic dermatitis conducted by Pfizer, topical tofacitinib demonstrated clinical efficacy with patients experiencing a mean 82% reduction in their Eczema Area Severity Index total score, compared with a 30% decrease in vehicle-treated controls after 4 weeks treatment. In a randomized, double-blind, prospective, vehicle-controlled Phase 2b trial of 435 subjects withmild-to-moderate plaque psoriasis, topical tofacitinib (2%, BID) demonstrated significant efficacy compared with control treatment whereby 22.5% of subjects achieved clear or almost clear and³2 grade improvement on the Calculated Physician’s Global Assessment at week 8. The

study also demonstrated rapid and significant improvement in pruritus severity for tofacitinib compared with control. The clinical benefit of JAK inhibition, combined with the higher potency ofSNA-125 on TrkA, may confer a greater effect on psoriasis disease endpoints in addition to pruritus and result in an improved profile in this indication. We believe the potential systemic safety issues that limit the use of tofacitinib and other JAK inhibitor compounds in topical administration, can be overcome withSNA-125 through our platform technology that confers low systemic exposure. As a result, we believeSNA-125 has the potential to provide substantial improvements over currently approved topical therapies for atopic dermatitis, psoriasis and the associated pruritus, including improved efficacy, by targeting both conventional and neurogenic inflammatory pathways, targeting pruritus, and providing better local tolerability and minimal to no systemic exposure. Further, because of the minimal to no systemic exposure, we believe thatSNA-125 has the potential to be better suited for chronic administration than other topical JAK3 inhibitors, such as topical tofacitinib.

Overview of atopic dermatitis

Atopic dermatitis is an inflammatory skin disease involving an abnormal skin barrier and disruption in the skin’s ability to insulate the body from exposure to external stimuli. It is a disease of unknown origin that usually starts in early infancy and is typified by pruritus, eczematous lesions, xerosis (dry skin), and lichenification of the skin (thickening of the skin and increase in skin markings). Atopic dermatitis is also referred to as eczema and atopic eczema. Atopic dermatitis is associated with other atopic diseases, for example, asthma, allergic rhinitis, urticaria, acute allergic reactions to foods and increased immunoglobulin E production, in many patients. The American Academy of Dermatology estimates that up to 25% of children suffer from atopic dermatitis. Safety concerns with steroids are very high in this population and parents of affected children are highly focused on minimizing short- and long-term side effects from steroid use. Generally, the disease burden of atopic dermatitis decreases as patients age, leaving2-3% of adults suffering from atopic dermatitis. According to the National Eczema Association, as of 2017, the prevalence of atopic dermatitis is estimated at 28 million in the United States. Approximately 85% of atopic dermatitis patients havemild-to-moderate disease according to Datamonitor Healthcare.

There is an unmet need for new therapies for atopic dermatitis, as there are few safe and effectivenon-steroidal options suitable for chronic use. Topical corticosteroids are the predominant therapies used formild-to-moderate atopic dermatitis, which is also treated with other topical immunomodulators such as calcineurin inhibitors. The treatment paradigm begins with education on proper skin care including the use of mild soaps and moisturizing lotions (emollients) and the elimination of any potential allergen triggers. Topical steroids are used next, and research indicates that these work well for a large proportion of atopic dermatitis patients; however, current topical medications have local and systemic safety risks. Side effects associated with topical corticosteroid use include local application-site reactions, such as atrophy or thinning of the skin. Because of the abnormal skin barrier and systemic absorption of steroids, there are concomitant systemic side effect risks such as diabetes, weight gain, hirsutism and the potential to systemically suppress the body’s ability to make normal amounts of endogenous corticosteroids, which can lead to reduced or delayed growth in adolescents. Chronic inadvertent exposure of the eye to topical steroids may also result in glaucoma or cataracts.Non-steroidal topical therapies used in the treatment of atopic dermatitis include the topical calcineurin inhibitors Elidel and Protopic, but these have boxed warnings for side effects that limit their use.

Patients who do not achieve sustained alleviation of symptoms with topical treatments are prescribed systemic steroids or other systemic immunosuppressive agents such as cyclosporine, a calcineurin inhibitor. While these are effective as temporary treatments offlare-ups, extended use has been associated with many potential side effects or adverse events. In fact, it is generally recommended that patients have no more than two rounds of systemic steroid treatment per year. Prednisone is an option; however, its long-term side effects make it unsuitable for chronic use and following discontinuation severe exacerbations of atopic dermatitis symptoms can occur. Cyclosporine is also not suitable for long-term use as it has been associated with renal toxicity, hirsutism, nausea, and lymphoma, and patients must discontinue use after one year. Furthermore, cyclosporine may not be used in patients with high blood pressure due to an increased risk of hypertension, which precludes its

use in a large proportion of older patients. With a lack of safe and effective options, many patients withmoderate-to-severe atopic dermatitis have serious, life-long consequences. Scarring may occur, and there is an elevated risk of depression and suicide.

In March 2017, the FDA approved Dupixent (dupilumab), anIL-4R antagonist biologic for the treatment ofmoderate-to-severe atopic dermatitis. Just as with psoriasis, Dupixent and other biologics in development have the potential to improve the treatment of atopic dermatitis for the more severe population, but we believe the safety profile of these drugs will limit their use in the larger population withmild-to-moderate disease and in children and adolescents. In December 2016, the FDA approved Eucrisa (crisaborole) as a topical treatment formild-to-moderate atopic dermatitis. Eucrisa is a PDE4 inhibitor and acts onTNF-alpha,IFN-gamma,IL-12,IL-23 and other cytokines. It was studied in multiple clinical trials in atopic dermatitis and demonstrated adequate efficacy and a favorable safety profile. According to Datamonitor Healthcare, the global market for prescription atopic dermatitis drugs is expected to grow by approximately 90% by 2025 from its 2016 level of $4.0 billion.

Market Opportunity forSNA-125

We believeSNA-125 has the potential to be suitable for the chronic topical treatment of atopic dermatitis due to its dual mechanism of action (JAK3/TrkA) and the expectation of low systemic exposure seen in clinical studies to date utilizing our platform technology. If approved for atopic dermatitis with a profile on par with Eucrisa, we believe there is a significant market opportunity forSNA-125. IfSNA-125 is able to demonstrate better efficacy than Eucrisa while maintaining a strong safety profile, we estimate thatSNA-125 could capture a significantly larger share than Eucrisa, exceeding the current market expectations for that drug.

We also believeSNA-125 has the potential to be suitable for the chronic topical treatment of psoriasis and the associated pruritus. IfSNA-125 is approved with an indication in psoriasis, we believe that many physicians may prescribeSNA-125 as a first-line treatment formild-to-moderate psoriasis patients, andSNA-125 may achieve higher market penetration thanSNA-120, if both are approved.

If approved, we anticipate thatSNA-125 is likely to be priced in line with other branded topical medications like Eucrisa for atopic dermatitis. Branded topical pricing is well established, and payors are supportive of cost-effective therapies that can address patient needs without having to resort to expensive biologics.

Clinical Development

We initiated ourfirst-in-human studies in atopic dermatitis and psoriasis outside the United States pursuant to Clinical Trial Applications in Canada and Germany. Subsequently, we intend to file an IND forSNA-125 to support the first U.S. clinical study.

For our exploratory Phase 1/2 study in atopic dermatitis, we utilized the bilateral lesion assay, a randomized, double-blind, intra-individual comparison, in 30 subjects with atopic dermatitis to assess a high dose (2% w/w) and a low dose (0.2% w/w) ofSNA-125 prototype gel formulation compared to vehicle control and an active control. Subjects were treated in the clinic, with each treatment administered topically once daily for 14 days. In this study,SNA-125 was well tolerated and showed no safety signals in both healthy subjects and patients with atopic dermatitis, with no serious AEs reported. The most common treatment-related AEs were pain and pruritus. Similar small reductions in clinical scores of target lesions were observed for bothSNA-125 and vehicle; however, certain histological and biomarker changes indicated a modest drug effect withSNA-125.

In our exploratory Phase 1/2 psoriasis study, we used the modified microplaque assay model, a randomized, double-blind, intra-individual comparison, in 15 subjects with psoriasis to gain early clinical insight into the safety, tolerability and efficacy ofSNA-125 prototype gel formulation (2% and 0.2% w/w) compared to vehicle control and an active control. Subjects were treated in the clinic, with each treatment administered topically once

daily for 10 days. In this model,SNA-125 was well tolerated and showed no safety signals. Neither dose ofSNA-125 reduced the inflammatory skin infiltrate thickness from baseline. However, histological and biomarker analyses showed a modest, statistically significant reduction withSNA-125 (0.2% w/w) in epidermal thickness from baseline(-17%, p<0.05), as well as modulation of certain psoriasis-relevant biomarkers and gene expression profiles.

We plan to pursue further clinical development with a more optimal cream formulation in both of these indications, with a Phase 2 clinical trial initially in atopic dermatitis, subject to securing sufficient capital to complete the trial.

Nonclinical Development

We have conducted numerousin vitro andin vivo nonclinical studies to evaluate the pharmacokinetics, pharmacodynamics and toxicology ofSNA-125. Our studies have shown strong inhibitory activity against JAK3 and TrkA, key drug targets involved in inflammatory diseases. Importantly, in nonclinical studies,SNA-125 was shown to have a favorable safety profile and minimal systemic exposure, potentially supporting its chronic topical administration. Additional profiling ofSNA-125 activity demonstrated anti-proliferative activity, anti-inflammatory activity and inhibition of neuronal signaling of pruritus in multiple nonclinical experiments, in the absence of toxicity.

We studied single dose topical administration ofSNA-125 in rats and minipigs to demonstrate low systemic exposure and absorption. The results have shown that no or negligible amounts ofSNA-125 are systemically absorbed through the dermal route. In repeat dose toxicology studies with topical administration, we again observed no systemic absorption or clinical signs of toxicity in ophthalmic, hematological and clinical chemistry examinations. To further understand the metabolism ofSNA-125, we conducted PK studies in rodent andnon-rodent species using intravenous administration. These studies demonstrated rapid system elimination, with an estimated half-life of approximately 25 minutes.

Single and repeat dose dermal studies showed no evidence of clinical or behavioral toxicity, noteworthy histological or immunohistochemical findings, or systemic absorption. After repeated IV administration, no treatment-related mortality was observed, andmid-to-high dose tissue inflammation completely resolved.

Early-stage Pipeline

In addition toSNA-120 andSNA-125, we have developed additional NCEs which have shown favorable data in early nonclinical studies. If we continue to observe positive data indicating potential efficacy, we intend to advance these assets into preclinical and clinical development. While our initial focus is the development of drug candidates for inflammatory skin conditions, there are several therapeutic areas for which we believe we can develop novel targeted drug candidates that target select pathways in other specific tissues, such as the GI tract, the eye, or the lung, with minimal systemic exposure. Over time, subject to securing additional capital, we intend to advance additional compounds from our technology platform into clinical development.

Topical Photoparticle Therapy^TM

Our Topical Photoparticle Therapy^TM technology uses precisely engineered silver particles to absorb near infrared laser light and cause selective photothermolysis, a method of using light energy to produce heat in a specific tissue and facilitate local tissue injury.SNA-001, our lead product candidate from this platform, is aready-to-use topical suspension of ultra-efficient, near-infrared light absorbing silver particles under development as apre-treatment to be used in conjunction with commercial lasers for the reduction of unwanted light-pigmented hair, including white, gray, blonde, light red and light brown hair, and for the treatment of acne. In the case of light or mixed pigmented hair, which cannot be adequately removed with lasers alone,SNA-001 targets the hair follicle. In the case of acne,SNA-001 targets one of the key structures implicated in the pathogenesis of

acne, the sebaceous gland. The particles are silica coated, nanoscale plates that are tuned, through variance of particle dimensions in manufacturing, to wavelengths of most of the currently installed base of dermatologic lasers, including 755 nm, 810 nm and 1064 nm.SNA-001 is applied to the skin using mechanical vibration to drive the silver particles into the pilosebaceous unit (PSU). When illuminated by laser light, the particles exhibit plasmonic resonance, whereby surface electrons oscillate at the frequency of the incident light and emit heat locally. The particles convert laser light energy into heat, facilitating selective photothermolysis. This effect is designed to cause injury to the hair follicle and sebaceous gland without damaging the adjacent skin.SNA-001’s mechanism of action causes it to be regulated as a 510(k) medical device by the FDA, and we expect to pursue clearance of one or more premarket notifications pursuant to Section 510(k) of the Federal Food, Drug, and Cosmetic Act (FDCA) forSNA-001. Figure 16 below illustrates the process of selective photothermolysis of the hair follicle and sebaceous gland caused bySNA-001.

Figure 16. Photoparticle Therapy withSNA-001 Causes Selective Photothermolysis of the Hair Follicle and Sebaceous Gland

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SNA-001 for the reduction of light-pigmented hair

The market for hair reduction

A variety of options for temporary or permanent hair removal are available including shaving, plucking, clipping, waxing, sugaring, threading, depilatory creams and foams, rotary epilation, electrolysis, and laser. Each of these options is limited by either inconvenience, temporary effectiveness, pain or the potential for adverse events associated with their use. The exception is the use of lasers to reduce the size and number of dark-pigmented hairs.

Available for nearly 25 years, laser hair removal is one of the most commonly performed aesthetic procedures in the world. With more than 12 million procedures performed annually in the United States according to Kalorama, countless patients have benefitted from the lasting results, except for those with light hair. Of the 53 million people who use laser treatments, waxing and other methods to remove unwanted hair, one in three are light-haired. People with white, gray, blonde and red hair, for whom lasers are ineffective, have been limited to using waxing and razors to remove their unwanted light hair, which yield temporary results and, in the case of waxing, can be costly to maintain. Market data indicate that a safe and effective treatment for people with light hair could increase the number of laser hair removal procedures by 27% in the United States.

Limitations of current treatment options and our solution

Notwithstanding its widespread appeal, laser hair removal is largely ineffective for a large portion of the population that has light-pigmented hair andmix-pigmented hair. Multiple treatments, often six or more, are insufficient to achieve a therapeutic result in patients with light-pigmented hair. As a result, patients are often turned away by health care practitioners if their hair color is too lightly pigmented. Furthermore, a portion of patients who are treated see insufficient benefit due to light hair or a mixture of dark and light hair types.

Use ofSNA-001 in combination with laser light has the potential to provide a differentiated andnon-systemic treatment solution to help deliver light-absorbing silver particles to hair follicles. For dark hair, sufficient pigment is present in the hair shaft and absorbs laser light, heating the hair-producing follicular cells and causing thermal injury to the follicle. For light-pigmented hair, there is insufficient pigment to result in thermal injury to the follicle from laser treatment. Photoparticle therapy withSNA-001 mediates selective photothermolysis of the hair follicle regardless of the amount of pigment.

Clinical Development Program

Pivotal studies

We met with the FDA to discuss our plans to developSNA-001 for light-pigmented hair reduction, based on results from a small feasibility study. We incorporated the FDA’s feedback regarding the design of our pivotal trials and confirmed that the applicable pathway to market forSNA-001 is via the 510(k) clearance process.

We conducted three separate multicenter, randomized, double-blind, within-subject and vehicle-controlled studies to evaluateSNA-001 for enhancement of the therapeutic effect of laser in reduction of light-pigmented hair. The primary endpoint was the percentage change in hair count from baseline to three months after the final of six treatments delivered over 35 weeks. The three trials used nearly identical protocols but different laser wavelengths corresponding to three commonly used commercial lasers, 755 nm, 810 nm and 1064 nm, enrolling 64, 65 and 57 subjects respectively.

In these trials,SNA-001 met the primary endpoint ofnon-inferiority in hair reduction. In additional analyses,SNA-001 in conjunction with an 810 nm Diode laser was statistically superior compared to vehicle+Laser, demonstrating up to a 32% reduction of light hair from baseline.SNA-001 in conjunction with a 1064 Nd:YAG and 755 nm Alexandrite laser for the reduction of light hair also showed a significant reduction from baseline. These results, however, were less differentiated from the vehicle+Laser group compared to the 810 nm Diode laser study results. In all of these trials,SNA-001 was well tolerated, with no unexpected, treatment-related AEs observed. These results provide a potential path to regulatory clearance forSNA-001, and we are seeking a strategic partner to maximize its value.

Market opportunity forSNA-001 for hair reduction

We anticipate thatSNA-001 would be marketed to medispas and laser centers, as well as dermatologists and health care practitioners (HCPs) that are currently performing laser hair reduction in their practice. From our market research we estimate that approximately 1,300 dermatologists could be targeted for hair reduction usingSNA-001 based on their current treatment patterns and access to a laser. These dermatologists perform approximately one million procedures annually. Of these, dermatologists report that 28% of existing procedures result insub-optimal outcomes because of too lightly pigmented hair. Additionally, surveyed dermatologists estimate thatSNA-001 has the potential to expand their procedure volumes 27% by attracting patients who are currently not candidates for laser hair reduction. HCPs in medispas and laser centers perform approximately 10 times the laser hair reduction procedures as dermatologists. Given the potential benefits ofSNA-001 and ease with which it could fit into existing practice procedures, we believeSNA-001 represents a meaningful opportunity.

Currently, dermatologists and HCPs charge between$150-$350 per laser hair reduction procedure for an average sized treatment area such as axillae or bikini line. Because laser hair reduction is ineffective for light-pigmented hair and limited alternative treatment options exist, we anticipate that physicians will be able to charge a modest premium for light-pigmented laser hair reduction withSNA-001.

We believe there may be additional potential to enhance the aesthetic applications ofSNA-001 in the treatment of dark-haired and dark-skinned patients, as well as in the treatment of vellus hair.

SNA-001 for the treatment of acne

The market for acne

Acne vulgaris is a common skin disease, especially among adolescents and young adults, and often is associated with physical and psychological morbidity. In the United States, acne is the most common skin disease, estimated by the American Academy of Dermatology to affect up to 50 million Americans annually. In 2016, acne accounted for approximately $2.8 billion of global pharmaceutical sales according to Global Data, and thenon-prescription market for acne products is also large, reflecting a strong willingness of consumers to payout-of-pocket. The disease ranges in severity frommild-to-severe cystic acne vulgaris and can result in permanent scarring, anxiety, depression and poor self-esteem. Even in cases of mild acne vulgaris, the social stigma associated with the disease often coincides with significant emotional distress and other psychological issues. Due to the frequency of recurrence or relapse and necessary treatment over a prolonged number of years, the American Academy of Dermatology considers acne vulgaris to be a chronic inflammatory disease.

Acne vulgaris results from the complex interplay of four major pathogenic factors:

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overproduction of oils, or sebum, by the sebaceous gland;

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abnormal keratinization in the follicle, narrowing the pores and obstructing the PSU;

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colonization by the anaerobic, lipophilic bacteriumPropionibacterium acnes, orP. acnes; and

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release ofpro-inflammatory mediators into the skin.

Limitations of current treatment options and our solution

The typical acne patient has moderate severity acne on the face and is prescribed topical medications for treatment. Current topical treatment options are limited with respect to effectiveness, patient compliance, and potential side effects. Topical retinoids, such as tretinoin, adapalene and tazarotene, target the abnormal proliferation of cells to stop the narrowing of the follicle and also inhibit thepro-inflammatory cascade that initiates lesion formation. Retinoids often show efficacy over prolonged treatment durations, but can lead to undesirable dryness, irritation and scaling. These undesirable effects contribute to a lack of patient compliance with daily use, further impairing efficacy. Innon-facial acne, patients are often treated with systemic therapies due to greater severity and the inconvenience of applying topical therapies.

Patients that fail topical therapy have the potential to go on systemic therapy including oral antibiotics, isotretinoin and hormone therapy, but patient, parent, and physician concern about unwanted side effects remains high. Oral antibiotics are associated with systemic side effects, including gastrointestinal tract irritation, photosensitivity of skin, headache, dizziness, anemia, bone and joint pain, and nausea. Furthermore, widespread use and extended treatment periods of antibiotics for over 30 years has led to the emergence of the antibiotic resistance ofP. acnes and, in turn, the virtual discontinuation of some drugs such as erythromycin from clinical use. Recent attention from the U.S. Centers for Disease Control and Prevention and the World Health Organization on the use of antibiotics and microbial resistance highlights the increasing need to curtail the overuse of antibiotics.

The oral retinoid isotretinoin, also known as Accutane, is the only approved drug shown to target the sebaceous gland, shrinking the size of the gland and significantly reducing sebum outflow. Notwithstanding its strong efficacy profile, use of isotretinoin is limited by its severe side effect profile, given that the drug is a known teratogen that can cause birth defects and may be associated with depression, psychosis and, in rare instances, suicide. Common side effects include dry skin, muscle aches, joint pains, and liver enzyme elevations. Therefore, its use has been reserved for the most severe form of the disease, and in 2009, the manufacturer of Accutane withdrew the branded product from the market. The method of action of isotretinoin and its high effectiveness has provided useful insights into the sebaceous gland as a key target, as it is the only drug with long-term maintenance of treatment effect after patients stop taking the drug. Figure 17 below illustrates the current paradigm for the treatment of acne.

Figure 17. Current Acne Treatment Paradigm

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Acne Facial Acne -Mild-to-Moderate Disease Facial Acne -Moderate-to-Severe Disease Back Acne Current Treatment LandscapeTopical Therapies Topical Retinolds: Includes tretinoin, adapalene and tazarotene, Have anti-inflammatory properties and can block the formation of comedones.Benzoyl Peroxide: Antibacterial agent that kills the P Acnes bacteria.Topical Antibiotics: Includes clindamycin and erythromycin. Thought to act through antibacterial and anti-inflammatory mechanisms.Topical Combo Therapy: Combines medications from the three above categories.Systemic TherapiesSystemic Antibiotics: Most commonly used are tetracycline class and macrollde class of antibiotics. Always used in combination with topical combo therapy. Hormonal Treatments: Includes oral contraceptive pills and androgen receptor blockers like aldactone/spironolactone.Oral Isotretinain: Previously sold under brand name Accutane. Reserved for server or treatment resistant acne due to side effects.

Procedural solutions have the potential to solve issues of patient compliance and provide safer alternatives to systemic therapy, as well as to supplement the efficacy of other ongoing therapies, but physicians are often dissatisfied with the outcomes from current treatments including laser or light-based treatments. Systematic reviews of the published evidence have revealed limitations with many relevant studies, such as the lack of appropriate controls or short duration of post-treatmentfollow-up, preventing firm conclusions about efficacy and safety. Nonetheless, some individual studies have shown reductions in lesion counts and acne severity using such technologies. Laser therapy often requires high energy intensities(50-150 J/cm²) to sufficiently damage sebaceous glands which can causeoff-target side effects including sensitivity to light, pain, inflammation, hyper/hypopigmentation, and permanent scarring.

We believe the use of topicalSNA-001 in combination with laser may increase the efficiency of selective photothermolysis of the sebaceous gland, which only isotretinoin can currently target, leading to reduced local sebum production and fewer inflammatory lesions as well as improved local tolerability, while sparing patients from systemic drugs or ongoing application of ineffective topical treatments.

Clinical Development Program

Pivotal studies

We met with the FDA to discuss our plans to developSNA-001 for the treatment of acne, based on results from a small feasibility study. We incorporated the FDA’s feedback regarding the design of our pivotal trials and confirmed that the applicable pathway to market forSNA-001 is via the 510(k) clearance process.

We conducted three separate multicenter, randomized, double-blind, split-face studies to evaluateSNA-001 in conjunction with laser for the treatment of moderate or severe facial acne. The split-face design means that each subject receivedSNA-001 on one side of the face and vehicle, or sham control, on the other side of the face, and both sides of the face were treated with laser. The three trials used nearly identical protocols but different laser wavelengths corresponding to three commonly used commercial lasers, 755 nm, 810 nm and 1064 nm, enrolling 69, 78 and 89 subjects, respectively.

In these trials,SNA-001 wasnon-inferior to laser therapy.SNA-001 was well tolerated, with no unexpected, treatment-related AEs observed. The results provide a potential path to regulatory clearance forSNA-001, and we are seeking a strategic partner to maximize its value.

Market opportunity forSNA-001 for acne

We anticipate thatSNA-001 would be marketed to medispas and laser centers, as well as dermatologists with a strong focus on medical and aesthetic conditions. According to primary market research by the company with over 400 dermatologist respondents through multiple surveys,64-82% of practices have laser/light technology installed and could be target customers forSNA-001. Of the approximately 10,000 dermatologists in the United States, 2,900 focus on acne, have laser technology installed, and have an estimated 6.5 million acne patients visits annually, representing approximately 3.0 million acne patients. Additionally, 39% of acne patients in the dermatologist’s office are young adults or adults, typically female, and may already be consumers of other procedural solutions.

We believe that physicians would be most likely to offerSNA-001 to patients that initially fail topical therapy as an alternative to systemic treatment, thoughnon-facial acne such as back acne is often treated first line with systemic agents, andSNA-001 could be first line fornon-facial acne. Physicians indicate that half of acne patients, or 1.5 million patients annually, do not achieve clearance within three months of initial therapy, representing a 4.5 million total potential procedure opportunity forSNA-001.

Despite the availability of reimbursed therapies, we expect that a large number of patients would be willing to pay for procedural solutions likeSNA-001 which has a safety and tolerability profile similar to that of laser alone. Procedural solutions are also attractive to HCPs because they receive a portion of the economic value based on their participation in administering the solution.SNA-001 plus laser procedures are likely to be priced in line with other similar proceduralcash-pay solutions. Pricing to the patient for proceduralcash-pay solutions such as fillers, toxins, photodynamic therapy (Levulan) or cryolipolysis (CoolSculpting) ranges from approximately$350-$2,500 per procedure.

We believe there is potential to expand the medical applications ofSNA-001 beyond acne to patients suffering from rosacea, sebaceous gland hyperplasia and keratosis pilaris, particularly to patients that prefer a procedural solution to their skin problems, including patients that are not suitable for systemic therapies, that have experienced side effects on other therapies, or that seek a limited procedural solution as compared to a daily regimen.

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We consider our primary potential

competition to be existing providers and drug developers of therapeutics to treat psoriasis, atopic dermatitis and the associated pruritus. Any product candidates that we successfully develop and commercialize will compete with these existing therapies and procedures as well as new therapies that may become available in the future. Our success will be based in part on our ability to discover, develop and commercialize product candidates that are innovative, differentiated and safer and more effective than competing products.

With respect toSNA-120 andSNA-125 for the topical treatment ofmild-to-moderate psoriasis, we would face potential competition from companies that market corticosteroids, Vitamin D analogues, combinations thereof and calcineurin inhibitors. There are also topical products that are marketed or in development for the treatment of psoriasis, and that could compete withSNA-120 orSNA-125, including Pefcalcitol/M5180, a PDE inhibitor being developed by Maruho Co., Ltd.;ARQ-151, a cream formulation being developed by Arcutis, Inc.; Icotinib, an epidermal growth factor receptor (EGFR) antagonist begin developed by Betta Pharmaceuticals Co., Ltd.;BMX-010, a manganese-porphyrin-derivative being developed by BioMimetix JV, LLC; Tapinarof (formerly GSK2894512), a topical aryl hydrocarbon receptor (AhR) activator being developed by Dermavant Sciences, Inc.; LEO 124249, a JAK inhibitor being developed by Leo Pharma A/S;MC2-01 PAD, a formulation of calcipotriene and betamethasone dipropionate, andMC2-16, a formulation of calcipotriene, both being developed by MC2 Therapeutics; SB414, a topical nitric oxide formulation being developed by Novan, Inc.;Duobrii/IDP-118, a formulation of halobetasol propionate and tazarotene, being developed by Ortho Dermatologics, a division of Bausch Health Companies Inc., and Bryhali (halobetasol propionate) Lotion .01% (formerlyJemdel/IDP-122), being marketed by Ortho;PF-06700841, a Tyrosine kinase 2 (TYK2)/JAK1 inhibitor, and Tofacitinib, a JAK3 inhibitor, being developed by Pfizer Inc.; and SAN021, an East Indian Sandalwood Oil (EISO) serum being developed by Santalis Pharmaceuticals, Inc.

With respect toSNA-125 for the treatment of atopic dermatitis, we would face potential competition from companies that market branded and generic corticosteroids or the topical calcineurin inhibitors, Elidel, which is being marketed by Ortho, and Protopic, which is being marketed by Leo. Other topical products marketed or in development for the treatment of atopic dermatitis, and that could compete withSNA-125 includeATI-502, a JAK1/JAK3 inhibitor, andATI-1777, a “soft” JAK1/JAK3 inhibitor, both being developed by Aclaris Therapeutics, Inc.;PAC-14028, a TRPV1 antagonist being developed by Amorepacific Corporation; AMG0101 (formerlyMP-40), a nuclear factor-KB decoy oligonucleotide being developed by AnGes, Inc.; AOB102, a formulation of ammonia-oxidizing bacteria being developed by AOBiome Therapeutic; Tapinarof (formerly GSK2894512), a topical AhR activator being developed by Dermavant; DS107, a bioactive lipid being developed by DS Biopharma; Ruxolitinib (formerly INCB018424), a JAK1/JAK2 inhibitor being developed by Incyte Corporation; Delgocitinib, apan-JAK inhibitor being developed by Leo; SB414, a topical nitric oxide formulation being developed by Novan;ZPL-521, a cytosolic phospholipase A2 (cPLA2) inhibitor being developed by Novartis AG;IDP-124, a calcineurin inhibitor being developed by Ortho;PF-04965842, a JAK inhibitor being developed by Pfizer, and Eucrisa (crisaborale) Ointment 2%, being marketed by Pfizer;ALX-101, a liver X receptor (LXR) agonist being developed by Ralexar Therapeutics, Inc.; PR022, a formulation of hypochlorous acid being developed by Realm Therapeutics plc; and SIG1322 (formerly DMT210), an isoprenylcysteine (IPC) analog being developed by Signum Dermalogix.

With respect toSNA-120 for the treatment of pruritus associated with psoriasis or atopic dermatitis, we would face competition from companies that market anti-histamines, doxepin and gabapentin. Other products approved for psoriasis or atopic dermatitis, including certain biologics and topical steroids, may have a beneficial effect on pruritus in psoriasis or atopic dermatitis patients, respectively. Product candidates under development that could be used to treat pruritus associated with psoriasis or atopic dermatitis and compete withSNA-120 orSNA-125 include: Korsuva (Difelikefalin/CR845), aK opioid receptor agonist being developed in multiple formulations by Cara Therapeutics; Nemolizumab, an injectableanti-IL-31 receptor A monoclonal antibody being developed by Galderma laboratories, a division of Nestlé Skin Health; GSK2330672, an oral ileal bile acid transporter (IBAT) inhibitor being developed by GlaxoSmithKline plc; HL151, an oral anti-histomine being developed by Hanlim Pharmaceutical Co., Ltd.; Itacitinib/INCB039110, an oral JAK1 inhibitor being developed by Incyte; Aprepitant, a topicalNK-1 antagonist being developed by Leo; Serlopitant, an oral Neurokinin 1

(NK-1) antagonist being developed by Menlo Therapeutics; Orvepitant, an oralNK-1 antagonist being developed by NeRRe Therapeutics; ZPL389, an oral anti-histamine being developed by Novartis;RVT-1601 (formerly PA101), an inhaled formulation of cromolyn sodium being developed by Respivant Sciences;SK-1405, an oral formulation being developed by Sanwa Kagaku Kenkyusho Co., Ltd.; Asimadoline, an oralK opioid receptor agonist being developed by Tioga Pharmaceuticals;Nalfurafine/TRK-820, an injectableK opioid receptor agonist being developed by Toray Industries; Nalbuphine ER, an oral µ opioid receptor antagonist andK opioid receptor agonist being developed by Trevi Therapeutics;Tradipitant/VLY-686, an oralNK-1 antagonist being developed by Vanda Pharmaceuticals Inc.; and Itacitinib/INCB039110, an oral JAK1 inhibitor in development by Washington University School of Medicine.

Commercial Operations

We currently have no sales organization. We have retained global rights to all of our product candidates, and, if one of our product candidates in inflammatory skin disorders is approved by the FDA, expect to access the market in North America through a specialty dermatology-focused sales force. We expect that our sales force will be supported by sales management, internal sales support, an internal marketing group and distribution support. We intend to invest in our commercial capabilities prudently by focusing our marketing efforts on the dermatologists who have the highest prescription volumes. We will also evaluate licensing and partnering with third parties to help us reach other sales channels and certain geographic markets.

Intellectual Property

Our success depends in large part upon our ability to obtain and maintain proprietary protection for our products and technologies and to operate without infringing the proprietary rights of others. Our policy is to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also use other forms of protection, such as confidential information,know-how and trademarks to protect our intellectual property, particularly where we do not believe patent protection is appropriate or obtainable.

Our patent portfolio consists of a combination of issued patents and pending patent applications that are owned by us (and our subsidiaries) or licensed from third parties. As of December 31, 2018, we own or have an exclusive license in certain fields of use to over 250 patents and patent applications in the United States and internationally.

Our patent portfolio includes patents and patent applications that are directed to our proprietary technology platform, including our lead compoundsSNA-120 andSNA-125, and as of December 31, 2018, includes approximately six issued U.S. patents and 112 issued international patents in Australia, Canada, China, Albania, Austria, Bosnia & Herzegovina, Belgium, Bulgaria, Switzerland & Liechtenstein, Cyprus, Czech Republic, Germany, Denmark, Estonia, Spain, Finland, France, Great Britain, Greece, Croatia, Hungary, Ireland, Iceland, Italy, Lithuania, Luxembourg, Latvia, Monaco, Macedonia, Malta, Netherlands, Norway, Poland, Portugal, Romania, Serbia, Sweden, Slovenia, Slovakia, San Marino, Turkey, Hong Kong, Israel, India, Indonesia, Japan, South Korea, Mexico, New Zealand, Russia, South Africa, Singapore, and Ukraine; and 21 pending U.S. patent applications and 16 pending international patent applications, including PCT (Patent Cooperation Treaty) international applications and patent applications in Brazil, Egypt, Malaysia, Mexico and Japan. This patent portfolio includes patents and patent applications directed to compositions of matter, formulations, use and process. In general, patents have a term of 20 years from the application filing date or earliest claimednon-provisional priority date. Several of our issued U.S. and international patents that relate to ourSNA-120 andSNA-125 technologies are scheduled to expire in approximately 2026 through 2032 and may be extended by up to five years in certain countries via patent term extension depending on the regulatory pathway. Certain other patents and patent applications directed to this patent portfolio, if they were to issue, may have later expirations.

Our patent portfolio also includes patents and patent applications that are directed to our Topical Photoparticle Therapy^TM technology, includingSNA-001, and as of December 31, 2018, includes approximately 21 issued U.S. patents and 71 issued international patents in Australia, Japan, China, Germany, France, United Kingdom, Ireland, Italy, Monaco, Netherlands, Spain, Sweden, Switzerland & Liechtenstein, Turkey, Norway, Denmark, Finland, Poland, Austria, Greece, Hungary, Belgium, Czech Republic, and Romania; and five pending U.S. patent applications and 24 pending international patent applications in Australia, Brazil, Canada, China, Europe, Hong Kong, Israel, India, Japan, Mexico, Russia and South Korea. Our Topical Photoparticle Therapy^TM patent portfolio includes patents and patent applications directed to compositions of matter, use and process. In general, patents have a term of 20 years from the application filing date or earliest claimednon-provisional priority date. Several of our issued U.S. and international patents that relate to ourSNA-001 technologies expire in 2031 through 2033. Certain other patents and patent applications directed to our Topical Photoparticle Therapy^TM portfolio, if they were to issue, may have later expirations.

Most of our issued patents and pending patent applications are owned by us or one of our subsidiaries. Some of our issued and pending Topical Photoparticle Therapy^TM patent applications are exclusively licensed to us in certain fields of use from nanoComposix, Inc., or nanoComposix. These patents and pending patent applications are solely owned by nanoComposix or jointly owned by us and nanoComposix, and are generally directed to technologies related to the production of silver nanoplates used in the Topical Photoparticle Therapy^TM technology forSNA-001.

Our continuing research and development, technicalknow-how, and contractual arrangements supplement our intellectual property protection in an effort to maintain our competitive position. Our policy is to require inventors who are identified on any Company-owned patent applications to assign rights to us. We also rely, in part, on confidentiality agreements with our employees, consultants, and other advisors to protect our proprietary information. Our policy is to require third parties that receive material confidential information to enter into confidentiality agreements with us.

We also protect our brand through procurement of trademark rights. As of December 31, 2018, we own approximately 53 registered trademarks around the world, as well as 16 U.S. and 120 international pending trademark applications, including registrations in the European Union, Switzerland, Norway, Turkey, Russia, China, Colombia, India, Japan, Mexico, South Korea, Singapore, Vietnam, Australia, Argentina, Israel, New Zealand, Monaco, and the Philippines. Our trademarks SIENNA^®, SIENNA BIOPHARMACEUTICALS^®, TPT^®, TOPICAL BY DESIGN^®, LSE^®, and SCIENCE YOU CAN SEE. CONFIDENCE YOU CAN FEEL.^® are registered trademarks that we own in certain international countries. In order to supplement protection of our brand, we have also registered several internet domain names.

Significant Transaction—Acquisition of Creabilis plc

In December 2016, we entered into a Share Purchase Agreement to acquire the entire issued share capital of Creabilis plc, which, upon closing, became our direct wholly-owned subsidiary. Through the acquisition of Creabilis we obtained our proprietary technology platform and related product candidates, includingSNA-120 andSNA-125. In connection with closing, we made an upfront payment of $0.2 million in cash, issued 1,407,679 shares of our SeriesA-3 Preferred Stock to the former Creabilis shareholders and settled approximately $6.7 million of Creabilis liabilities. In October 2017, we commenced our additional Phase 2b clinical trial forSNA-120, triggering our first contingent milestone payment of $5.0 million, less certain offsets totaling approximately $0.3 million, which we satisfied by issuing an aggregate of 201,268 shares of common stock to the former Creabilis shareholders in December 2017 pursuant to the terms of the Share Purchase Agreement.

Upon the achievement of certain additional development, approval and sales milestones forSNA-120 andSNA-125, we are obligated to pay the former Creabilis shareholders up to an aggregate of $53.0 million, which consists of an aggregate of $25.0 million in cash and $28.0 million in shares of our common stock, including our

obligation, upon the commencement of our Phase 3 clinical trial ofSNA-120, to issue $18.0 million in shares of our common stock, less certain offsets if applicable. In addition, upon the achievement of certain annual net sales milestone thresholds for qualifying products, includingSNA-120 andSNA-125, we are required to pay the former Creabilis shareholders up to an aggregate of $80.0 million in cash as well asone-time royalties of less than 1% on net sales of qualified products that exceed these net sales thresholds in the year such threshold is achieved.

Government Regulation

The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome requirements upon companies involved in the clinical development, manufacture, marketing and distribution of drugs and medical devices, such as those we are developing. These agencies and other federal, state and local entities regulate, among other things, the research and development, testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion, distribution, post-approval monitoring and reporting, sampling and export and import of our product candidates.

U.S. Government Regulation of Drug Products

In the United States, the FDA regulates drugs under the FDCA and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA’s refusal to approve pending NDAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.

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

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completion of nonclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, regulations;

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submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials may begin in the United States;

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approval by an independent institutional review board, or IRB, at each clinical site before each trial may be initiated;

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performance of adequate and well-controlled human clinical trials in accordance with good clinical practice, or GCP, requirements to establish the safety and efficacy of the proposed drug product for each indication;

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submission to the FDA of an NDA;

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satisfactory completion of an FDA advisory committee, if applicable;

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

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satisfactory completion of FDA audits of clinical trial sites and the sponsor’s clinical trial records to assure compliance with GCPs and the integrity of the clinical data;

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payment of user fees and securing FDA approval of the NDA; and

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compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post-approval studies.

Nonclinical Studies

Nonclinical studies include laboratory evaluation of product chemistry and formulation, as well as animal studies to assess safety, toxicity and efficacy. An IND sponsor must submit the results of the nonclinical tests, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Some nonclinical testing may continue even after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Clinical Trials

Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their www.clinicaltrials.gov website.

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

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Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness.

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Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

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Phase 3: The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product.

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. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Special Protocol Assessment

The SPA process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of certain clinical trials, including those that are intended to form the

primary basis for determining a drug product’s efficacy. Although not required, upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis, within 45 days of receipt of the request.

The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the product candidate with respect to effectiveness of the indication studied. All agreements and disagreements between the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting between the sponsor and the FDA.

Even if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement if FDA determines that a substantial scientific issue essential to determining the safety or efficacy of the product has been identified after the trial has begun. Such issues may include, but are not limited to:

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public health concerns emerge that were unrecognized at the time of the protocol assessment, or the director of the review division determines that a substantial scientific issue essential to determining safety or efficacy has been identified after testing has begun;

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safety concerns emerge related to the product or its pharmacological class;

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data are identified that would call into question the clinical relevance of previously agreed-upon endpoints;

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a sponsor fails to follow a protocol that was agreed upon with the FDA; or

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the relevant data, assumptions, or information provided by the sponsor in a request for SPA change, are found to be false statements or misstatements, or are found to omit relevant facts.

A documented SPA may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study.

Marketing Approval

Assuming successful completion of the required clinical testing, the results of the nonclinical and clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. Under the Prescription Drug User Fee Act, or PDUFA, guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to the FDA because the FDA has approximately two months to make a “filing” decision.

In addition, in accordance with the Pediatric Research and Equity Act, certain NDAs or supplements to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.

The FDA also may require submission of a REMS plan to ensure that the benefits of the drug outweigh its risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.

The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins anin-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity.

The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and 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, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application 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, the FDA may inspect one or more clinical trial sites and the sponsor to assure compliance with GCP requirements.

After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or nonclinical testing in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.

Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Special FDA Expedited Review and Approval Programs

The FDA has various programs, including fast track designation, accelerated approval, priority review, and breakthrough therapy designation, which are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for the treatment of serious or life-threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures.

To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need. The FDA will determine that a product will fill an unmet medical need if it will

provide a therapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. The FDA may review sections of the NDA for a fast track product on a rolling basis before the complete application is submitted. If the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.

The FDA may give a priority review designation to drugs that are designed to treat serious conditions, and if approved, would provide a significant improvement in treatment, or provide a treatment where no adequate therapy exists. A priority review means that the goal for the FDA to review an application is six months, rather than the standard review of ten months under current PDUFA guidelines. Under the current PDUFA agreement, these six and ten month review periods are measured from the “filing” date rather than the receipt date for NDAs for new molecular entities, which typically adds approximately two months to the timeline for review and decision from the date of submission. Most products that are eligible for fast track designation are also likely to be considered appropriate to receive a priority review.

In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may be eligible for accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require a sponsor of a drug receiving accelerated approval to perform post-marketing studies to verify and describe the predicted effect on irreversible morbidity or mortality or other clinical endpoint, and the drug may be subject to accelerated withdrawal procedures.

Moreover, under the provisions of the Food and Drug Administration Safety and Innovation Act, a sponsor can request designation of a product candidate as a “breakthrough therapy.” A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated approval. The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.

Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. We may explore some of these opportunities for our product candidates as appropriate.

Post-Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are continuing, annual program user fee requirements for any marketed products.

The FDA may impose a number of post-approval requirements as a condition of approval of an NDA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP requirements and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval or clearance of a drug or medical device is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in mandatory revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

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

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fines, warning letters or holds on post-approval clinical trials;

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refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product approvals;

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

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injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs or devices may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion ofoff-label uses, and a company that is found to have improperly promotedoff-label uses may be subject to significant liability.

The Hatch-Waxman Act

Section 505 of the FDCA describes three types of NDAs that may be submitted to request marketing authorization for a new drug. A 505(b)(1) NDA is an application that contains full reports of investigations of safety and effectiveness. The Hatch-Waxman Act created two additional marketing pathways under Sections 505(j) and 505(b)(2) of the FDCA. Section 505(j) establishes an abbreviated approval process for generic versions of approved drug products through the submission of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the branded reference drug and has been shown to be bioequivalent to the branded reference drug. ANDA applicants are required to conduct bioequivalence testing to confirm chemical and therapeutic equivalence to the branded reference drug. Generic versions of drugs can often be substituted by pharmacists under prescriptions written for the branded reference drug.

A 505(b)(2) NDA is an application that contains full reports of investigations of safety and effectiveness but where at least some of the information required for approval comes from studies not conducted by or for the applicant. This alternate regulatory pathway enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy for an existing product, or published literature, in support of its application. The FDA may then approve the new product candidate for all or some of the labeled indications for which the branded reference drug has been approved, as well as for any new indication sought by the 505(b)(2) applicant.

The Hatch-Waxman Act establishes periods of regulatory exclusivity for certain approved drug products, during which the FDA cannot approve (or in some cases accept) an ANDA or 505(b)(2) application that relies on the branded reference drug. For example, the holder of an NDA may obtain five years of exclusivity upon approval of a new drug containing an NCE that has not been previously approved by the FDA. During the five year exclusivity period, the FDA cannot accept for filing or approve any ANDA seeking approval of a generic version of that drug or any 505(b)(2) NDA for the same active moiety and that relies on the FDA’s findings regarding that drug, except that FDA may accept an application for filing (but still may not approve it) after four years if thefollow-on applicant makes a paragraph IV certification, as described below. The Hatch-Waxman Act also provides three years of marketing exclusivity to the holder of an NDA (including a 505(b)(2) NDA) for a particular condition of approval, or change to a marketed product, such as a new formulation or new indication for a previously approved product, if one or more new clinical studies (other than bioavailability or bioequivalence studies) was essential to the approval of the application and was conducted/sponsored by the applicant. This three-year exclusivity period protects against FDA approval of ANDAs and 505(b)(2) NDA for drugs that include the innovation that required the new clinical data.

Upon submission of an ANDA or a 505(b)(2) NDA, an applicant must certify to the FDA, in the opinion of the applicant and to the best of its knowledge (1) that relevant patent information on the referenced drug product has not been submitted to the FDA; (2) that the relevant patent has expired; (3) the date on which the relevant patent expires; or (4) that such patent is invalid, unenforceable or will not be infringed upon by the manufacture, use or sale of the drug product for which the application is submitted. This last certification is known as a paragraph IV certification. If the NDA holder or patent owner(s) files a patent infringement action against the ANDA or 505(b)(2) applicant within 45 days of receipt of the paragraph IV certification, the FDA may not approve the ANDA or 505(b)(2) application until the earlier of (i) 30 months from the receipt of the notice of the paragraph IV certification (generally referred to as the 30 month stay), (ii) the expiration date of the patent(s) listed in the Orange Book for the reference drug product, (iii) the date the court enters a final order or judgment that the patent(s) are invalid, unenforceable and/or not infringed or (iv) such shorter or longer period as may be ordered by a court. Where the ANDA or 505(b)(2) applicant files an application with a paragraph IV certification within the fifth year of the five-year NCE exclusivity period enjoyed by the NDA holder for the reference branded product, and where patent litigation is brought within 45 days of receipt of notice of the paragraph IV certification, the30-month stay will be extended by the amount of time such that 7.5 years will elapse from the date of approval of the original NDA to the expiration of the stay. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant period of time depending on the patent certification the applicant makes, whether the reference product enjoys NCE exclusivity, and the reference drug sponsor’s decision to initiate patent litigation.

U.S. Government Regulation of Medical Devices

Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, or approval of a premarket approval application, or PMA. Under the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness. Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the Quality System Regulation, or QSR, facility registration and product listing, reporting of adverse medical events, and truthful andnon-misleading labeling, advertising, and promotional materials. Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These special controls can include performance standards, postmarket surveillance, patient registries and FDA guidance documents. While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as

510(k) clearance. Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life-supporting or some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA. Somepre-amendment devices are unclassified, but are subject to the FDA’s premarket notification and clearance process in order to be commercially distributed.

510(k) Marketing Clearance Pathway

We expect our product candidates that are regulated as medical devices, includingSNA-001, to be subject to the 510(k) marketing clearance pathway. To obtain 510(k) clearance, we must submit to the FDA a premarket notification submission demonstrating that the proposed device is “substantially equivalent” to a predicate device already on the market. A predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior to May 28, 1976(pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I, or a device that was found substantially equivalent through the 510(k) process. The FDA’s 510(k) clearance process usually takes from three to twelve months, but may take significantly longer. The FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence.

If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially market the device. If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, the device is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous PMA requirements, or can request a risk-based classification determination for the device in accordance with the “de novo” process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.

Additionally, in November 2018, FDA officials announced forthcoming steps that the FDA intends to take to modernize the premarket notification pathway under Section 510(k) of the FDCA. Among other things, the FDA announced that it plans to develop proposals to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicate devices. These proposals include plans to potentially sunset certain older devices that were previously used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. The FDA also announced that it intends to finalize guidance to establish a premarket review pathway for “manufacturers of certain well-understood device types” as an alternative to the 510(k) clearance pathway and that such premarket review pathway would allow manufacturers to rely on objective safety and performance criteria recognized by the FDA to demonstrate substantial equivalence, obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process. These proposals have not yet been finalized or adopted, and the FDA announced that it would seek public feedback prior to publication of any such proposals, and may work with Congress to implement such proposals through legislation.

After a device receives 510(k) marketing clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, will require a new 510(k) marketing clearance or, depending on the modification, PMA approval. The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k) or a PMA in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination. Many minor modifications today are accomplished by aletter-to-file in which the manufacture documents the change in an internalletter-to-file. Theletter-to-file is in lieu of submitting a new 510(k) to obtain clearance for every change. The FDA can always review theseletters-to-file in an inspection. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or request the recall of the modified device until 510(k) marketing clearance or PMA approval is obtained. Also, in these circumstances, we or our manufacturers may be subject to significant regulatory fines or penalties. The FDA has guidance to assist device manufacturers in making the determination as to whether a modification to a device requires a new 510(k).

Clinical Trials for Medical Devices

Clinical trials are almost always required to support a PMA and are sometimes required to support a 510(k) submission. We expect the FDA to require clinical data in support of our 510(k) premarket notifications. All clinical investigations of investigational devices to determine safety and effectiveness must be conducted in accordance with the FDA’s investigational device exemption, or IDE, regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a “significant risk,” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials.SNA-001 was not deemed to present a “significant risk” and, as such, an IDE application was not required in order to initiate clinical trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval.

In addition, the study must be approved by, and conducted under the oversight of, an IRB for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more IRBs, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents anon-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements. Acceptance of an IDE application for review does not guarantee that the FDA will allow the IDE to become effective and, if it does become effective, the FDA may or may not determine that the data derived from the trials support the safety and effectiveness of the device or warrant the continuation of clinical trials. An IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness, study plan or the rights, safety or welfare of human subjects.

During a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators in the clinical study are also subject to FDA regulations and must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements. Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits.

Postmarket Regulation of Medical Devices

After a medical device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include:

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establishment registration and device listing with the FDA;

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QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process;

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labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly balanced and provide adequate directions for use and that all claims are substantiated, and also prohibit the promotion of products for unapproved or“off-label” uses and impose other restrictions on labeling; FDA guidance onoff-label dissemination of information and responding to unsolicited requests for information;

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the federal Physician Sunshine Payment Act and various state laws on reporting remunerative relationships with health care customers;

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The federal Anti-kickback statute (and similar state laws) prohibiting certain illegal remuneration to physicians and other health care providers that may financially bias prescription decisions and result in an over-utilization of goods and services reimbursed by the federal government;

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clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices;

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medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur;

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correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;

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complying with the new federal law and regulations requiring Unique Device Identifiers (UDI) on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database (GUDID);

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the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and

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post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.

Our manufacturing processes are required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance of a device master file, device history file, and complaint files. As a manufacturer, we are subject to periodic scheduled or unscheduled inspections by the FDA. Our failure to maintain compliance with the QSR requirements could result in the shut-down of, or restrictions on, our manufacturing operations and the recall or seizure of our products, which would have a material adverse effect on our business. The discovery of previously unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance oroff-label by a physician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls.

Regulation Outside the United States

Regulation and Procedures Governing Approval of Medicinal Products and Medical Devices in the EEA

EEA Medicinal Products Approval

In the European Economic Area, or EEA, which is composed of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA.

There are two types of MAs:

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The Community MA, 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, of the European Medicines Agency, or EMA, and which is valid throughout the entire territory of the EEA. The Centralized Procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal products, and medicinal products that contain 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. Under the Centralized Procedure the maximum timeframe for the evaluation of a marketing authorization application is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP). Accelerated evaluation might be granted by the CHMP in exceptional cases, when the authorization of a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. Under the accelerated procedure the standard 210 days review period is reduced to 150 days.

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National MAs, which are issued by the competent authorities of the Member States of the EEA and only cover their respective territory, are available 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 MA can be recognized in another Member State through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of application, it can be approved simultaneously in various Member States through the Decentralized Procedure.

Prior to obtaining an MA in the EEA, applicants have to demonstrate compliance with all measures included in a Paediatric Investigation Plan, or PIP, approved by the EEA regulatory agency, covering all subsets of the pediatric population, unless the EEA regulatory agency has granted (1) a product-specific waiver, (2) a class waiver or (3) a deferral for one or more of the measures included in the PIP.

In the EEA, upon receiving an MA, new chemical entities generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities in the EEA from referencing the innovator’s data to assess a generic application. During the additionaltwo-year period of market exclusivity, a generic marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic product can be marketed until the expiration of the market exclusivity. However, there is no guarantee that a product will be considered by the EEA regulatory agencies to be a new chemical entity, and products may not qualify for data exclusivity.

EEA Medical Devices Approval

medical devices must meet the “Essential Requirements” laid down in Annex I of the EU Medical Devices Regulation relating to safety and performance. To demonstrate compliance with the Essential Requirements and obtain the right to affix the Conformité Européene, or CE, mark, without which medical devices cannot be commercialized in the EEA, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. Except for low risk medical devices (Class I with no measuring function and which are not sterile), where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the Essential Requirements, a conformity assessment procedure requires the intervention of a Notified Body, which is an organization designated by a competent authority of an EEA country to conduct conformity assessments. Depending on the relevant conformity assessment procedure, the Notified Body would audit and examine the Technical File and the quality system for the manufacture, design and final inspection of the medical devices. The Notified Body issues a CE Certificate of Conformity following successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the Essential Requirements. This Certificate entitles the manufacturer to affix the CE mark to its medical devices after having prepared and signed a related EC Declaration of Conformity.

On April 5, 2017, the European Parliament passed the Medical Devices Regulation which repeals and replaces the EU Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EEA member states, a regulation is directly applicable, i.e., without the need for adoption of EEA member state laws implementing them, in all EEA member states. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation. The Medical Devices Regulation will not become fully applicable until three years following its entry into force, but medical device manufacturers, including our company, are already adjusting their conformity assessment procedures and working with their Notified Bodies, to meet the more stringent requirements of the EU Medical Devices Regulation with respect to their product candidates.. Once applicable, the Medical Devices Regulation will among other things:

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strengthen the rules on placing devices on the market and reinforce surveillance once they are available;

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establish explicit provisions on manufacturers’ responsibilities for thefollow-up of the quality, performance and safety of devices placed on the market;

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improve the traceability of medical devices throughout the supply chain to theend-user or patient through a unique identification number;

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set up a central database to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and

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strengthen rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.

Further, the EU Medical Devices Regulation explicitly provides that high intensity electromagnetic radiation (e.g.infra-red, visible light and ultra-violet) emitting equipment intended for use on the human body, including coherent andnon-coherent sources, monochromatic and broad spectrum, such as lasers and intense pulsed light equipment, for skin resurfacing, tattoo or hair removal or other skin treatment, falls under its scope. Our product candidateSNA-001 would thus need to comply with the requirements of the Medical Device Regulation before it can be commercialized for removal of light-pigmented hair in the EEA.

For other countries outside of the United States and EEA, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical studies, product licensing, pricing and reimbursement vary from country to country. If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Other Healthcare Laws

In addition to FDA restrictions on the marketing of pharmaceutical and medical device products, other foreign, federal and state healthcare regulatory laws restrict business practices in the pharmaceutical and device industry. These laws include, but are not limited to, federal and state anti-kickback, false claims, data privacy and security, and physician payment and drug pricing transparency laws.

The U.S. federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully offering, paying, soliciting, receiving or providing any remuneration, directly or indirectly, overtly or covertly, to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical and medical device manufacturers on the one hand and prescribers, purchasers, formulary managers and beneficiaries on the other hand. 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 meet the requirements of a statutory or regulatory 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 U.S. federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on acase-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Moreover, a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. The majority of states also have anti-kickback laws, which establish similar prohibitions and in some cases may apply to items or services reimbursed by any third-party payor, including commercial insurers.

The federal false claims and civil monetary penalties laws, including the civil False Claims Act, prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false, fictitious or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. Actions under the civil False Claims Act may be brought by the Attorney General or as aqui tam action by a private individual in the name of the government. Violations of the civil False Claims Act can result in very significant monetary penalties and treble damages. Several pharmaceutical, medical device and other healthcare companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of products for unapproved (e.g., oroff-label) uses. In addition, the civil monetary penalties statute imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. Many states also have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

Violations of fraud and abuse laws, including federal and state anti-kickback and false claims laws, may be punishable by criminal and civil sanctions, including fines and civil monetary penalties, the possibility of exclusion from federal healthcare programs (including Medicare and Medicaid), disgorgement and corporate

integrity agreements, which impose, among other things, rigorous operational and monitoring requirements on companies. Similar sanctions and penalties, as well as imprisonment, also can be imposed upon executive officers and employees of such companies. Given the significant size of actual and potential settlements, it is expected that the government authorities will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.

The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, 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. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and certain other healthcare providers. The Affordable Care Act imposed, among other things, new annual reporting requirements through the Physician Payments Sunshine Act for covered manufacturers for certain payments and “transfers of value” provided to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties. Covered manufacturers must submit reports by the 90^th day of each subsequent calendar year. In addition, certain states require implementation of compliance programs and compliance with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing practices and/or require the tracking and reporting of marketing expenditures and pricing information as well as gifts, compensation and other remuneration or items of value provided to physicians and other healthcare professionals and entities.

We may also 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, impose specified requirements relating to the privacy, security and transmission of individually identifiable health information held by covered entities and their business associates. Among other things, HITECH made HIPAA’s 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 increased the civil and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, 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 attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same requirements, thus complicating compliance efforts.

Similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or other transfers of value to healthcare professionals, may apply to us to the extent that any of our product candidates, once approved, are sold in a country other than the United States.

Coverage and Reimbursement

Third-party payors typically do not provide coverage and reimbursement for products for aesthetic indications or procedures using such products. Accordingly, we do not expect any coverage or reimbursement for

procedures usingSNA-001 to remove light-pigmented hair or for other aesthetic treatments. As such, the commercial success of any product, includingSNA-001, if cleared, for an aesthetic indication will depend on the extent to which patients will be willing to pay out of pocket for thein-office procedure using these products. For products approved or cleared for medically necessary indications, success depends on continued coverage and adequate reimbursement for the product or procedures using such product. Therefore, although it is possible that third-party payors may cover and reimburse providers usingSNA-001, if cleared, fornon-aesthetic indications such as the treatment of acne, we do not currently plan to pursue coverage and reimbursement for procedures usingSNA-001 for such indications.

Significant uncertainty exists as to the coverage and reimbursement status of any pharmaceutical product for which we obtain regulatory approval. In the United States and markets in other countries, patients who are prescribed drugs generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Providers and 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. Sales ofSNA-120,SNA-125 and any other product candidates for which we receive regulatory approval for commercial sale will therefore depend, in part, on the availability of coverage and adequate reimbursement from third-party payors. Third-party payors include government authorities, managed care plans, private health insurers and other organizations.

In the United States, the process for determining whether a third-party payor will provide coverage for a pharmaceutical product typically is separate from the process for setting the price of such product or for establishing the reimbursement rate that the payor will pay for the product once coverage is approved. With respect to drugs, third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of theFDA-approved products for a particular indication, or place products at certain formulary levels that result in lower reimbursement levels and higher cost-sharing obligation imposed on patients. A decision by a third-party payor not to cover a product could reduce physician utilization of a product. Moreover, a third-party payor’s decision to provide coverage for a pharmaceutical product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable a manufacturer to maintain price levels sufficient to realize an appropriate return on its investment in product development. Additionally, coverage and reimbursement for products can differ significantly from payor to payor. One third-party payor’s decision to cover a particular medical product does not ensure that other payors will also provide coverage for the medical product, or will provide coverage at an adequate reimbursement rate. As a result, the coverage determination process usually requires manufacturers to provide scientific and clinical support for the use of their products to each payor separately and is a time-consuming process.

In the European Union, governments influence the price of products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed to by the government. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription products, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross border imports fromlow-priced markets exert a commercial pressure on pricing within a country.

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

Healthcare Reform

A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products and services, implementing reductions in Medicare and other healthcare funding, and applying new payment methodologies. For example, in March 2010, the Affordable Care Act was enacted, which, among other things, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; introduced a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans; imposed mandatory discounts for certain Medicare Part D beneficiaries as a condition for manufacturers’ outpatient drugs coverage under Medicare Part D; subjected drug manufacturers to new annual fees based on pharmaceutical companies’ share of sales to federal healthcare programs; imposed a new federal excise tax on the sale of certain medical devices; which was subsequently suspended until January 1, 2020; created a new Patient Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and established a Center for Medicare Innovation at the CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, and we expect there will be additional challenges and amendments to the Affordable Care Act in the future. For example, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted, which, among other things, removes penalties for not complying with the Affordable Care Act’s individual mandate to carry health insurance. Further, on December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, 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 Act, the remaining provisions of the Affordable Care Act are invalid as well. While the Trump Administration and the Centers for Medicare & Medicaid Services have both stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, if any, will impact the law. The current Presidential Administration and U.S. Congress will likely continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the Affordable Care Act. It is uncertain the extent to which any such changes may impact our business or financial condition.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act to reduce healthcare expenditures. These changes include the Budget Control Act of 2011, which led to aggregate reductions of Medicare payments to providers of 2% per fiscal year and that will remain in effect through 2027 unless additional action is taken by Congress, and the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several types of 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. More recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical products.

Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical 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.

Manufacturing and Supply

We contract with third parties for the manufacture of our product candidates and intend to do so in the future. We do not own or operate, and we do not expect to own or operate, facilities for product manufacturing, storage and distribution, or testing. Because we rely on contract manufacturers, we have personnel with extensive technical, manufacturing, analytical and quality experience and strong project management discipline to oversee contract manufacturing and testing activities, and to compile manufacturing and quality information for our regulatory submissions.

Manufacturing is subject to extensive regulations that impose various procedural and documentation requirements, and which govern record keeping, manufacturing processes and controls, personnel, quality control and quality assurance, among others. Our systems and our contractors are required to be in compliance with these regulations, and this is assessed regularly through monitoring of performance and a formal audit program.

Drug Substance

We are responsible for supplying drug substance for all of our drug product candidates, includingSNA-120 andSNA-125, in all territories. Our current drug substance supply chains for our lead drug product candidates,SNA-120 andSNA-125, involve three contractors: the supplier of K252a, the unconjugated parent compound ofSNA-120 andSNA-125, the supplier of GMP grade PEG polymers, and the manufacturer of the conjugated drug substance. We currently operate under purchase order programs forSNA-120 andSNA-125, and we intend to establish long-term supply agreements in the future. We believe our current drug substance contractors have the scale, the systems and the experience to supply all remaining and planned clinical trials.

Our process uses synthetic procedures and commercially available raw materials. We have established an ongoing program to identify possible process changes to improve purity, yield and manufacturability, and process changes will be implemented as warranted and appropriate. The drug substances forSNA-120 andSNA-125 have historically shown stability adequate to support commercialization.

Drug Product

We are responsible for drug product manufacturing for all of our drug product candidates, includingSNA-120 andSNA-125, in all territories. We currently operate under purchase order programs with our third-party manufacturers forSNA-120 andSNA-125 clinical drug product, and we intend to establish long-term supply agreements in the future.

We expect that the drug product forSNA-120 will be an ointment formulation for topical application, and we intend to assess multiple concentrations and formulations forSNA-125. Drug product manufacturing uses common processes and readily available materials. The formulation ofSNA-120 we will use in our Phase 3 pivotal trials is the formulation anticipated for commercial launch. The ointment formulation has historically shown stability at room temperature adequate to support commercialization. We believe our currentSNA-120 drug product supply chain is sufficient to supply our Phase 3 pivotal clinical trials.

Topical Photoparticle Therapy^TM

We are responsible for supplyingSNA-001 substance for all territories. Our currentSNA-001 substance supply chain involves two contractors: the supplier of silver nanoplates forSNA-001 and the manufacturer of the topical gel formulation.

We currently have an exclusive supply and license agreement with nanoComposix as the exclusive supplier of silver nanoplates. Under our agreement, nanoComposix has granted us an exclusive worldwide, royalty-bearing, sublicensable license under certain patents, patent applications, andknow-how related to silver

nanoplate technology owned by nanoComposix to use such technology in commercializing licensed products, includingSNA-001, for certain aesthetic, cosmetic, medical, and veterinary fields of uses. We pay nanoComposix a fixed price per unit of silver nanoplates, as well as the greater of a fixed amount per year orlow-single digit royalties on net sales of licensed products. Such royalties are payable on acountry-by-country andproduct-by-product basis until the later of five years after the first commercial sale of the licensed product in the applicable country and the expiration of thelast-to-expire valid claim of the licensed patents covering such licensed product in the country of sale.

Our agreement with nanoComposix expires upon the later of July 2021 or the expiration or abandonment of all valid claims under the patent rights licensed to us from nanoComposix. The agreement can also be terminated prior to expiration by (i) us for convenience, upon three months’ prior written notice, (ii) nanoComposix upon 30 days’ prior written notice of an uncured and undisputed material breach of the agreement, (iii) nanoComposix upon notice to us if we have not received FDA approval to sell a licensed product by August 2022, or (iv) either party upon certain bankruptcy or insolvency events of the other party.

However, during the term of this agreement, we are generally obligated to purchase our requirements of this key raw starting material from nanoComposix. The agreement provides us with the ability to, at our convenience, manufacture these materials ourselves or secure a specified percentage of our requirements of these materials from alternative sources, subject to our making certain negotiated payments to nanoComposix. In addition, in the event of a specified supply failure, we have the ability to secure materials from third parties or manufacture the materials ourselves and, in such a case, nanoComposix would be required to assist us with necessary technology transfer in exchange for a payment to be agreed-upon by the parties at such time.

We also have a commercial supply agreement with Unicep to supplySNA-001 finished product on a nonexclusive basis, subject to certain contingencies. We believe our currentSNA-001 substance contractors have the scale, the systems and the experience to supply our requirements of silver nanoplates, and topical gel formulations for all remaining and planned nonclinical studies, clinical trials and commercial launch.

Employees

As of December 31, 2018, we had 58 full-time employees, including a total of 15 employees with M.D. or Ph.D. degrees. On January 2, 2019, we implemented a corporate restructuring to focus our resources onSNA-120 for psoriasis and the associated pruritus, resulting in a reduction in force to reduce operational costs and preserve capital. The restructuring resulted in an elimination of 20 positions, or approximately 34% of our workforce, and was complete in the first quarter of 2019. As of March 8, 2019, we had 33 full-time employees, with 18 employees engaged in research and development and 15 in business development, finance, legal, human resources, facilities, information technology and general management and administration. None of our employees are represented by labor unions or, except for certain of our employees located in Italy, covered by collective bargaining agreements.

ITEM 1A. Risk Factors.

Our operations and financial results are subject to various risks and uncertainties, including those described below, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. You should carefully consider the risks described below and the other information in this Annual Report onForm 10-K, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Risks Related to Our Limited Operating History, Financial Condition and Capital Requirements

We are a clinical-stage biopharmaceutical company with a limited operating history and no products approved or cleared for commercial sale, and we have incurred significant losses since our inception. We anticipate that we will continue to incur losses for the foreseeable future, which, together with our limited operating history, makes it difficult to assess our future viability.

We are a clinical-stage biopharmaceutical company with a limited operating history. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We have no products approved or cleared for commercial sale and have not generated any revenue from product sales and have incurred losses in each year since our inception in July 2010. We have only a limited operating history upon which you can evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical industry. We continue to incur significant research and development and other expenses related to our ongoing operations. Our net losses were approximately $73.5 million, $50.5 million and $21.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, we had an accumulated deficit of $159.4 million. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue to develop our product candidates, conduct clinical trials and pursue research and development activities. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development, other operations or commercialization efforts.

Since our inception, we have invested a significant portion of our efforts and financial resources in research and development activities and the acquisition of Creabilis plc, or Creabilis. Nonclinical studies and clinical trials for our product candidates will require substantial funds to complete. As of December 31, 2018, we had capital resources consisting of cash and cash equivalents of $48.5 million. We believe that we will continue to expend substantial resources for the foreseeable future in connection with the nonclinical and clinical development of our lead product candidate,SNA-120, and the development of any other product candidates we may choose to pursue. These expenditures will include costs associated with conducting nonclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and supply, as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any nonclinical study or clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our lead product candidates and any future product candidates. In addition, we are obligated to make certain milestone payments to former Creabilis shareholders upon the achievement of predetermined milestones, as well as success payments to certain of our existing stockholders if the market price of our common stock meets or exceeds certain specified share price thresholds. For instance, upon our commencement of a Phase 3 clinical trial withSNA-120, we will become obligated to issue $18.0 million in shares of our common stock, less certain offsets if applicable, to the former Creabilis

shareholders. These payments, to the extent triggered and payable in cash, will also have an effect on our liquidity and capital needs. To the extent these success payment obligations are satisfied in shares of our common stock, holders of our common stock would be diluted.

We believe our existing cash will allow us to fund our operating plan for at least the next twelve months. However, our operating plans may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of burdensome debt covenants and repayment obligations, or other restrictions that may affect our business. Our ability to obtain debt financing may be limited by covenants we have made under our loan and security agreement with Silicon Valley Bank and our pledge to Silicon Valley Bank of substantially all of our assets, other than our intellectual property, as collateral. The negative pledge in favor of Silicon Valley Bank with respect to our intellectual property under the loan and security agreement could further limit our ability to obtain additional debt financing. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Our future capital requirements depend on many factors, including:

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the scope, progress, results and costs of researching and developing our lead product candidates or any future product candidates, and conducting nonclinical studies and clinical trials, in particular our planned Phase 3 pivotal clinical trials ofSNA-120, and any clinical trials ofSNA-125;

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the timing of, and the costs involved in, obtaining regulatory approvals or clearances for our lead product candidates or any future product candidates;

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the number and characteristics of any additional product candidates we develop or acquire;

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the timing of any cash milestone payments to the former Creabilis shareholders if we successfully achieve certain predetermined milestones;

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our ability to maintain compliance with the terms of our agreement with Silicon Valley Bank;

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our ability to successfully partnerSNA-001;

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the cost of manufacturing our lead product candidates or any future product candidates and any products we successfully commercialize, including costs associated with building out our supply chain;

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the cost of commercialization activities if our lead product candidates or any future product candidates are approved or cleared for sale, including marketing, sales and distribution costs;

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the cost of building a sales force in anticipation of any such product commercialization;

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our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such agreements that we may enter into;

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any product liability or other lawsuits related to our products;

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the expenses needed to attract and retain skilled personnel;

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the costs associated with being a public company;

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the costs associated with maintaining subsidiaries in foreign jurisdictions;

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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; and

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the timing, receipt and amount of sales of any future approved or cleared products, if any.

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to:

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delay, limit, reduce or terminate nonclinical studies, clinical trials or other development activities for our lead product candidates or any future product candidate;

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delay, limit, reduce or terminate our research and development activities; or

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delay, limit, reduce or terminate our efforts to establish sales and marketing capabilities or other activities that may be necessary to commercialize our lead product candidates or any future product candidate, or reduce our flexibility in developing or maintaining our sales and marketing strategy.

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

Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may occur due to a variety of factors, many of which are outside of our control and may be difficult to predict, including:

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

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the timing of receipt of approvals or clearances for our product candidates from regulatory authorities in the United States and internationally;

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the timing and status of enrollment for our clinical trials;

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the timing of any cash milestone payments to the former Creabilis shareholders if we successfully achieve certain predetermined milestones;

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the timing and amount of any success payments we elect to pay in cash to certain of our existing stockholders if the market price of our common stock meets or exceeds certain specified share price thresholds, as well as fluctuations in ournon-cash expenses related to the periodic revaluations of the fair value of the success payments;

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coverage and reimbursement policies with respect to our product candidates, if approved or cleared, and potential future drugs or devices that compete with our product candidates;

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the cost of manufacturing our product candidates, as well as building out our supply chain, which may vary depending on the quantity of production and the terms of our agreements with manufacturers;

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

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the level of demand for our products, if approved or cleared, which may vary significantly over time;

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future accounting pronouncements or changes in our accounting policies; and

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

The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on aperiod-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance.

This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the

market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue or earnings guidance we may provide.

Our success payment obligations to certain of our existing stockholders may result in dilution to our other stockholders, may be a drain on our cash resources, or may cause us to incur debt obligations to satisfy the payment obligations.

In October 2015, we entered into a Success Payment Agreement with certain of our existing stockholders, pursuant to which we agreed to make success payments to such stockholders. These success payments are based on certain specified threshold per share values of our common stock measured at specific times during the success payment period, which began on the effective date of the Success Payment Agreement and ends on the fifth anniversary of the Success Payment Agreement, in October 2020. Success payments are payable in cash or, in our sole discretion, common stock, and will be owed, if ever, in the event that the value of our common stock meets or exceeds certain specified share price thresholds on any of the following dates during the success payment period: (1) any date after October 30, 2017, the 90th day after we completed our initial public offering, or IPO; (2) the date on which we sell, lease, transfer or exclusively license all or substantially all of our assets to another company; and (3) the date on which we merge or consolidate with or into another entity (other than a merger in which ourpre-merger stockholders own a majority of the shares of the surviving entity). In the case of our IPO, success payments would be triggered when the per share value of our common stock, as determined based on the average trading price of a share of our common stock over the consecutive90-day period preceding the date the success payment is triggered, meets or exceeds specified per share thresholds. In the case of an asset sale, license or sale of the company, success payments are triggered when the per share value of our common stock, as determined based on the consideration paid in the transaction for each share of our stock, meets or exceeds specified per share thresholds. Each per share threshold is associated with a success payment, ascending from $10.0 million at $53.71 per share to $35.0 million at $71.61 per share to $60.0 million at $107.42 per share, subject to adjustment for any stock dividend, stock split, combination of shares, or other similar events. Any previous success payments made to stockholders pursuant to the Success Payment Agreement are credited against the success payment owed as of any future valuation date. The first payout is $10.0 million, the second payout is $35.0 million (inclusive of the first $10.0 million success payment, if previously paid) and the third payout is $60.0 million (inclusive of any previous success payments, if made). The success payments paid to such stockholders will not exceed, in aggregate, $60.0 million.

In order to satisfy our obligations to make these success payments, if and when they are triggered, we may issue equity securities that may cause dilution to our stockholders, or we may use our existing cash or incur debt obligations to satisfy the success payment obligation in cash, which may adversely affect our financial position. In addition, these success payments may impede our ability to raise money in future public offerings of debt or equity securities or to obtain a third-party line of credit.

The success payment obligations to certain of our existing stockholders may cause GAAP operating results to fluctuate significantly from quarter to quarter, which may reduce the usefulness of our GAAP financial statements.

Our success payment obligations to certain of our stockholders are recorded as a liability on our balance sheet. Under generally accepted accounting principles in the United States, or GAAP, we are required to remeasure the fair value of this liability as of each quarter end. Factors that may lead to increases or decreases in the estimated fair value of this liability include, among others, changes in the value of our common stock, changes in the volatility of our common stock, changes in the applicable term of the success payments and changes in the risk-free interest rate. As a result, our operating results and financial condition as reported by GAAP may fluctuate significantly from quarter to quarter and from year to year and may reduce the usefulness of our GAAP financial statements. As of December 31, 2018 and 2017, the estimated fair value of the liability associated with the success payments was $3,000 and $3.3 million, respectively.

We may be required to repay the outstanding indebtedness pursuant to the minimum liquidity requirements or in an event of default under our loan and security agreement, which could have a materially adverse effect on our business. In addition, our operating activities may be restricted as a result of covenants related to the indebtedness.

On June 29, 2018, we entered into a loan and security agreement with Silicon Valley Bank, pursuant to which Silicon Valley Bank funded an aggregate principal amount of $30.0 million. On January 28, 2019, we amended the loan and security agreement with Silicon Valley Bank. The loan and security agreement with Silicon Valley Bank, as amended, provides that if our unrestricted cash at Silicon Valley Bank falls below the greater of (i) $30.0 million and (ii) the sum of (x) $15.0 million, plus (y) our six month cash burn, tested monthly as of the last day of each month beginning February 28, 2019, then we have the option to either prepay the term loans in denominations of $15.0 million (plus accrued and unpaid interest and certain fees) or immediately cash secure not less than the lesser of the outstanding balance or $15.0 million of the principal balance of all outstanding indebtedness under the term loans. Accordingly, Silicon Valley Bank may collateralize (or we may choose to prepay) $15.0 million in our existing cash resources if we fail to maintain these minimum liquidity requirements. If the cash is collateralized, we will be required to revise our current operating and clinical plans, including potentially commencing only a single Phase 3 trial, raising additional capital to complete the Phase 3 trials, further restructuring the company and/or entering into various strategic transactions, among other things.

Until we have repaid such indebtedness, the loan and security agreement subjects us to various customary covenants, including requirements as to financial reporting and insurance and restrictions on our ability to dispose of our business or property, to change our line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on our property, to pay any dividends or other distributions on capital stock other than dividends payable solely in capital stock, to redeem capital stock, to enter into licensing agreements, to engage in transactions with affiliates, and to encumber our intellectual property. Our business may be adversely affected by these restrictions on our ability to operate our business.

Additionally, we may be required to repay the outstanding indebtedness under the loan facility if an event of default occurs under the loan and security agreement. Under the loan and security agreement, an event of default will occur if, among other things, we fail to make payments under the loan and security agreement; we breach any of our covenants under the loan and security agreement, subject to specified cure periods with respect to certain breaches; the Silicon Valley Bank determines that a material adverse change has occurred; we or our assets become subject to certain legal proceedings, such as bankruptcy proceedings; we are unable to pay our debts as they become due; or we default on contracts with third parties which would permit Silicon Valley Bank to accelerate the maturity of such indebtedness or that could have a material adverse change on us. We may not have enough available cash or be able to raise additional funds through equity or debt financings to repay such indebtedness at the time any such event of default occurs. In this case, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant to others rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Silicon Valley Bank could also exercise its rights as collateral agent to take possession of and to dispose of the collateral securing the term loans, which collateral includes substantially all of our property (excluding intellectual property, which is subject to a negative pledge). Our business, financial condition and results of operations could be materially adversely affected as a result of any of these events.

Risks Related to Our Business

Based on our current operating plans and capital resources, we are substantially dependent on the success of our lead product candidate,SNA-120.

On January 2, 2019, we implemented a corporate restructuring to focus our resources on our lead productcandidate, SNA-120 for psoriasis and the associated pruritus, resulting in a reduction in force to reduce operational costs and preserve capital. On February 8, 2019, we announcedtop-line results from our pivotal trials

ofSNA-001 for light hair removal and our plans to seek a strategic partner forSNA-001. In addition, we expect to devote a substantial portion of our current capital resources to fund the Phase 3 clinical trials ofSNA-120. As a result, we are substantially dependent on the success ofSNA-120. The success of our business, including our ability to finance our company and generate any revenue in the future, will primarily depend on the successful development, regulatory approval or clearance and commercialization ofSNA-120. In the future, we may also become dependent on other product candidates that we may develop or acquire. The clinical and commercial success of our product candidates will depend on a number of factors, including the following:

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the ability to raise any additional required capital on acceptable terms, or at all;

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timely completion of our nonclinical studies and clinical trials, which may be significantly slower or cost more than we currently anticipate and will depend substantially upon the performance of third-party contractors;

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whether we are required by the U.S. Food and Drug Administration, or the FDA, or similar foreign regulatory agencies to conduct additional clinical trials or other studies beyond those planned to support the approval and commercialization of our product candidates or any future product candidates;

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acceptance of our proposed indications and primary endpoint assessments relating to the proposed indications of our product candidates by the FDA and similar foreign regulatory authorities;

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our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities the safety, efficacy and acceptable risk to benefit profile ofSNA-120 or any other product candidates;

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the prevalence, duration and severity of potential side effects or other safety issues experienced with our product candidates or future approved products, if any;

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the timely receipt of necessary marketing approvals or clearances from the FDA and similar foreign regulatory authorities;

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achieving and maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain, compliance with our contractual obligations and with all regulatory requirements applicable toSNA-120 or any other product candidates or approved products, if any;

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our ability to find a strategic partner to further developSNA-001;

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the ability of third parties upon which we rely to manufacture clinical trial and commercial supplies of our product candidates or any future product candidates, remain in good standing with regulatory agencies and develop, validate and maintain commercially viable manufacturing processes that are compliant with current good manufacturing practices, or cGMP;

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our ability to successfully develop a commercial strategy and thereafter commercialize our product candidates or any future product candidates in the United States and internationally, if approved or cleared for marketing, reimbursement, sale and distribution in such countries and territories, whether alone or in collaboration with others;

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acceptance by physicians, payors and patients of the benefits, safety and efficacy of our product candidates or any future product candidates, if approved or cleared, including relative to alternative and competing treatments;

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patient demand for our product candidates, if approved or cleared;

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our ability to establish and enforce intellectual property rights in and to our product candidates or any future product candidates; and

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our ability to avoid third-party patent interference, intellectual property challenges or intellectual property infringement claims.

These factors, many of which are beyond our control, could cause us to experience significant delays or an inability to obtain regulatory approvals or clearances or commercialize our product candidates. Even if regulatory

approvals or clearances are obtained, we may never be able to successfully commercialize any of our product candidates. Accordingly, we cannot provide assurances that we will be able to generate sufficient revenue through the sale of our product candidates or any future product candidates to continue our business.

We may be unable to obtain regulatory approval or clearance for our product candidates under applicable regulatory requirements. The denial or delay of any such approval or clearance would delay commercialization of our product candidates and adversely impact our potential to generate revenue, our business and our results of operations.

To gain approval or clearance to market our product candidates, we must provide the FDA and foreign regulatory authorities with clinical data that adequately demonstrate the safety and efficacy of the product for the intended indication applied for in the applicable regulatory filing. Product development is long, expensive and uncertain processes, and delay or failure can occur at any stage of any of our clinical development programs. A number of companies in the biotechnology, pharmaceutical and medical device industries have suffered significant setbacks in clinical trials, even after promising results in earlier nonclinical studies or clinical trials. These setbacks have been caused by, among other things, nonclinical findings made while clinical trials were underway, and safety or efficacy observations made in clinical trials including previously unreported adverse events. Success in nonclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties may not be indicative of the results in trials we may conduct.

While our product candidatesSNA-120 andSNA-125 will be regulated as drug products under a new drug application, or NDA, pathway,SNA-001 will be regulated as a medical device. In the United States, before we can marketSNA-001, or a new use of, new claim for or significant modification toSNA-001, we must first receive clearance under Section 510(k) of the Federal Food, Drug, and Cosmetic Act, or FDCA, from the FDA, unless an exemption applies. In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process or a device that was legally marketed prior to May 28, 1976(pre-amendments device). To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support substantial equivalence.

Our product candidatesSNA-120 andSNA-125 are currently in clinical development. We currently have no products approved or cleared for sale, and we may never obtain regulatory approval or clearance to commercialize our lead product candidates. The research, testing, manufacturing, labeling, approval, clearance, sale, marketing and distribution of drug and medical device products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, and such regulations differ from country to country. We are not permitted to market our product candidates in the United States or in any foreign countries until they receive the requisite approval or clearance from the applicable regulatory authorities of such jurisdictions.

The FDA or any foreign regulatory bodies can delay, limit or deny approval of our product candidates for many reasons, including:

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our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that any of our product candidates is safe and effective for the requested indication;

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the FDA’s or the applicable foreign regulatory agency’s disagreement with our trial protocol or the interpretation of data from nonclinical studies or clinical trials;

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our inability to demonstrate that the clinical and other benefits of any of our product candidates outweigh any safety or other perceived risks;

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the FDA’s or the applicable foreign regulatory agency’s requirement for additional nonclinical studies or clinical trials;

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the FDA’s or the applicable foreign regulatory agency’snon-approval of the formulation, labeling or specifications ofSNA-120 orSNA-125;

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the FDA’s or the applicable foreign regulatory agency’s failure to approve the manufacturing processes or facilities of third-party manufacturers upon which we rely; or

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the potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval.

Of the large number of biopharmaceutical and medical device products in development, only a small percentage successfully complete the FDA or other regulatory approval or clearance processes and are commercialized.

Even if we eventually complete clinical testing and receive approval or clearance from the FDA or applicable foreign agencies for any of our product candidates, the FDA or the applicable foreign regulatory agency may grant marketing authorization contingent on the performance of costly additional clinical trials which may be required after approval. The FDA or the applicable foreign regulatory agency also may approve or clear our lead product candidates for a more limited indication or a narrower patient population than we originally requested, and the FDA, or applicable foreign regulatory agency, may not approve or clear our product candidates with the labeling that we believe is necessary or desirable for the successful commercialization of such product candidates. For example,SNA-120, if approved, may only receive a label covering psoriasis, but may not receive labeling covering the treatment of pruritus associated with psoriasis.

Any delay in obtaining, or inability to obtain, applicable regulatory approval or clearance would delay or prevent commercialization of our product candidates and would materially adversely impact our business and prospects.

Clinical development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure or delay can occur at any time during the clinical trial process. Success in nonclinical studies and early clinical trials does not ensure that later clinical trials will be successful. A number of companies in the biotechnology, pharmaceutical and medical device industries have suffered significant setbacks in clinical trials, even after positive results in earlier nonclinical studies or clinical trials. These setbacks have been caused by, among other things, nonclinical findings made while clinical trials were underway, and safety or efficacy observations made in clinical trials, including previously unreported adverse events. The results of nonclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through nonclinical studies and initial clinical trials. Notwithstanding any potential promising results in earlier studies and trials, we cannot be certain that we will not face similar setbacks. Even if our clinical trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates.

Although our lead product candidates,SNA-120 andSNA-125 are in nonclinical and clinical development, we may experience delays in completing ongoing studies or trials and initiating planned studies or trials, and we cannot be certain that studies or trials for our product candidates will begin on time, not require redesign, enroll an adequate number of subjects on time or be completed on schedule, if at all. Clinical trials can be delayed or terminated for a variety of reasons, including delays or failures related to:

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the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical trials;

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obtaining regulatory approval to commence a trial;

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

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obtaining institutional review board, or IRB, approval at each site;

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recruiting suitable patients to participate in a trial;

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having subjects complete a trial or return for post-treatmentfollow-up;

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

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addressing subject safety concerns that arise during the course of a trial;

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adding a sufficient number of clinical trial sites; or

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obtaining sufficient quantities of product candidate for use in nonclinical studies or clinical trials from third-party suppliers.

We may experience numerous adverse or unforeseen events during, or as a result of, nonclinical studies and clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including:

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we may receive feedback from regulatory authorities that requires us to modify the design of our clinical trials;

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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 abandon drug development programs;

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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;

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our third-party contractors may fail to comply with regulatory requirements, fail to maintain adequate quality controls, or simply be unable to provide us with sufficient product supply to conduct and complete nonclinical studies or clinical trials of our product candidates in a timely manner, or at all;

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we or our investigators might have to suspend or terminate clinical trials of our product candidates for various reasons, includingnon-compliance with regulatory requirements, a finding that our product candidates have undesirable side effects or other unexpected characteristics, or a finding that the participants are being exposed to unacceptable health risks;

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

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the quality of our product candidates or other materials necessary to conduct nonclinical studies or clinical trials of our product candidates may be insufficient or inadequate;

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regulators may revise the requirements for approving our product candidates, or such requirements may not be as we anticipate; and

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future collaborators may conduct clinical trials in ways they view as advantageous to them but that are suboptimal for us.

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

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incur unplanned costs;

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be delayed in obtaining marketing approval for our product candidates or not obtain marketing approval at all;

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obtain marketing approval in some countries and not in others;

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obtain marketing approval for indications or patient populations that are not as broad as intended or desired;

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obtain marketing approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

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be subject to additional post-marketing testing requirements; or

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have the treatment removed from the market after obtaining marketing approval or clearance.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

Further, conducting clinical trials in foreign countries, as we may do for certain of our product candidates, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.

Principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or a regulatory authority concludes that the financial relationship may have affected the interpretation of the trial, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of the marketing application we submit. Any such delay or rejection could prevent or delay us from commercializing our current or future product candidates.

If we experience delays in the completion, or termination, of any nonclinical study or clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed, and our ability to generate product revenues from any of these product candidates will be delayed or not realized at all.

In addition, any delays in completing our clinical trials may increase our costs, slow down our product candidate development and approval or clearance process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval or clearance of our product candidates.

If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. We may

experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The enrollment of patients depends on many factors, including:

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the patient eligibility criteria defined in the protocol;

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the size of the patient population required for analysis of the trial’s primary endpoints;

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the proximity of patients to study sites;

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the design of the trial;

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our ability to recruit clinical trial investigators with the appropriate competencies and experience;

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clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating; and

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our ability to obtain and maintain patient consents.

In addition, our clinical trials may compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition will reduce the number and types of patients available to us, because some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we may conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials in such clinical trial site.

Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our product candidates.

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

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics.

If unacceptable side effects arise in the development of our product candidates, we, the FDA, the IRBs at the institutions in which our studies are conducted, or the DSMB could suspend or terminate our clinical trials or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product candidates for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating medical staff. We expect to have to train medical personnel using our product candidates to understand the side effect profiles for our clinical trials and upon any commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side effects of our product candidates could result in patient injury or death. Any of these occurrences may harm our business, financial condition and prospects significantly.

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

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regulatory authorities may withdraw their approval of the product;

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we may be required to recall a product or change the way such product is administered to patients;

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additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof;

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

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we may be required to implement a Risk Evaluation and Mitigation Strategy, or REMS, or create a Medication Guide outlining the risks of such side effects for distribution to patients;

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

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the product may become less competitive; and

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our reputation may suffer.

Any of the foregoing events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved or cleared, and result in the loss of significant revenues to us, which would materially and adversely affect our results of operations and business.

As a company, we have never completed a Phase 3 program or obtained marketing approval for any product candidate and we may be unable to successfully do so for any of our product candidates. Failure to successfully complete any of these activities in a timely manner for any of our product candidates could have a material adverse impact on our business and financial performance.

Conducting a pivotal clinical trial and preparing, and obtaining marketing approval for, a product candidate is a complicated process. Although members of our management team have participated in pivotal trials and obtained marketing approvals for product candidates in the past while employed at other companies, we as a company have not done so. As a result, such activities may require more time and cost more than we anticipate. Failure to successfully complete, or delays in, our pivotal trials or related regulatory submissions would prevent us from or delay us in obtaining regulatory approval for, or clearance of, our product candidates. In addition, it is possible that the FDA may refuse to accept for substantive review any NDAs or medical device marketing applications that we submit for our product candidates or may conclude after review of our applications that they are insufficient to obtain marketing approval or clearance of our product candidates. If the FDA does not accept our applications or issue marketing authorizations for our product candidates, it may require that we conduct additional clinical, nonclinical or manufacturing validation studies and submit that data before it will reconsider our applications. Depending on the extent of these or any otherFDA-required studies, approval of any NDA or receipt of other marketing authorizations for any other applications that we submit may be delayed by several years or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve our NDAs or clear our 510(k) submissions or grant other marketing authorizations.

Any delay in obtaining, or an inability to obtain, marketing approvals would prevent us from commercializing our product candidates, generating revenues and achieving and sustaining profitability. If any of these outcomes occur, we may be forced to abandon our development efforts for our product candidates, which could significantly harm our business.

Even if our lead product candidates or any future product candidates obtain regulatory approval or clearance, they may fail to achieve the broad degree of physician and patient adoption and use necessary for commercial success.

Even if we obtain FDA or other regulatory approvals or clearances, the commercial success of any of our current or future product candidates will depend significantly on the broad adoption and use of the resulting product by physicians and patients for approved indications. Our product candidates may not be commercially successful. For a variety of reasons, including among other things, competitive factors, pricing or physician

preference, the degree and rate of physician and patient adoption of our current or future product candidates, if approved or cleared, will depend on a number of factors, including:

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the clinical indications for which the product is approved or cleared and patient demand for approved or cleared products that treat those indications;

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the safety and efficacy of our product as compared to other available therapies;

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the availability of coverage and adequate reimbursement from managed care plans and other healthcare payors for any of our product candidates that may be approved;

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acceptance by physicians, operators of clinics and patients of the product as a safe and effective treatment;

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physician and patient willingness to adopt a new therapy over other available therapies to treat approved indications;

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overcoming any biases physicians or patients may have toward particular therapies for the treatment of approved indications;

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proper training and administration of our product candidates by physicians and medical staff;

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patient satisfaction with the results and administration of our products and overall treatment experience, including, for example, a smaller or no effect on the visual symptoms of psoriasis while relieving the associated pruritus;

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the cost of treatment with our product candidates in relation to alternative treatments and reimbursement levels, if any, and willingness to pay for the product, if approved or cleared, on the part of insurance companies and other third-party payers, physicians and patients;

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the willingness of patients to pay for certain of our products, particularly our aesthetic products, such asSNA-001, if approved or cleared, especially during economically challenging times;

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the revenue and profitability that our products may offer a physician as compared to alternative therapies;

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the prevalence and severity of side effects;

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limitations or warnings contained in theFDA-approved or cleared labeling for our products;

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the compatibility, or clearance for use, of ourSNA-001 product with the lasers available in aesthetic professionals’ offices;

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the willingness of physicians, operators of clinics and patients to utilize or adoptSNA-001 as a procedural solution;

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any FDA requirement to undertake a REMS;

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the effectiveness of our sales, marketing and distribution efforts;

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adverse publicity about our products or favorable publicity about competitive products; and

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potential product liability claims.

We cannot assure you that our current or future product candidates, if approved, will achieve broad market acceptance among physicians and patients. Any failure by our product candidates that obtain regulatory approval or clearance to achieve market acceptance or commercial success would adversely affect our results of operations.

We may be unsuccessful in identifying and securing a strategic partner forSNA-001.

In February 2019, weannounced top-line results from our pivotal trials ofSNA-001 for light hair removal and final pivotal trial ofSNA-001 for the treatment of acne and our plans to seek a strategic partner to maximize

the value ofSNA-001. There can be no assurance that our activities will result in any agreements or transactions that will monetizeSNA-001 or that will enhance shareholder value. Further, any strategic transaction that is completed ultimately may not deliver the anticipated benefits or enhance shareholder value.

SNA-125, if approved for the treatment of psoriasis, may compete withSNA-120, if approved for the treatment of psoriasis, which could reduce the commercial success ofSNA-120, if both are approved.

SNA-120 andSNA-125 are both designed to inhibit TrkA. To the extent bothSNA-120 andSNA-125 are approved for psoriasis, physicians and patients may prefer to useSNA-125 instead ofSNA-120, and the revenue we would derive fromSNA-120 could be reduced. IfSNA-120 andSNA-125 compete for treatment of the same indications, the incremental revenue derived fromSNA-125 may be less than ifSNA-125 andSNA-120 did not treat the same indications.

We currently rely on single source third-party suppliers to manufacture nonclinical and clinical supplies of our product candidates and we intend to rely on third parties to produce commercial supplies of any approved or cleared product candidate. The loss of these suppliers, or their failure to comply with applicable regulatory requirements or to provide us with sufficient quantities at acceptable quality levels or prices, or at all, would materially and adversely affect our business.

We do not currently have nor do we plan to build or acquire the infrastructure or capability internally to manufacture supplies of our product candidates or the materials necessary to produce our product candidates for use in the conduct of our nonclinical studies or clinical trials, and we lack the internal resources and the capability to manufacture any of our product candidates on a nonclinical, clinical or commercial scale. The facilities used by our contract manufacturers to manufacture our product candidates are subject to various regulatory requirements and may be subject to the inspection of the FDA or other regulatory authorities. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements, known as cGMPs (or the Quality System Regulation, or QSR, in the case of our device product candidates). If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or comparable regulatory authorities in foreign jurisdictions, we may not be able to rely on their manufacturing facilities for the manufacture or our product candidates. In addition, we have limited control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority finds these facilities inadequate for the manufacture of our product candidates or if such facilities are subject to enforcement action in the future or are otherwise inadequate, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates.

We currently rely on third parties at key stages in our supply chain and use only a single contract manufacturer for each component of the manufacturing process for each of our lead product candidates. There are a limited number of suppliers for materials we use in our product candidates and there may be a need to assess alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our nonclinical studies and clinical trials, and if approved, ultimately for commercial sale. We currently have no alternative suppliers and expect to continue to depend on third-party contract manufacturers for the foreseeable future. Although we intend to enter into agreements with our primary manufacturers prior to commercial launch of any of our product candidates, we may be unable to enter into any such agreement or do so on commercially reasonable terms, which could have a material adverse impact upon our business. In the case ofSNA-001, we have an agreement with nanoComposix to supply the silver nanoplates used to manufactureSNA-001 for nonclinical studies and clinical trials on an exclusive basis, subject to certain exceptions in the event of certain specified supply failures, and we have an agreement with Unicep to supplySNA-001 finished product on a nonexclusive basis, subject to certain contingencies. In the case ofSNA-120 andSNA-125, we currently obtain our supplies of drug substance and drug product through individual purchase orders and have not entered into supply agreements with our current manufacturers.

We do not have any control over the process or timing of the acquisition or manufacture of materials by our manufacturers. We generally do not begin a nonclinical study or clinical trial unless we believe we have access to a sufficient supply of a product candidate to complete such study or trial. Prior to submitting an NDA forSNA-120, we must complete nonclinical studies. If our existing manufacturers were unable to supply sufficient drug substance or drug product, this would likely result in a delay of our NDA submission and approval ofSNA-120. In addition, any significant delay in, or quality control problems with respect to, the supply of a product candidate, or the raw material components thereof, for an ongoing study or trial could considerably delay completion of our nonclinical studies or clinical trials, product testing and potential regulatory approval of our product candidates. Moreover, if there is a disruption to one or more of our third-party manufacturers’ or suppliers’ relevant operations, or if we are unable to enter into or maintain arrangements for the commercial supply of our product candidates on acceptable terms, we will have no other means of producing our lead product candidates until they restore the affected facilities or we or they procure alternative manufacturing facilities or sources of supply. Our ability to progress our nonclinical and clinical programs could be materially and adversely impacted if any of the third-party suppliers upon which we rely were to experience a significant business challenge, disruption or failure due to issues such as financial difficulties or bankruptcy, issues relating to other customers such as regulatory or quality compliance issues, or other financial, legal, political, regulatory or reputational issues. Additionally, any damage to or destruction of our third-party manufacturers’ or suppliers’ facilities or equipment may significantly impair our ability to manufacture our product candidates on a timely basis.

In addition, to manufacture our lead product candidates in the quantities that we believe would be required to meet anticipated market demand, our third-party manufacturers may need to increase manufacturing capacity and, in some cases, we may attempt to secure alternative sources of commercial supply, which could involve significant challenges and may require additional regulatory approvals. In addition, the development of commercial-scale manufacturing capabilities may require us and our third-party manufacturers to invest substantial additional funds and hire and retain the technical personnel who have the necessary manufacturing experience. Neither we nor our third-party manufacturers may successfully complete any required increase to existing manufacturing capacity in a timely manner, or at all. If our manufacturers or we are unable to purchase the raw materials necessary for the manufacture of our product candidates on acceptable terms, at sufficient quality levels, or in adequate quantities, if at all, the commercial launch of our lead product candidates or any future product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of such product candidates, if approved or cleared.

We rely on third parties in the conduct of all of our nonclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties, fail to comply with applicable regulatory requirements or meet expected deadlines, we may be unable to obtain regulatory approval for our product candidates.

We currently do not have the ability to independently conduct nonclinical studies that comply with the regulatory requirements known as good laboratory practice, or GLP, requirements. We also do not currently have the ability to independently conduct any clinical trials. The FDA and regulatory authorities in other jurisdictions require us to comply with regulations and standards, commonly referred to as good clinical practice, or GCP, requirements for conducting, monitoring, recording and reporting the results of clinical trials, in order to ensure that the data and results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials. We rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conductGLP-compliant nonclinical studies andGCP-compliant clinical trials on our product candidates properly and on time. While we have agreements governing their activities, we control only certain aspects of their activities and have limited influence over their actual performance. The third parties with whom we contract for execution of ourGLP-compliant nonclinical studies and ourGCP-compliant clinical trials play a significant role in the conduct of these studies and trials and the subsequent collection and analysis of data. These third parties are not our employees and, except for restrictions imposed by our contracts with such third parties, we have limited ability to control the amount or timing of resources that they devote to our programs. Although we rely on these third parties to conduct our

GLP-compliant nonclinical studies andGCP-compliant clinical trials, we remain responsible for ensuring that each of our GLP nonclinical studies and clinical trials is conducted in accordance with its investigational plan and protocol and applicable laws and regulations, and our reliance on the CROs does not relieve us of our regulatory responsibilities.

Many of the third parties with whom we contract may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities that could harm our competitive position. If the third parties conducting our nonclinical studies or our clinical trials do not perform their contractual duties or obligations, experience significant business challenges, disruptions or failures, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to our protocols or to GCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties. This could be difficult, costly or impossible, and our nonclinical studies or clinical trials may need to be extended, delayed, terminated or repeated. As a result, we may not be able to obtain regulatory approval in a timely fashion, or at all, for the applicable product candidate, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

Our product candidates, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration. Most of our competitors have significantly greater resources than we do and we may not be able to successfully compete.

The biotechnology, pharmaceutical and medical device industries in particular are characterized by rapidly advancing technologies, intense competition and a strong emphasis on developing proprietary therapeutics. Numerous companies are engaged in the development, patenting, manufacturing and marketing of healthcare products competitive with those that we are developing, including biotechnology companies. We face competition from a number of sources, such as pharmaceutical companies, medical device companies, generic drug companies, biotechnology companies and academic and research institutions, many of which have greater financial resources, marketing capabilities, sales forces, manufacturing capabilities, research and development capabilities, clinical trial expertise, intellectual property portfolios, experience in obtaining patents and regulatory approvals for product candidates and other resources than we do. Some of the companies that offer competing products also have a broad range of other product offerings, large direct sales forces and long-term customer relationships with our target physicians, which could inhibit our market penetration efforts. In addition, certain of our product candidates, if approved, may compete with other dermatological products, includingover-the-counter, or OTC, treatments, for a share of some patients’ discretionary budgets and for physicians’ attention within their clinical practices.

If approved for the treatment psoriasis,SNA-120 andSNA-125 will face competition from a number of approved treatments for psoriasis, including branded topical drugs and generic versions where available. In many cases, these products have been developed, and are being marketed, by well-established companies. We believe thatSNA-125, if approved for the treatment of atopic dermatitis, will also face potential competition from well-established companies that market, or are expected to market, branded and generic corticosteroids or topical calcineurin inhibitors. If cleared for light-pigmented hair removal or reduction, we anticipate thatSNA-001 would compete with hair reduction products designed forat-home use by the patient.

Certain alternative treatments offered by competitors may be available at lower prices and may offer greater efficacy or better safety profiles. Additional products and treatments, including numerous injectable biological products which have been approved or are currently in clinical trials, may also receive regulatory approval in one or more territories in which we compete, and these existing and new products may be more effective, more widely used and less costly than ours. Newly developed systemic ornon-systemic treatments that replace existing therapies that are currently only utilized in patients suffering from severe disease may also have lessened side effects or reduced prices compared to current therapies, which make them more attractive for patients suffering

from mild to moderate disease. Even if a generic product or an OTC product is less effective than our product candidates, a less effective generic or OTC product may be more quickly adopted by physicians and patients than our competing product candidates based upon cost or convenience.

If coverage and adequate reimbursement from third-party payors are not available, it may make it difficult for us to sell certain of our products profitably.

Our ability to successfully commercialize ourSNA-120 andSNA-125 product candidates and potentially some or all of our future product candidates that we may develop will depend in part on the extent to which governmental authorities, private health insurers and other third-party payors establish adequate coverage and reimbursement for such product candidates. Patients who are prescribed treatments for their conditions and providers furnishing such services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. 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 and the procedures using our products.

Significant uncertainty exists as to the coverage and reimbursement status of newly approved products. A trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products. Third-party payors also are increasingly challenging the effectiveness of and prices charged for medical products and services. Therefore, as a result of these cost containment measures, coverage and reimbursement may not be available for any product that we commercialize and, even if these are available, the level of reimbursement may not be sufficient enough to successfully commercialize any product candidates that we develop.

In the United States, private third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. However, no uniform policy requirement for coverage and reimbursement for products exists among third-party payors and coverage and reimbursement can differ significantly from payor to payor. Each plan determines whether or not it will provide coverage, what amount it will pay, and with respect to pharmaceutical products, on what tier of its formulary such product will be placed. The position of a prescription drug on a formulary generally determines theco-payment that a patient will need to make to obtain the product and can strongly influence the adoption of a product by patients and physicians. Each plan may separately require us to provide scientific and clinical support for the use of our products and, as a result, the coverage determination process is often a time-consuming and costly process with no assurance that coverage and adequate reimbursement will be applied consistently or obtained at all. Our inability to promptly obtain coverage and adequate reimbursement from both government-funded and private payors for any approved products that we develop could significantly harm our operating results, our ability to raise capital needed to commercialize our product candidates and our overall financial condition.

We currently have no sales organization. If we are unable to establish sales capabilities on our own or through third parties, we may not be able to market and sell our product candidates effectively in the United States and foreign jurisdictions, if approved, or generate product revenue.

We currently do not have a sales organization. In order to commercialize our product candidates in the United States and foreign jurisdictions, we must build our marketing, sales, distribution, managerial and othernon-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If any of our product candidates receive regulatory approval, we expect to establish a sales organization with technical expertise and supporting distribution capabilities to commercialize each such product candidate, which will be expensive and time consuming. We have no prior experience in the marketing, sale and distribution of pharmaceutical products or medical devices and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain, and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development

of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. We may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize our product candidates. If we are not successful in commercializing our product candidates or any future product candidates, either on our own or through arrangements with one or more third parties, we may not be able to generate any future product revenue and we would incur significant additional losses.

We restructured the Company in January 2019 to refocus our resources on the Phase 3 clinical trial program forSNA-120 and, given our considerably reduced workforce, we may experience difficulties in retaining our existing employees and managing our operations, including our continued development ofSNA-120.

As of December 31, 2018, we had 58 full-time employees. On January 2, 2019, we implemented a corporate restructuring to focus our resources on our lead productcandidate, SNA-120 for psoriasis and the associated pruritus, resulting in a reduction in force to reduce operational costs and preserve capital. The restructuring resulted in an elimination of 20 positions, or approximately 34% of our workforce. We will need to retain and maintain our existing managerial, operational, finance and other personnel and other resources in order to manage our operations, clinical trials, and continue our development activities, including our Phase 3 clinical trial program forSNA-120. Our management and personnel, systems and facilities currently in place may not be adequate to support our strategy. Our need to effectively execute our strategy requires that we:

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manage our clinical trials effectively;

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identify, recruit, retain, incentivize and integrate additional employees, including sales personnel;

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manage our internal development and operational efforts effectively while carrying out our contractual obligations to third parties; and

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continue to maintain and improve our operational, financial and management controls, reports systems and procedures.

If we fail to attract and retain, and integrate new, senior management and key scientific personnel, we may be unable to successfully develop our lead product candidates or any future product candidates, conduct our clinical trials and commercialize our current or any future product candidates.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We are highly dependent upon our senior management, particularly our President and Chief Executive Officer, as well as our senior scientists and other members of our senior management team. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, initiation or completion of our planned clinical trials or the commercialization of our lead product candidates or any future product candidates. Although we have entered into employment agreements with our senior management team, these agreements do not provide for a fixed term of service. In addition, we have recently hired new members of our senior management team and intend to continue to build out our organization. Integrating these new members of management, and potential future hires, will require the attention to management and may cause temporary distractions in our operations as these new members are integrated into the organization.

Competition for qualified personnel in the biotechnology and pharmaceuticals field is intense due to the limited number of individuals who possess the skills and experience required by our industry. We will need to hire additional personnel as we expand our clinical development and if we initiate commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output.

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

We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranty. 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. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

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decreased demand for our current or future product candidates;

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injury to our reputation;

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withdrawal of clinical trial participants;

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costs to defend the related litigation;

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a diversion of management’s time and our resources;

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substantial monetary awards to trial participants or patients;

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

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loss of revenue; and

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the inability to commercialize our current or any future product candidates.

Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the commercialization of our current or any future product candidates we develop. We currently carry product liability insurance covering our clinical trials in the amount of $10 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient funds to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain approval for marketing any of our product candidates, we intend to expand our insurance coverage to include the sale of such product candidate; however, we may be unable to obtain this liability insurance on commercially reasonable terms or at all.

If we are not successful in discovering, developing, acquiring and commercializing additional product candidates, our ability to expand our business and achieve our longer-term strategic objectives would be impaired.

Although a substantial amount of our effort will focus on the continued nonclinical and clinical testing and potential approval or clearance ofSNA-120, a key element of our longer-term strategy is to discover, develop and commercialize a diverse portfolio of product candidates to serve the dermatology market. We are seeking to do so through our internal research programs and may explore strategic collaborations for the development or acquisition of new products. Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research

programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including the following:

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the research methodology or technology platform used may not be successful in identifying potential product candidates;

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competitors may develop alternatives that render our product candidates obsolete or less attractive;

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product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive rights;

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a product candidate may be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

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a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and;

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a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors, if applicable.

If we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed and our business will be more vulnerable to any problems that we encounter in developing and commercializing our lead product candidates.

We have in the past engaged and may in the future engage in strategic transactions that could affect our liquidity, dilute our existing stockholders, increase our expenses and present significant challenges in focus and energy to our management or prove not to be successful.

From time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases andout-licensing orin-licensing of intellectual property, products or technologies. In December 2016, we acquired the entire issued share capital of Creabilis plc, which became our direct wholly-owned subsidiary. In connection with closing, we made an upfront payment of approximately $0.2 million in cash, issued 1,407,679 shares of our SeriesA-3 Preferred Stock to the former Creabilis shareholders and settled approximately $6.7 million of Creabilis liabilities. In October 2017, we commenced our additional Phase 2b clinical trial forSNA-120, triggering our first contingent milestone payment of $5.0 million, less certain offsets totaling approximately $0.3 million, which we satisfied by issuing an aggregate of 201,268 shares of common stock to the former Creabilis shareholders in December 2017 pursuant to the terms of the Share Purchase Agreement. Upon the achievement of certain additional clinical, regulatory and approval milestones forSNA-120 andSNA-125, we are obligated to pay the former Creabilis shareholders up to an aggregate of $53.0 million, which consists of an aggregate of $25.0 million in cash and $28.0 million in shares of our common stock and includes our obligation to, upon the commencement of a Phase 3 clinical trial ofSNA-120, issue $18.0 million in shares of our common stock, less certain offsets if applicable. In addition, upon the achievement of certain annual net sales milestone thresholds for qualifying products, includingSNA-120 andSNA-125, we are required to pay the former Creabilis shareholders up to an aggregate of $80.0 million in cash as well asone-time royalties of less than 1% on net sales of qualified products that exceed these net sales thresholds in the year such threshold is achieved.

Additional potential transactions that we may consider in the future include a variety of business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. The Creabilis acquisition and any future transactions could result in potentially dilutive issuances of our equity securities, including our common stock, or the incurrence of debt, contingent liabilities, amortization expenses or acquiredin-process research and development expenses, any of which could affect our financial condition, liquidity and results of operations. Future acquisitions may also require us to obtain additional financing, which may not be available on favorable terms or at all. These transactions may never be successful and may require significant time and attention of management. In addition, the integration of

any business that we may acquire in the future may disrupt our existing business and may be a complex, risky and costly endeavor for which we may never realize the full benefits of the acquisition.

If we do not successfully integrate Creabilis or other acquired businesses or assets into our business operations, our business could be adversely affected.

The process of integrating an acquired business’ technology, service, intellectual property, products or product candidates into our business may result in unforeseen operating difficulties and expenditures, including diversion of resources and management’s attention from our core business. Our ability as an organization to integrate acquisitions, including Creabilis’ business, is relatively unproven. As a result of our acquisition of Creabilis in December 2016, we have undergone substantial changes in a short period of time and our business has changed and broadened in size and the scope of products we are developing. In addition, our business immediately shifted from being fully domestic to including international employees, entities, operations and facilities. Integrating the operations of a new business with that of our own is a complex, costly and time-consuming process, which requires significant management attention and resources to integrate the business practice and operations. The integration process may disrupt the businesses and, if implemented ineffectively, would preclude realization of the full benefits expected by us. Our failure to meet the challenges involved in integrating the Creabilis business in order to realize the anticipated benefits of the acquisitions could cause an interruption of, or a loss of momentum in, our activities and could adversely affect our results of operations. Prior to the acquisition, Creabilis operated independently, with its own business, corporate culture, locations, employees and systems. There may be substantial difficulties, costs and delays involved in any integration of other businesses, including Creabilis, with that of our own. These may include:

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distracting management fromday-to-day operations;

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an ability to retain key executives and employees of Creabilis, which may reduce the value of the acquisition or give rise to additional integration costs;

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challenges associated with integrating Creabilis’ intellectual property and prosecuting the acquired intellectual property;

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risks associated with the assumption of the liabilities of Creabilis;

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inheriting and uncovering previously unknown issues, problems and costs from Creabilis;

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risks and costs associated with inheriting a supply chain of third-party manufacturers with whom Creabilis had not yet established long-term contractual relationships;

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realization of assets and settlement of liabilities at amounts equal to estimated fair value as of the acquisition date of any acquisition or disposition;

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costs and delays in implementing common systems and procedures, including technology, compliance programs, financial systems, distribution and general business operations, among others; and

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increased difficulties in managing our business due to the addition of international locations.

These risks may be heightened in the case of Creabilis because the majority of the business’ operations and employees are located in Europe. Any one or all of these factors may increase operating costs or lower anticipated financial performance. Many of these factors are also outside of our control. In addition, dispositions of certain key products, technologies and other rights may affect our business operations.

In addition, even if the operations of Creabilis are integrated successfully, we may not realize the full benefits of the acquisition, including the cost savings or sales or growth opportunities that we expect. These benefits may not be achieved within the anticipated time frames, or at all. Additional unanticipated costs may be incurred in the integration of the business. All of these factors could cause a reduction to our earnings, decrease or delay the expected accretive effect of the transaction, and negatively impact the price of our common stock.

The failure to successfully integrate the business operations of Creabilis and any other business we may acquire would have a material adverse effect on our business, financial condition and results of operations.

The international aspects of our business expose us to a variety of business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States, which could materially adversely affect our business.

We currently have limited international operations in Italy, the United Kingdom and Luxembourg. Doing business internationally, including any future efforts by us or a collaborator to commercialize our product candidates outside the United States, involves a number of risks related to these international markets or business relationships, including but not limited to:

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different regulatory requirements for product approvals in foreign countries;

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different approaches by reimbursement agencies regarding the assessment of the cost effectiveness of our products;

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reduced protection for intellectual property rights in certain foreign countries;

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unexpected changes in tariffs, trade barriers and regulatory requirements;

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different reimbursement systems for dermatological medications and for clinicians treating patients with dermatological conditions;

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

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multiple, conflicting and changing laws and regulations such as privacy regulations, including General Data Protection Regulation, or GDPR, tax laws, export and import restrictions, employment laws, immigration laws, labor laws, regulatory requirements and other governmental approvals, permits and licenses;

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foreign taxes, including withholding of payroll taxes;

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

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financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations;

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difficulties in staffing and managing foreign operations by us or our collaboration partners;

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

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certain expenses including, among others, expenses for travel, translation and insurance;

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limits in our or our collaboration partners’ ability to penetrate international markets;

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

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potential liability resulting from activities conducted on our behalf by distributors or other vendors we engage;

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regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act or the U.K. Bribery Act; and

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business interruptions resulting from natural disasters, outbreak of disease or geopolitical actions, including war, terrorism, political unrest, boycotts, curtailment of trade or other business restrictions.

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

We may seek collaboration arrangements for the commercialization, or potentially for the development, of certain of our product candidates depending on the merits of retaining commercialization rights for ourselves as compared to entering into collaboration arrangements. 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, implement and maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we so chose to enter into such arrangements. The terms of any collaborations or other arrangements that we may establish may not be favorable to us.

Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include risks that:

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

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

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

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

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a collaborator with marketing, manufacturing and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;

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we could grant exclusive rights to our collaborators that would prevent us from collaborating with others;

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

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

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

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

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disputes may arise with respect to the ownership of any intellectual property developed pursuant to our collaborations; and

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a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminal proceedings.

We incur significant costs as a result of operating as a public company, and our management devotes substantial time to new compliance initiatives. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act of 2002, which could result in sanctions or other penalties that would harm our business.

We incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended, and regulations regarding corporate governance practices. The listing requirements of The Nasdaq Global Select Market and the rules of the Securities and Exchange Commission, or SEC, require that we satisfy certain corporate governance requirements relating to director independence, filing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and regulations will continue to increase our legal and financial compliance costs and make some activities more time-consuming and costly. Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.

We are subject to Section 404 of The Sarbanes-Oxley Act of 2002, or Section 404, and the related rules of the SEC, which generally require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. Beginning with this annual report, Section 404 requires that we file with the SEC an annual management assessment of the effectiveness of our internal control over financial reporting. We have furnished in this Annual Report onForm 10-K a report by management on, among other things, the effectiveness of our internal control over financial reporting for the fiscal year ending December 31, 2018. However, for so long as we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial reporting. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following August 1, 2022, the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held bynon-affiliates exceeds $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion innon-convertible debt during the prior three-year period.

During the course of our review and testing of our internal control over financial reporting, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We or our independent registered public accounting firm may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall. In addition, as a public company we are required to file accurate and timely quarterly and annual reports with the SEC under the Securities Exchange Act of 1934, as amended. In order to report our results of operations and financial statements on an accurate and

timely basis, we will depend, in part, on CROs to provide timely and accurate notice of their costs to us. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The Nasdaq Global Select Market or other adverse consequences that would materially harm to our business.

Unfavorable global economic or political conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Furthermore, the market for aesthetic medical procedures may be particularly vulnerable to unfavorable economic conditions. A global financial crisis or a global or regional political disruption could cause extreme volatility in the capital and credit markets. A severe or prolonged economic downturn or political disruption could result in a variety of risks to our business, including weakened demand for our lead product candidates or any future product candidates, if approved, and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy or political disruption could also strain our manufacturers or suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the political or economic climate and financial market conditions could adversely impact our business.

We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Our corporate headquarters and other facilities are located in the Northern Los Angeles Area, which in the past has experienced severe earthquakes, wildfires and mudslides. We do not carry earthquake insurance. Earthquakes, wildfires, mudslides or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects.

If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our enterprise financial systems or manufacturing resource planning and enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.

Furthermore, integral parties in our supply chain are similarly vulnerable to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our business.

Significant disruptions of information technology systems or breaches of data security could materially adversely affect our business, results of operations and financial condition.

We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent on information technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store and transmit large amounts of confidential information, including intellectual property, proprietary business information and personal information. It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We have established physical, electronic, and organizational measures to safeguard and secure our systems to prevent a data compromise, and rely on commercially available systems, software, tools, and monitoring to provide

security for our information technology systems and the processing, transmission and storage of digital information. We have also outsourced elements of our information technology infrastructure, and as a result a number of third-party vendors may or could have access to our confidential information. Our internal information technology systems and infrastructure, and those of our current and any future collaborators, contractors and consultants and other third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization.

The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. In addition, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information or other intellectual property. The costs to us to mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service, government files or penalties and other harm to our business and our competitive position. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. For example, the loss of clinical trial data from completed, 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. Moreover, if a computer security breach affects our systems or results in the unauthorized release of personally identifiable information, our reputation could be materially damaged. In addition, such a breach may require notification to governmental agencies, the media or individuals pursuant to various international, federal and state privacy and security laws, if applicable, including the GDPR, the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Clinical Health Act of 2009, and its implementing rules and regulations, as well as regulations promulgated by the Federal Trade Commission and state breach notification laws. We would also be exposed to a risk of loss or litigation and potential liability, which could materially adversely affect our business, results of operations and financial condition.

Our employees and independent contractors, including principal investigators, consultants, commercial collaborators, service providers and other vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect on our results of operations.

We are exposed to the risk that our employees and independent contractors, including principal investigators, consultants, any future commercial collaborators, service providers and other vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA and other similar regulatory bodies, including those laws that require the reporting of true, complete and accurate information to such regulatory bodies; manufacturing standards; U.S. federal and state healthcare fraud and abuse, data privacy laws and other similarnon-U.S. laws; or laws that require the true, complete and accurate reporting of financial information or data. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, the creation of fraudulent data in our nonclinical studies or clinical trials, or illegal misappropriation of product, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and other third-parties, 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 be in compliance with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. 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 and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid and other U.S. healthcare programs, individual imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Our business involves the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials owned by us, including the components of our product and product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costlyclean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources, and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry biological or hazardous waste insurance coverage.

Risks Related to Intellectual Property

Our proprietary platform technology and any future products that we commercialize could be alleged to infringe patent rights and other proprietary rights of third parties, which may require costly litigation and, if we are not successful, could cause us to pay substantial damages and/or limit our ability to commercialize our products.

Our commercial success depends on our ability to develop, manufacture and market candidates from our proprietary platform technology and use our platform technology without infringing the patents and other proprietary rights of third parties. Intellectual property disputes can be costly to defend and may cause our business, operating results and financial condition to suffer. We operate in an industry with extensive intellectual property litigation. As the biopharmaceutical and dermatological product industries expand and more patents are issued, the risk increases that there may be patents issued to third parties that relate to our products and technology of which we are not aware or that we may need to challenge to continue our operations as currently contemplated.

Whether merited or not, we may face allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including patents held by our competitors or bynon-practicing entities. We may also face allegations that our employees have misappropriated the intellectual property rights of their former employers or other third parties. Litigation may make it necessary to defend ourselves by determining the scope, enforceability and validity of third-party proprietary rights, or to establish our proprietary rights. Regardless of whether claims that we are infringing patents or other intellectual property rights have merit, the claims can be time consuming, divert management attention and financial resources and are

costly to evaluate and defend. Results of any such litigation are difficult to predict and may require us to stop treating certain conditions, obtain licenses or modify our products and features while we developnon-infringing substitutes, or may result in significant settlement costs. For example, litigation can involve substantial damages for infringement (and if the court finds that the infringement was willful, we could be ordered to pay treble damages and the patent owner’s attorneys’ fees), and the court could prohibit us from selling or licensing our products unless the third-party licenses rights to us, which it is not required to do at a commercially reasonable price or at all. If a license is available from a third party, we may have to pay substantial royalties, upfront fees or grant cross-licenses to intellectual property rights for our products. We may also have to redesign our products so they do not infringe third-party intellectual property rights, which may not be possible at all or may require substantial monetary expenditures and time, during which our products may not be available for manufacture, use, or sale.

In addition, patent applications in the United States and many international jurisdictions are typically not published until 18 months after the filing of certain priority documents (or, in some cases, are not published until they issue as patents) and publications in the scientific literature often lag behind actual discoveries. Thus, we cannot be certain that others have not filed patent applications or made public disclosures relating to our technology or our contemplated technology. A third party may have filed, and may in the future file, patent applications covering our products or technology similar to ours. Any such patent application may have priority over our patent applications or patents, which 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, depending on whether the timing of the filing date falls under certain patent laws, we may have to participate in a priority contest (such as an interference proceeding) declared by the United States Patent and Trademark Office (USPTO) to determine priority of invention in the United States. The costs of any such proceedings could be substantial, and it is possible that such efforts would be unsuccessful if it is determined that the other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss of our U.S. patent position with respect to such inventions.

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business with respect to intellectual property. Although we are not currently subject to any claims from third parties asserting infringement of their intellectual property rights, in the future, we may receive claims from third parties asserting infringement of their intellectual property rights. Future litigation may be necessary to establish our intellectual property rights or to defend ourselves by determining the scope, enforceability and validity of third-party intellectual property rights. There can be no assurance with respect to the outcome of any current or future litigation brought by or against us, and the outcome of any such litigation could have a material adverse impact on our business, operating results and financial condition. Litigation is inherently unpredictable and outcomes are uncertain. Further, as the costs and outcome of these types of claims and proceedings can vary significantly, it is difficult to estimate potential losses that may occur. Accordingly, we are unable at this time to estimate the effects of these potential future lawsuits on our financial condition, operations or cash flows.

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. Finally, 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.

With respect to adverse proceedings in which we are currently involved, we plan to vigorously protect our intellectual property rights. However as with all adverse proceedings, regardless of the merits of third-party claims, such proceedings are time-consuming and costly to litigate or settle and may divert managerial attention and resources away from our business objectives.

Successful pending claims against us could result in monetary liability and/or prevent us from operating our business, or portions of our business. Resolution of claims may require us to obtain rights to third-party intellectual property rights, which may be expensive to procure, or we may be required to cease using certain intellectual property altogether. These and other risks are inherent to adverse proceedings involving intellectual property.

For further information regarding the proceedings in which we are currently involved, please see “Part I, Item 3”. Legal Proceedings.”

If we are unable to obtain, maintain and enforce intellectual property protection directed to our proprietary platform technology and any future technologies that we develop, others may be able to make, use, or sell products substantially the same as ours, which could adversely affect our ability to compete in the market.

We have not pursued or maintained, and may not pursue or maintain in the future, patent protection for our products in every country or territory in which we may sell our products. In addition, we cannot be sure that any of our pending patent applications or pending trademark applications will issue or that, if issued, they will issue in a form that will be advantageous to us. The USPTO, international patent offices or judicial bodies may deny or significantly narrow claims made under our patent applications and our issued patents may be successfully challenged, may be designed around, or may otherwise be of insufficient scope to provide us with protection for our commercial products. Further, the USPTO, international trademark offices or judicial bodies may deny our trademark applications and, even if published or registered, these trademarks may not effectively protect our brand and goodwill. Like patents, trademarks also may be successfully opposed or challenged.

We cannot be certain that the steps we have taken will prevent unauthorized use or unauthorized reverse engineering of our technology. Moreover, third parties may independently develop technologies that are competitive with ours and such competitive technologies may or may not infringe our intellectual property. The enforcement of our intellectual property rights also depends on the success of our legal actions against these infringers in the respective country or forum, but these actions may not be successful. As with all granted intellectual property, such intellectual property may be challenged, invalidated or circumvented, may not provide specific protection and/or may not prove to be enforceable in actions against specific alleged infringers.

The market for biopharmaceuticals and dermatological treatments is highly competitive and subject to rapid technological change. Our success depends, in part, upon our ability to maintain a competitive position in the development and protection of technologies and products for use in these fields and upon our ability to obtain, maintain and enforce our intellectual property rights in connection therewith. We seek to obtain and maintain patents and other intellectual property rights to restrict the ability of others to market products that misappropriate our technology and/or infringe our intellectual property to unfairly and illegally compete with our products. If we are unable to protect our intellectual property and proprietary rights, our competitive position and our business could be harmed, as third parties may be able to make, use, or sell products that are substantially the same as ours without incurring the sizeable development and licensing costs that we have incurred, which would adversely affect our ability to compete in the market. With respect to our Topical Photopartical Therapy^TM technology, under our exclusive supply and license agreement with nanoComposix, we are solely responsible for the prosecution of the licensed patent rights throughout the world, at our expense, and we have the first right to enforce within our licensed field and defend the licensed patent rights throughout the world, at our expense.

We use a combination of patents, trademarks,know-how, confidentiality procedures and contractual provisions to protect our proprietary technology. However, these protections may not be adequate and may not provide us with any competitive advantage. For example, patents may not issue from any of our currently pending or any future patent applications, and our issued patents and any future patents that may issue may not survive legal challenges to their scope, validity or enforceability, or provide significant protection for us.

If we or one of our current or future collaborators were to initiate legal proceedings against a third party to enforce a patent covering one of our lead product candidates or future product candidates, the defendant could

counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States, 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 lack of novelty, obviousness ornon-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before the USPTO, even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection would have a material adverse impact on our business.

Even if our patents are determined by a court to be valid and enforceable, they may not be interpreted sufficiently broadly to prevent others from marketing products similar to ours or designing around our patents. For example, third parties may be able to make product that are similar to ours but that are not covered by the claims of our patents. Third parties may assert that we or our licensors were not the first to make the inventions covered by our issued patents or pending patent applications. The claims of our issued patents or patent applications when issued may not cover our proposed commercial technologies or the future products that we develop. We may not have freedom to commercialize unimpeded by the patent rights of others. Third parties may have dominating, blocking, or other patents relevant to our technology of which we are not aware. There may be prior public disclosures or art that could be deemed to invalidate one or more of our patent claims. Further, we may not develop additional proprietary technologies in the future, and, if we do, they may not be patentable.

Patent law can be highly uncertain and involve complex legal and factual questions for which important principles remain unresolved. In the United States and in many international jurisdictions, policy regarding the breadth of claims allowed in patents can be inconsistent. The U.S. Supreme Court and the Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws of the United States are interpreted. Similarly, international courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by U.S. and international legislative bodies. Those changes may materially affect our patents, our ability to obtain patents or the patents and patent applications of our licensors.

Patent reform legislation in the United States could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. For example, on September 16, 2011, the Leahy-Smith America Invents Act, or Leahy-Smith Act, was signed into law. The Leahy-Smith Act included a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation, and switch the U.S. patent system from a“first-to-invent” system to a“first-to-file” system. Under a“first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor had made the invention earlier. The United States Patent and Trademark Office recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, thefirst-to-file provisions, only became effective on March 16, 2013. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, which could have a material adverse effect on our business and financial condition.

In addition, we have a number of international patents and patent applications and expect to continue to pursue patent protection in many of the significant markets in which we intend to do business. The laws of some international jurisdictions may not protect intellectual property rights to the same extent as laws in the United States, and many companies have encountered significant difficulties in obtaining, protecting, and defending

such rights in international jurisdictions. If we encounter such difficulties or we are otherwise precluded from effectively protecting our intellectual property rights in international jurisdictions, our business prospects could be substantially harmed. Varying filing dates in international countries may also permit intervening third parties to allege priority to certain technology.

Patent terms may be shortened or lengthened by, for example, terminal disclaimers, patent term adjustments, supplemental protection certificates, and patent term extensions. Patent term extensions and supplemental protection certificates, and the like, may be impacted by the regulatory process and may not significantly lengthen patent term.Non-payment or delay in payment of patent fees or annuities, delay in patent filings or delay in extension filing (including any patent term extension or adjustment filing), whether intentional or unintentional, may also result in the loss of patent rights important to our business. Certain countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to other parties. In addition, many countries limit the enforceability of patents against other parties, including government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of any patents.

In addition to the protection afforded by patents, we rely on confidentiality agreements to protect confidential information and proprietaryknow-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 proprietaryknow-how, information or technology that is not covered by patents. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our confidential information or proprietary technology and processes. We also seek to preserve the integrity and confidentiality of our data and other confidential information 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 detecting the disclosure or misappropriation of confidential information and enforcing a claim that a party illegally disclosed or misappropriated confidential information is difficult, expensive and time-consuming, and the outcome is unpredictable. Further, we may not be able to obtain adequate remedies for any breach. In addition, our confidential information may otherwise become known or be independently discovered by competitors, in which case 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. We may in the future rely on trade secret protection, which would be subject to the risks identified above with respect to confidential information.

Monitoring unauthorized use of our intellectual property is difficult and costly. From time to time, we review our competitors’ products, and may in the future seek to enforce our patents or other rights against potential infringement. However, the steps we have taken to protect our proprietary rights may not be adequate to prevent misappropriation of our intellectual property. We may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Our competitors may also independently develop similar technology. Any inability to meaningfully protect our intellectual property could result in competitors offering products that incorporate our product or service features, which could reduce demand for our products. In addition, we may need to defend our patents from third-party challenges, such as (but not limited to) interferences, derivation proceedings,re-examination proceedings, post-grant review, inter partes review, third-party submissions, oppositions, nullity actions, or other patent proceedings. We may need to initiate infringement claims or litigation. Adverse proceedings such as litigation can be expensive, time consuming and may divert the efforts of our technical and managerial personnel, which could in turn harm our business, whether or not we receive a determination favorable to us. In addition, in an infringement proceeding, a court or other judicial body may decide that the patent we seek to enforce is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that the patent in question does not cover the technology in question. An adverse result in any litigation could put one or more of our patents at risk of being invalidated or interpreted narrowly. Some of our competitors may be able to devote significantly more resources to intellectual

property litigation and may have significantly broader patent portfolios to assert against us if we assert our rights against them. Further, because of the substantial discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be disclosed or otherwise compromised during litigation.

We may not be able to correctly estimate or control our future operating expenses in relation to obtaining intellectual property, enforcing intellectual property and/or defending intellectual property, which could affect operating expenses. Our operating expenses may fluctuate significantly in the future as a result of a variety of factors, including the costs of preparing, filing, prosecuting, defending, and enforcing patent and trademark claims and other intellectual property-related costs, including adverse proceedings (such as litigation) costs.

With respect to our proprietary platform technology, if we do not obtain rights to commercialize certain compounds, there is a risk that such rights will be exploited by another entity. As with all licenses to third parties in specific fields of use, there is a risk of impermissible exploitation by such third parties outside the licensed field.

With respect to our Topical Photoparticle Therapy^TM technology, if the nanoComposix agreement is terminated or narrowed, we could lose intellectual property rights that may be material to our Topical Photoparticle Therapy^TM products. This agreement may be terminated by nanoComposix for our nonpayment or material breach, in either case, after the opportunity to cure and final determination in arbitration, or for our failure to receive FDA regulatory approval to sell a licensed product by August 2022, or for our insolvency or bankruptcy, or if we or our affiliate or future sublicensee initiates or voluntarily joins as a party to any legal action that challenges the validity or enforceability of the nanoComposix licensed patent rights, or nanoComposix’s title thereto, or by joint written agreement. We may enter into additional licenses and agreements in the future and, as with all such arrangements, if we do not comply with obligations, we may suffer adverse consequences. Likewise, we are party to several agreements that although do not currently have a material impact on intellectual property, may become material if certain obligations are not fulfilled by any of the contracting parties.

Our intellectual property agreements with third parties may be subject to disagreements over contract interpretation, which could narrow the scope of our rights to the relevant intellectual property or technology or increase our financial or other obligations to our licensors.

Certain provisions in our intellectual property agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could affect the scope of our rights to the relevant intellectual property or technology, or affect financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or 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 conceives or develops intellectual property that we regard as our own. Our assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

We may be subject to claims challenging the inventorship or ownership of our 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. 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 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 distraction to management and other employees.

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

Filing, prosecuting and defending patents on product candidates, including all of the licensed rights under our exclusive supply and license agreement with nanoComposix, 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 and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or 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 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 significant commercial advantage from the intellectual property that we develop or license.

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, declared generic or conflict with third-party rights. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition by potential partners or customers in our markets of interest. In addition, third parties may file first for our trademarks in certain countries. If they succeeded in registering such trademarks, and if we were not successful in challenging such third-party rights, we may not be able to use these trademarks to market our products in those countries. In such cases, over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then our marketing abilities may be impacted.

We have not yet registered trademarks for a commercial trade name for our lead product candidates in the United States or foreign jurisdictions and failure to secure such registrations could adversely affect our business.

We have not yet registered trademarks for a commercial trade name for our lead product candidates in the United States or any foreign jurisdiction, if approved. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks.

Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. Moreover, any name we propose to use with our product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

If we are unable to protect the confidentiality of our proprietary information andknow-how, the value of our technology and products could be adversely affected.

We may not be able to protect our proprietary information and technology adequately. Although we use reasonable efforts to protect our proprietary information, technology, andknow-how, our employees, consultants, contractors and outside scientific advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our proprietary information, technology orknow-how is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect proprietary information, technology, andknow-how. We rely, in part, onnon-disclosure and confidentiality agreements with our employees, consultants and other parties to protect our proprietary information, technology, andknow-how. These agreements may be breached and we may not have adequate remedies for any breach. Moreover, others may independently develop similar or equivalent proprietary information, and third parties may otherwise gain access to our proprietary knowledge.

Risks Related to Government Regulation

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

The time required to obtain approval or other marketing authorizations by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval or any other marketing authorization for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval or clearance. Neither we nor any future collaborator is permitted to marketSNA-120,SNA-125 or any future drug product candidates in the United States until we receive regulatory approval of an NDA from the FDA, nor can we or any future collaborator marketSNA-001 or any future product candidates under the 510(k) clearance process in the United States until we receive clearance or marketing authorization from the FDA.

Prior to obtaining approval to commercializeSNA-120,SNA-125 and any other drug product candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA or foreign regulatory agencies, that such product candidates are safe and effective for their intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. The FDA may also require us to conduct additional nonclinical studies or clinical trials for our product candidates either prior to or post-approval, or it may object to elements of our clinical development program. In addition, the FDA may refer applications for novel drugs, likeSNA-120 and potentially other of our future product candidates,

to an advisory committee comprised of outside experts. The FDA is not bound by the recommendation of the advisory committee, but it considers such recommendation when making its decision.

We have announced our intent to seek a strategic partner forSNA-001, but may concurrently pursue FDA clearance ofSNA-001 for the reduction of light-pigmented hair and the treatment of acne under the FDA’s 510(k) premarket notification process. Before we or our partner can marketSNA-001 in the United States, we are required to obtain clearance from the FDA under Section 510(k) of the FDCA. In the 510(k) clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a device legally on the market, known as a “predicate” device, with respect to intended use, technology and safety and effectiveness, in order to clear the proposed device for marketing. Clinical data is sometimes required to support substantial equivalence. Under certain conditions, a medical device is required to be received underpre-market approval, or PMA, application from the FDA. The PMA pathway requires an applicant to demonstrate the safety and effectiveness of the device based, in part, on extensive data, including, but not limited to, technical, nonclinical, clinical trial, manufacturing and labeling data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices. However, some devices are automatically subject to the PMA pathway regardless of the level of risk they pose because they have not previously been classified into a lower risk class by the FDA. Manufacturers of these devices may request that FDA review such devices in accordance with thede novoclassification procedure, which allows a manufacturer whose novel device would otherwise require the submission and approval of a PMA prior to marketing to request down-classification of the device on the basis that the device presents low or moderate risk. If the FDA agrees with the down classification based on ade novosubmission, the FDA will authorize the device for marketing. This device type can then be used as a predicate device for future 510(k) submissions. The process of obtaining regulatory clearances or approvals, or completing thede novoclassification process, to market a medical device can be costly and time consuming, and we may not be able to successfully obtainpre-market reviews on a timely basis, if at all.

If the FDA requires us to go through a lengthier, more rigorous examination for our products than we expect, our product introductions or modifications could be delayed or canceled, which could cause our sales to decline. In addition, the FDA may determine thatSNA-001 or other future medical device product candidates for which we pursue 510(k) clearance will require us to obtain approval through the PMA process, which is generally more costly and uncertain and can take from one to three years, or longer, from the time the application is submitted to the FDA until an approval is obtained. Further, even where a PMA is not required, we cannot assure you that we will be able to obtain 510(k) clearances with respect to such product candidates or modifications to previously cleared products.

The FDA or any foreign regulatory bodies can delay, limit or deny approval or clearance of our product candidates or require us to conduct additional nonclinical or clinical testing or abandon a program for many reasons, including:

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the FDA or the applicable foreign regulatory agency’s disagreement with the design or implementation of our clinical trials;

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negative or ambiguous results from our clinical trials or results that may not meet the level of statistical significance required by the FDA or comparable foreign regulatory agencies for approval;

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serious and unexpected drug-related side effects experienced by participants in our clinical trials or by individuals using drugs similar to our product candidates;

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our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that our product candidates are safe and effective for the proposed indication, or in the case of the 510(k) clearance process, that our product candidate is substantially equivalent to a predicate device;

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the FDA’s or the applicable foreign regulatory agency’s disagreement with the interpretation of data from nonclinical studies or clinical trials;

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our inability to demonstrate the clinical and other benefits of our product candidates outweigh any safety or other perceived risks;

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the FDA’s or the applicable foreign regulatory agency’s requirement for additional nonclinical studies or clinical trials;

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the FDA’s or the applicable foreign regulatory agency’s disagreement regarding the formulation, labeling or the specifications of our product candidates;

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the FDA’s or the applicable foreign regulatory agency’s failure to approve the manufacturing processes or facilities of third-party manufacturers with which we contract; or

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the potential for approval policies or regulations of the FDA or the applicable foreign regulatory agencies to significantly change in a manner rendering our clinical data insufficient for approval.

Of the large number of products in development, only a small percentage successfully complete the FDA or foreign regulatory approval processes and are commercialized. The lengthy approval or marketing authorization process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval or marketing authorization to market our product candidates, which would significantly harm our business, financial condition, results of operations and prospects.

Even if we eventually complete clinical testing and receive approval or clearance of an FDA or foreign marketing application for our product candidates, the FDA or the applicable foreign regulatory agency may grant approval or other marketing authorization contingent on the performance of costly additional clinical trials, including post-market clinical trials, and/or the implementation of a REMS, in the case ofSNA-120,SNA-125 and any other drug product candidates, which may be required to ensure safe use of the drug after approval. The FDA or the applicable foreign regulatory agency also may approve or authorize for marketing a product candidate for a more limited indication or patient population than we originally requested, and the FDA or applicable foreign regulatory agency may not approve or authorize the labeling that we believe is necessary or desirable for the successful commercialization of a product candidate. Any delay in obtaining, or inability to obtain, applicable regulatory approval or other marketing authorization would delay or prevent commercialization of that product candidate and would materially adversely impact our business and prospects.

Moreover, obtaining FDA clearance under the FDA’s 510(k) clearance process can be expensive and uncertain, and generally takes from several months to several years, and generally requires detailed and comprehensive scientific and clinical data. Notwithstanding the expense, these efforts may never result in marketing authorization. Even if we were to obtain the requisite marketing authorization, it may not be for the uses we believe are important or commercially attractive, in which case we would not be permitted to market our product for those uses.

In order to market any product in the European Economic Area (which is composed of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein), or EEA, and many other foreign jurisdictions, separate regulatory approvals are required. In the EEA, medicinal products, such asSNA-120 andSNA-125, can only be commercialized after obtaining a Marketing Authorization, or MA. Before granting the MA, 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.

There is currently no premarket government review of medical devices in the EEA. However, all medical devices placed on the market in the EEA must meet the relevant essential requirements laid down in Annex I of Directive 93/42/EEC concerning medical devices (the “Medical Devices Directive”). Compliance with these requirements is a prerequisite to be able to affix the Conformité Européene, or CE, mark to such products, without which they cannot be sold or marketed in the EEA. To demonstrate compliance with the essential requirements for such product candidates, we must undergo a conformity assessment procedure, which varies according to the type of medical device and its classification. Except forlow-risk medical devices (Class I with

no measuring function and which are not sterile), where the manufacturer can issue an EC Declaration of Conformity based on a self-assessment of the conformity of its product candidates with the essential requirements of the EU Medical Device Directive, a conformity assessment procedure requires the intervention of an organization accredited by a Member State of the EEA to conduct conformity assessments, or a Notified Body. Depending on the relevant conformity assessment procedure, the Notified Body would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices. The Notified Body issues a CE Certificate of Conformity following successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the essential requirements. This certificate entitles the manufacturer to affix the CE mark to its medical devices after having prepared and signed a related EC Declaration of Conformity. As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device (e.g., product labeling and instructions for use) are supported by suitable evidence.

On April 5, 2017, the European Parliament passed the Medical Devices Regulation which repeals and replaces the EU Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the EEA member states, a regulation is directly applicable, i.e., without the need for adoption of EEA member state laws implementing them, in all EEA member states. The Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for medical devices and ensure a high level of safety and health while supporting innovation. The Medical Devices Regulation will not become fully applicable until three years following its entry into force but medical device manufacturers, including our company, are already adjusting their conformity assessment procedures and working with their Notified Bodies to meet the more stringent requirements of the EU Medical Devices Regulation with respect to their product candidates.

The EU Medical Devices Regulation explicitly provides that high intensity electromagnetic radiation (e.g.,infra-red, visible light and ultra-violet) emitting equipment intended for use on the human body, including coherent andnon-coherent sources, monochromatic and broad spectrum, such as lasers and intense pulsed light equipment, for skin resurfacing, tattoo or hair removal or other skin treatment, falls under its scope. This affects the regulatory approval pathway of candidateSNA-001 which would thus need to comply with the requirements of the Medical Devices Regulation before it can be commercialized for removal of light-pigmented hair in the EEA. If we are unable to demonstrate conformity ofSNA-001 and our manufacturers with the requirements of the Medical Devices Regulation, or otherwise fail to remain in compliance with applicable European laws and directives, we would be unable to affix (or continue to affix) the CE mark toSNA-001, which would prevent us from sellingSNA-001 within the EEA.

The approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not be able to file for regulatory approvals or to do so on a timely basis, and even if we do file we may not receive necessary approvals to commercialize our products in any market.

In addition, the FDA and other regulatory authorities may change their policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay approval or clearance or other

marketing authorizations of our future products under development on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain approvals or marketing authorizations, increase the costs of compliance or restrict our ability to maintain any marketing authorizations we may have obtained. For example, as part of the Food and Drug Administration Safety and Innovation Act enacted in 2012, Congress enacted several “Medical Device Regulatory Improvements” and miscellaneous reforms, which are intended to clarify and improve medical device regulation bothpre- and post-clearance and approval.

Modifications to our product candidates cleared under the 510(k) clearance process, if any, may require new 510(k) clearances or other marketing authorizations, and if we make modifications to such products without obtaining requisite marketing authorization, we may be required to cease marketing or recall the modified products until clearances or other marketing authorizations are obtained.

Any modification to a 510(k)-cleared product or a device authorized for marketing that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, approval of a PMA. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. We may make modifications or add features to any of our product candidates that are cleared under the 510(k) clearance process in the future that we believe do not require a new 510(k) clearance or approval of a PMA. If the FDA disagrees with our determination and requires us to submit new 510(k) notifications or PMA applications for modifications to our products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. In addition, the FDA may not approve or clear our products for the indications that are necessary or desirable for successful commercialization or could require clinical trials to support any modifications. Any delay or failure in obtaining required clearances or approvals for such changes would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth. Any of these actions would harm our operating results.

We may request a special protocol assessment, from the FDA relating to our planned Phase 3 program forSNA-120, and we cannot guarantee that the FDA will issue an agreement on the SPA. Even if we do obtain FDA’s agreement, an SPA would not guarantee approval ofSNA-120 or any other particular outcome from regulatory review.

We may request agreement from the FDA under a special protocol assessment, or SPA, for our planned Phase 3 clinical trials ofSNA-120 in patients with psoriasis and associated pruritus. The FDA’s SPA process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of certain clinical trials that are intended to form the primary basis for determining a drug product’s efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis, within 45 days of receipt of the request. The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the product candidate with respect to the effectiveness of the indication studied. All agreements and disagreements between the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting between the sponsor and the FDA.

However, an SPA agreement does not guarantee approval of a product candidate, even if the trial is conducted in accordance with the protocol. Moreover, even if the FDA agrees to the design, execution, and analysis proposed in protocols reviewed under the SPA process, the FDA may revoke or alter its agreement in certain circumstances. In particular, an SPA agreement is not binding on the FDA if public health concerns emerge that were unrecognized at the time of the SPA agreement, other new scientific concerns regarding

product safety or efficacy arise, the sponsor fails to comply with the agreed upon trial protocols, or the relevant data, assumptions or information provided by the sponsor in a request for the SPA change or are found to be false or omit relevant facts. In addition, even after an SPA agreement is finalized, the SPA agreement may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if the FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study. The FDA retains significant latitude and discretion in interpreting the terms of the SPA agreement and the data and results from any study that is the subject of the SPA agreement.

There is no assurance that the FDA will agree with the design and size of any Phase 3 clinical program for which we request an SPA. Even if we do obtain agreement on an SPA, we cannot assure you that our planned Phase 3 clinical trial will succeed, will be deemed binding by the FDA under an SPA, if granted, or will result in any FDA approval forSNA-120. Moreover, if the FDA revokes or alters its agreement under an SPA, or interprets the data collected from the clinical trial differently than we do, the FDA may not deem the data sufficient to support an application for regulatory approval, which could materially adversely affect our business, financial condition and results of operations.

Even if we receive regulatory approval of our product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense, and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our product candidates.

Any regulatory approvals or other marketing authorizations we obtain for our product candidates may be subject to limitations on the indicated uses for which the product may be marketed or the conditions of approval or marketing authorization, or contain requirements for potentially costly post-market testing and surveillance to monitor the safety and efficacy of the product candidate. The FDA may also require a REMS as a condition of approval of our drug product candidates, such asSNA-120 andSNA-125, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority authorizes our product candidates for marketing, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our product candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs (including the QSR in the case of any of our product candidates cleared under the 510(k) clearance process), and GCP requirements for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

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

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fines, warning or untitled letters or holds on clinical trials;

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refusal by the FDA to accept new marketing applications or supplements, approve or otherwise authorize for marketing pending applications or supplements to applications filed by us or suspension or revocation of approvals or other marketing authorizations;

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

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injunctions or the imposition of civil or criminal penalties.

In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our future products under development. For example, in November 2018, FDA officials announced forthcoming steps that

the FDA intends to take to modernize the premarket notification pathway under Section 510(k) of the FDCA. Among other things, the FDA announced that it plans to develop proposals to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals include plans to potentially sunset certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. The FDA also announced that it intends to finalize guidance to establish a premarket review pathway for “manufacturers of certain well-understood device types” as an alternative to the 510(k) clearance pathway and that such premarket review pathway would allow manufacturers to rely on objective safety and performance criteria recognized by the FDA to demonstrate substantial equivalence, obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process. These proposals have not yet been finalized or adopted, and the FDA announced that it would seek public feedback prior to publication of any such proposals, and may work with Congress to implement such proposals through legislation. Accordingly, it is unclear the extent to which any proposals, if adopted, could impose additional regulatory requirements on us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance, or restrict our ability to maintain our current clearances, or otherwise create competition that may negatively affect our business. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.

In addition, we cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these executive actions, including the Executive Orders, will be implemented, and the extent to which they will affect the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

Changes in funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

Our product candidates, if authorized for marketing, may cause or contribute to adverse medical events that we are required to report to the FDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial condition and results of operations. The discovery of serious safety issues with our product candidates, or a recall of our products either voluntarily or at the direction of the FDA or another governmental authority, if such products are marketed, could have a negative impact on us.

With respect to any of our product candidates cleared under the 510(k) clearance process, we will be subject to the FDA’s medical device reporting regulations and similar foreign regulations, which require us to report to the FDA when we receive or become aware of information that reasonably suggests that one or more of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury. The timing of our obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events of which we become aware within the prescribed timeframe. There are similar reporting requirements for our drug product candidates, if and when they are approved. We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of the product. If we fail to comply with our reporting obligations, the FDA could take action, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearance, seizure of our products or delay in clearance of future products.

The FDA and foreign regulatory bodies have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health. We may also choose to voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations. Product defects or other errors may occur in the future. Recalls involving our product candidates, if and when they are cleared or approved or otherwise authorized for marketing, could be particularly harmful to our business, financial condition and results of operations.

Depending on the corrective action we take to redress a device product’s deficiencies or defects, the FDA may require, or we may decide, that we will need to obtain new approvals, clearances, or other marketing authorizations for the device before we may market or distribute the corrected device. Seeking such authorizations may delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with our devices, we may face additional regulatory enforcement action, including FDA warning letters, product seizure, injunctions, administrative penalties, or civil or criminal fines.

Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA. If we obtain marketing authorizations and market our medical device product candidates, we may initiate voluntary withdrawals or corrections for our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our determinations, it could require us to report those actions as recalls and we may be subject to enforcement action. A future recall announcement could harm our reputation with customers, potentially lead to product liability claims against us and negatively affect our sales.

We may be subject to healthcare laws and regulations relating to our business and could face substantial penalties if we are determined not to have fully complied with such laws, which would have an adverse impact on our business.

Our business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors, customers and patients, may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations. These laws may constrain the business or financial arrangements and

relationships through which we conduct our operations, including how we research, market, sell and distribute our products for which we obtain marketing approval. Such laws include:

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the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a U.S. healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the U.S. federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

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U.S. federal civil and criminal false claims laws and civil monetary penalties laws, including the civil False Claims Act, which, among other things, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. government;

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the U.S. Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities subject to the rule, such as health plans, healthcare clearinghouses and healthcare providers as well as their business associates that perform certain services for or on their behalf involving the use or disclosure of individually identifiable health information;

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the U.S. Physician Payments Sunshine Act, which requires 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 certain exceptions) to report annually to the government information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to the government ownership and investment interests held by the physicians described above and their immediate family members;

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federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and

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analogous state andnon-U.S. laws and regulations, such as state anti-kickback and false claims laws, which may apply to our business practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed bynon-governmental third-party payors, including private insurers; state laws that require pharmaceutical and device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. government, or otherwise restrict payments that may be

made to healthcare providers and other potential referral sources; state laws and regulations that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information; and state andnon-U.S. laws governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities may conclude that our business practices, including our consulting and advisory board arrangements with physicians and other healthcare providers, some of whom receive stock options as compensation for services provided, do not comply with current or future statutes, regulations, agency guidance or case law involving applicable healthcare laws. If our operations are found to be in violation of any of these or any other health regulatory laws that may apply to us, we may be subject to significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other U.S. healthcare programs, reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations ofnon-compliance, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. If any of the above occur, it could adversely affect our ability to operate our business and our results of operations.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

In the U.S. and somenon-U.S. jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval.

For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively the Affordable Care Act, was enacted in the United States to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against 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. The law has continued the downward pressure on the pricing of medical items and services, especially under the Medicare program, and increased the industry’s regulatory burdens and operating costs. Among the provisions of the Affordable Care Act of importance to our potential product candidates are the following:

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an annual, nondeductible fee payable by any entity that manufactures or imports specified branded prescription drugs and biologic agents;

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an annual excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United States which, due to subsequent legislative amendments, has been suspended through December 31, 2019, and, absent further legislative action, will be reinstated starting January 1, 2020;

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an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;

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a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;

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a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50%point-of-sale discounts, which, through subsequent legislative amendments, was increased to 70%, off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;

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extension of manufacturers’ Medicaid rebate liability to individuals enrolled in Medicaid managed care organizations;

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expansion of eligibility criteria for Medicaid programs in certain states;

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

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a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and

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

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, and we expect there will be additional challenges and amendments to the Affordable Care Act in the future. For example, the Tax Act was enacted, which, among other things, removes penalties for not complying with the Affordable Care Act’s individual mandate to carry health insurance. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, 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 Act, the remaining provisions of the Affordable Care Act are invalid as well. While the Trump Administration and the Centers for Medicare & Medicaid Services have both stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, if any, will impact the law. The current Presidential Administration and U.S. Congress will likely continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the Affordable Care Act. It is uncertain the extent to which any such changes may impact our business or financial condition.

In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. These changes include the Budget Control Act of 2011, which, among other things, resulted in reductions to Medicare payments to providers of 2% per fiscal year and will remain in effect through 2027, and the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. More recently, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical products.

Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product and medical device 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. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and medical devices to purchase and which suppliers will be included in their prescription drug and other healthcare programs.

We expect that the Affordable Care Act, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria, new payment methodologies and in additional

downward pressure on the price that we receive for any approved or cleared product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to new requirements or policies, or if we are not able to maintain regulatory compliance, our product candidates may lose any regulatory approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.

Recent U.S. tax legislation and future changes to applicable U.S. or foreign tax laws and regulations may have a material adverse effect on our business, financial condition and results of operations.

We are subject to income and other taxes in the U.S. and foreign jurisdictions. Changes in laws and policy relating to taxes or trade may have an adverse effect on our business, financial condition and results of operations. For example, on December 22, 2017, the U.S. government enacted significant tax reform, and certain provisions of the new law may adversely affect us. Changes include, but are not limited to, (i) a federal corporate tax rate decrease from 34% to 21% for tax years beginning after December 31, 2017, (ii) the transition of U.S. international taxation from a worldwide tax system to a partially territorial system, (iii) limitation of the deduction for net operating losses generated in tax years beginning after December 31, 2017 to 80% of current year taxable income, and (iv) eliminating carryback and providing for indefinite carryforwards for net operating losses generated in tax years beginning after December 31, 2017. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, and will be subject to interpretations and implementing regulations by the Treasury and Internal Revenue Service, any of which could mitigate or increase certain adverse effects of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation. Generally, future changes in applicable U.S. or foreign tax laws and regulations, or their interpretation and application could have an adverse effect on our business, financial conditions and results of operations.

Risks Related to Our Common Stock

Our stock price may be volatile and you may not be able to resell shares of our common stock at or above the price you paid.

The trading price of our common stock could be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed in this “Risk Factors” section and others such as:

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results from, and any delays in or suspension of, our clinical trials for our lead product candidates, or any other future clinical development programs, including as a result of unforeseen safety events or side effects;

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announcements of regulatory approval or disapproval of our current or any future product candidates;

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failure or discontinuation of any of our research and development programs;

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announcements of capital raising events or activities;

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announcements relating to future licensing, collaboration or development agreements;

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delays in the commercialization of our current or any future product candidates;

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acquisitions and sales of new products, technologies or businesses;

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manufacturing and supply issues related to our product candidates for clinical trials or future product candidates for commercialization;

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quarterly variations in our results of operations or those of our future competitors;

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changes in earnings estimates or recommendations by securities analysts;

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announcements by us or our competitors of new products, significant contracts, commercial relationships, acquisitions or capital commitments;

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developments with respect to intellectual property rights;

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our commencement of, or involvement in, litigation;

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changes in financial estimates or guidance, including our ability to meet our future revenue and operating profit or loss estimates or guidance;

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any major changes in our board of directors or management;

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new legislation in the United States, or governmental announcements of proposed legislation, relating to the sale or pricing of pharmaceuticals;

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FDA or other U.S. or foreign regulatory actions affecting us or our industry;

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product liability claims or other litigation or public concern about the safety of our product candidates;

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market conditions in the pharmaceutical, biopharmaceutical and biotechnology sectors; and

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general economic conditions in the United States and abroad.

In addition, the stock markets in general, and the markets for pharmaceutical, biopharmaceutical, medical device and biotechnology stocks in particular, have experienced extreme volatility that may have been unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business.

An active market for our common stock may not be maintained.

Prior to our IPO in July 2017, there had been no public market for shares of our common stock. Our stock only recently began trading on the Nasdaq Global Select Market, but we can provide no assurance that we will be able to maintain an active trading market on the Nasdaq Global Select Market or any other exchange in the future. If an active market for our common stock does not develop or is not maintained, it may be difficult for our stockholders to sell shares without depressing the market price for the shares or at all. An inactive market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other businesses, applications or technologies using our shares as consideration.

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. We currently have very limited research coverage by securities and industry analysts. If no additional securities or industry analysts commence coverage of us, the trading price or trading volume for our stock could be negatively impacted. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

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We are an “emerging growth company” and a “smaller reporting company” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies and smaller reporting companies, our common stock may be less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, 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 also qualify as a “smaller reporting company,” as defined in the Exchange Act. As a smaller reporting company and so long as we remain a smaller reporting company, we benefit from similar exemptions and exclusions as an emerging growth company, including: (1) scaled executive compensation disclosures; and (2) the requirement to provide only two years of audited financial statements, instead of three years. We cannot predict if investors will find our common stock less attractive because we will 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. We may take advantage of these reporting exemptions until we are no longer an emerging growth company and/or smaller reporting company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following August 1, 2022, the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held bynon-affiliates exceeds $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion innon-convertible debt during the prior three-year period. We will remain a smaller reporting company until (1) the market value of our common stock held bynon-affiliates is greater than $250.0 million as of the prior June 30th and our annual revenue exceeds $100 million, or (2) the market value of our common stock held bynon-affiliates is greater than $700.0 million, regardless of our annual revenue.

If we sell shares of our common stock in future financings or issue shares pursuant to our agreement with the former shareholders of Creabilis, stockholders may experience immediate dilution and, as a result, our stock price may decline.

We may from time to time issue additional shares of common stock at a discount from the current trading price of our common stock. As a result, our stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, including pursuant to the terms of the Share Purchase Agreement with the former Creabilis shareholders, our common stockholders would experience additional dilution and, as a result, our stock price may decline. For instance, upon our commencement of a Phase 3 clinical trial withSNA-120, we will become obligated to issue $18.0 million in shares of our common stock, less certain offsets if applicable, to the former Creabilis shareholders.

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

Based on the number of shares outstanding as of December 31, 2018, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 50.0% of our voting stock. These stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage

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unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

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

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. As of December 31, 2018, we had outstanding a total of approximately 21.2 million shares of common stock, of which 1.8 million shares are held by current directors, executive officers and their respective affiliates and may be subject to Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. In addition, as of December 31, 2018, approximately 3.6 million shares of our common stock that are either subject to outstanding stock awards or reserved for future issuance under our employee benefit plans are eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

The holders of approximately 4.6 million shares of our common stock, or approximately 22.0% of our total outstanding common stock as of December 31, 2018 will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to vesting schedules described above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

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

We have incurred substantial losses during our history and do not expect to become profitable in the near future, and we may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use itspre-change net operating loss carryforwards, or NOLs, and otherpre-change tax attributes (such as research and development tax credits) to offset its post-change income or taxes may be limited. We may have experienced ownership changes in the past and may experience ownership changes in the future and/or subsequent shifts in our stock ownership (some of which shifts are outside our control). As a result, if we earn net taxable income, our ability to use ourpre-change NOLs to offset such taxable income could be subject to limitations. Similar provisions of state tax law may also apply. As a result, even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes.

Provisions in our charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent changes in control or changes in our management without the consent of our board of directors. These provisions will include the following:

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a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;

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no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

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•

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

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the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;

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the ability of our board of directors to alter our bylaws without obtaining stockholder approval;

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the required approval of at least 66 2/3% of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors;

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a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

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the requirement that a special meeting of stockholders may be called only by the chief executive officer or the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and

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advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.

In addition, these provisions would apply even if we were to receive an offer that some stockholders may consider beneficial.

We are also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, our amended and restated bylaws and the indemnification agreements that we have entered into with our directors and officers provide that:

•

We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

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We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

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We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

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•

We will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors or brought to enforce a right to indemnification.

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The rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons.

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We may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws, any action to interpret, apply, enforce, or determine the validity of our certificate of incorporation or bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

We do not currently intend to pay dividends on our common stock, and consequently, our stockholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock.

We do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. In addition, our loan and security agreement with Silicon Valley Bank prohibits us from paying dividends without their consent. Therefore, our stockholders are not likely to receive any dividends on their common stock for the foreseeable future. Since we do not intend to pay dividends, our stockholders’ ability to receive a return on their investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our stockholders have purchased it.

ITEM 1B. Unresolved Staff Comments.

None.

ITEM 2. Properties.

Our corporate headquarters are located in Westlake Village, California, where we lease and occupy 12,975 square feet of office space. The current terms of our lease expire February 29, 2020 with an option to renew for an additional 36 months. We also lease a facility in Ivrea, Italy, which houses our research and development activities.

We believe our existing facilities are adequate for our short-term needs. To meet the future needs of our business, we may lease additional or alternate space, and we believe suitable additional or alternative space will be available in the future on commercially reasonable terms.

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ITEM 3. Legal Proceedings.

We are, and may from time to time continue to be, involved in various legal proceedings of a character normally incident to the ordinary course of our business. There are ongoing legal proceedings with respect to certain of our intellectual property rights relating toSNA-001, as described below.

Interference Proceeding

On October 8, 2015, Patent Interference No. 106,037 was declared by the Patent Trial and Appeal Board, or the PTAB, between our U.S. Patent No. 8,821,941, which is directed to treating hair follicles with plasmonic particles, and U.S. Patent Application No. 13/789,575, which lists Massachusetts General Hospital, or GHC, as assignee. On August 9, 2016, the PTAB entered judgment against GHC. On October 3, 2016, GHC filed an appeal of the interference judgment with the U.S. Court of Appeals for the Federal Circuit, or Court of Appeals, in matterNo. 17-1012, which names GHC and Sebacia, Inc., or Sebacia, as real parties in interest. The parties filed their respective appellate briefs with the Court of Appeals in the first quarter of 2017. On November 6, 2017, the Court of Appeals heard oral arguments in this matter. On May 4, 2018, the Court of Appeals entered its decision which affirmed the PTAB’s ruling that GHC’s original claims65-67 are unpatentable and vacated and remanded the PTAB’s denial of GHC’s motion to add a new claim. On November 20, 2018, the PTAB denied GHC’s motion to add a new claim and entered judgement against GHC. On January 18, 2019, GHC filed an appeal of the interference judgment with the U.S. Court of Appeals for the Federal Circuit.

For further information regarding risks regarding these proceedings and patent rights held by third parties, please see “Item 1A. Risk Factors—Risks Related to Our Intellectual Property.”

ITEM 4. Mine Safety Disclosures.

None.

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PART II

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

Our common stock has been publicly traded on The Nasdaq Global Select Market under the symbol “SNNA” since our initial public offering on July 27, 2017. Prior to that time, there was no public market for our common stock.

Holders

As of March 8, 2019, there were approximately 91 holders of record of our common stock. This number does not include beneficial owners whose shares are held by nominees in street name.

Dividend Policy

We have never declared or paid cash dividends on our capital stock. We 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. In addition, our loan and security agreement with Silicon Valley Bank prohibits us from issuing any cash dividends without their consent. Any future determination related to dividend policy will be made at the discretion of our board of directors.

Securities Authorized for Issuance under Equity Compensation Plans

Information about securities authorized for issuance under existing equity compensation plans is incorporated by reference from the information in our Proxy Statement for our 2019 Annual Meeting of Stockholders, which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report relates.

Performance Graph

This graph is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of Sienna Biopharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

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The following graph shows the total stockholder return of an investment of $100 in cash on July 27, 2017 (the first day of trading of our common stock), through December 31, 2018 for (i) our common stock, (ii) the Nasdaq Composite Index (U.S.) and (iii) the Nasdaq Biotechnology Index. Pursuant to applicable Securities and Exchange Commission rules, all values assume reinvestment of the full amount of all dividends; however no dividends have been declared on our common stock to date. The stockholder return shown on the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns.

LOGO

Cumulative Total Return Comparison


	7/27/2017 (Inception)		9/30/2017		12/31/2017		3/31/2018		6/30/2018		9/30/2018		12/31/2018
Sienna Biopharmaceuticals, Inc.	$	100.00	$	115.58	$	94.29	$	97.56	$	78.91	$	76.99	$	12.05
Nasdaq Composite Index		100.00		101.78		108.17		110.67		117.68		126.08		103.97
Nasdaq Biotechnology Index		100.00		104.38		100.30		100.23		103.19		114.61		90.95

Recent Sales of Unregistered Securities

None.

Use of Proceeds

On July 26, 2017, the U.S. Securities and Exchange Commission declared effective our registration statement on FormS-1 (FileNo. 333-219142), as amended, filed in connection with our IPO. The IPO closed on August 1, 2017 and we issued and sold 4,983,333 shares of our common stock at a price to the public of $15.00 per share, which included the exercise in full of the underwriters’ option to purchase additional shares. We received net proceeds from the IPO of approximately $66.4 million, after deducting underwriting discounts and commissions of approximately $5.2 million, and estimated offering expenses of approximately $3.0 million. The managing underwriters of the offering were J.P. Morgan Securities LLC and Cowen and Company, LLC. No offering expenses were paid or are payable, directly or indirectly, to our directors or officers, to persons owning 10% or more of any class of our equity securities or to any of our affiliates.

The net proceeds from the IPO have been invested in United States treasury money market funds. There has been no material change in the expected use of the net proceeds from our IPO as described in our registration statement on FormS-1.

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Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities during the fourth quarter of the year ended December 31, 2018.

ITEM 6. Selected Financial Data.

As a smaller reporting company, we are not required to provide the information under this item, pursuant to RegulationS-K Item 301(c).

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

You should read the following discussion of our financial condition and results of operations in conjunction with our audited consolidated financial statements and related notes and other disclosures included elsewhere in this Annual Report onForm 10-K.

In addition, the following discussion and other parts of this report contain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors,” set forth in Part I, Item 1A of this Annual Report onForm 10-K. The forward-looking statements in this Annual Report onForm 10-K represent our views as of the date of this Annual Report onForm 10-K. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Annual Report onForm 10-K.

Overview

We are a clinical-stage biopharmaceutical company focused on bringing unconventional scientific innovations to patients whose lives remain burdened by their disease. We draw upon our deep knowledge and experience in drug development across multiple therapeutic areas as we build a unique, diversified, multi-asset portfolio of therapies in inflammation and immunology that target select pathways in specific tissues, with our initial focus on one of the most important ‘immune’ tissues, the skin. Utilizing our novel technology platform, we apply a scientific design process to create potent targeted pharmacologically active molecules that are directed toward a specific target tissue and a select disease pathway, and with minimal to no systemic exposure. Our lead candidate from this platform,SNA-120, is afirst-in-class inhibitor of Tropomyosin receptor kinase A (TrkA) for which we intend to initiate two Phase 3 pivotal clinical trials for the treatment of psoriasis, as well as the associated pruritus (itch), subject to securing sufficient capital to complete both trials. Our second product candidate,SNA-125, is a dual Janus kinase 3 (JAK3)/TrkA inhibitor for which we intend to initiate Phase 2 clinical trials for the treatment of atopic dermatitis, psoriasis and the associated pruritus, subject to securing sufficient capital. Additionally,SNA-001, a silver photoparticle technology derived from our Topical Photoparticle Therapy™ platform to be used in conjunction with commonly used commercial lasers, recently completed the last of six pivotal clinical trials for the reduction of unwanted light-pigmented hair and for the treatment of acne. We are seeking a strategic partner to maximize the value ofSNA-001. We believe our management team is well positioned to execute on our objectives, having served in clinical, commercial and other leadership roles at several marquee biotechnology and pharmaceutical companies, including Kythera, Amgen, Allergan, Medicis and Celgene.

Since our inception in 2010, we have invested a significant portion of our efforts and financial resources in research and development activities and the acquisition of Creabilis plc, (“Creabilis”), in December 2016. We have not generated any revenue from product sales and, to date, have funded our operations primarily through private and public equity issuances, debt offerings and term loans. At December 31, 2018, we had cash and cash equivalents of $48.5 million. In August 2017, we completed our initial public offering, (“IPO”), of our common stock pursuant to which we issued 4,983,333 shares of our common stock at a price to the public of $15.00 per share, which included the exercise in full by the underwriters of their option to purchase up to 650,000 additional shares. Our net proceeds, after deducting underwriting discounts, commissions and offering related transaction costs, were $66.4 million. On June 29, 2018, we entered into a loan and security agreement with Silicon Valley Bank, pursuant to which Silicon Valley Bank agreed to make available to us term loans with an aggregate

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principal amount of up to $40.0 million pursuant to which we have drawn $30.0 million. Subsequently, in January 2019, we entered into an amendment to the loan and security agreement which limited our total access to term loans to $30.0 million with additional minimum liquidity requirements, the final payment fee was increased by 1% to 6.5% of the total term loans advanced and we issued to SVB and its affiliate, Life Science Loans II, LLC, warrants to purchase an aggregate of 535,714 shares of our common stock at an exercise price of $2.80 per share. In August 2018, we entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”), pursuant to which we may sell from time to time, at our option, up to $75.0 million of our common stock through an“at-the-market” equity offering program under which Cowen will act as sales agent (the “ATM Offering Program”). In February 2019, we entered into an underwriting agreement with Cowen and BMO Capital Markets Corp., pursuant to which we issued 9,200,000 shares of our common stock to the underwriters, which included the exercise in full by the underwriters of their option to purchase up to 1,200,000 additional shares. Our net proceeds, after deducting underwriting discounts, commissions and offering related transaction costs, were $21.3 million.

We have incurred net losses in each year since inception, including net losses of $73.5 million, $50.5 million and $21.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, we had an accumulated deficit of $159.4 million. We expect to continue to incur losses for the foreseeable future and expect to incur increased expenses as we advance our product candidates through clinical trials and regulatory submissions. We do not expect to generate revenue from product sales unless, and until, we obtain regulatory approval or clearance from the FDA for our product candidates. If we obtain regulatory approval or clearance for our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. In addition, we expect to continue to incur losses as we progress nonclinical studies and clinical trials for, and research and development of, our product candidates and maintain and protect our intellectual property portfolio. As a result, we will need substantial additional funding to support our operating activities. Adequate funding may not be available to us on acceptable terms, or at all. We currently anticipate that we will seek to fund our operations through equity or debt financings or other sources, such as potential collaboration agreements. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, consolidated results of operations and financial condition.

We rely on third parties in the conduct of our nonclinical studies and clinical trials and for manufacturing and supply of our product candidates. We have no internal manufacturing capabilities, and we will continue to rely on third parties, many of whom are single-source suppliers, for our nonclinical and clinical trial materials. In addition, we do not yet have a sales organization or commercial infrastructure. Accordingly, we will incur significant expenses to develop a sales organization or commercial infrastructure in advance of generating any product sales.

Through our acquisition of Creabilis we obtained our proprietary technology platform and related product candidates, includingSNA-120 andSNA-125, we will be required to make contingent payments in cash and stock upon the achievement of certain development, approval and sales milestones. In October 2017, we commenced our additional Phase 2b clinical trial forSNA-120, triggering our first contingent milestone payment of $5.0 million, less certain offsets totaling approximately $0.3 million, which we satisfied by issuing an aggregate of 201,268 shares of common stock in December 2017 to the former Creabilis shareholders. Upon the achievement of certain specified development and approval milestones forSNA-120 andSNA-125, we are obligated to pay the former Creabilis shareholders up to an additional $53.0 million, which consists of an aggregate of $25.0 million in cash and $28.0 million in shares of our common stock. As part of these milestones, upon the commencement of our Phase 3 clinical trial ofSNA-120, we will become obligated to issue $18.0 million in shares of our common stock, less certain offsets if applicable, to the former Creabilis shareholders. In addition, upon the achievement of certain annual net sales milestone thresholds for qualifying products, includingSNA-120 andSNA-125, we are required to pay the former Creabilis shareholders up to an aggregate of $80.0 million in cash as well asone-time royalties of less than 1% on net sales of qualified products that exceed these net sales thresholds in the year such threshold is achieved. See “—Critical Accounting Policies and Use of Estimates—Creabilis Acquisition” below.

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In January 2019, we implemented a corporate restructuring to focus resources on our lead product candidate,SNA-120 for psoriasis and the associated pruritus, resulting in a reduction in force to reduce operational costs and preserve capital. The restructuring resulted in an elimination of 20 positions, or approximately 34% of our workforce.

Components of Our Results of Operations

Revenue

We have not generated any revenue from the sale of our products, and we do not expect to generate any revenue unless and until we obtain regulatory clearance or approval of, and commercialize, our product candidates, or enter into anout-license agreement or collaboration for any of our product candidates.

Research and Development Expenses

Since our inception, we have focused significant resources on our research and development activities, including conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates. Research and development costs are expensed as incurred. These costs include direct program expenses, which are payments made to third parties that specifically relate to our research and development, such as payments to clinical research organizations, clinical investigators, manufacturing of clinical material,pre-clinical testing and consultants. In addition, employee costs (including salaries, payroll taxes, benefits, stock-based compensation and travel) for employees contributing to research and development activities are classified as research and development costs. We allocate direct external costs to our product candidates; internal costs are not allocated to specific product candidates. Based on our revised clinical plans following our January 2019 restructuring, we expect research and development expenses to go down in the near term, compared to 2018. However, subject to the availability of sufficient capital, we would expect our research and development expenses to eventually increase in the future as we develop our product candidates, and continue investing in our internal research and development efforts to bring forth new product candidates to address unmet needs in inflammation and immunology. In addition to our internal discovery efforts, we may choose, capital permitting, to selectivelyin-license or acquire complementary, external product candidates.

The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development ofSNA-120 andSNA-125 or any future product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates. See “Item 1A. Risk Factors” for a discussion of the risks and uncertainties associated with our research and development projects.

General and Administrative Expenses

Our general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation and travel. Other general and administrative expenses include legal costs of pursuing patent protection of our intellectual property, professional services fees for auditing, tax and general legal services, and the changes in the fair value of our contingent consideration liability. Based on our revised clinical plans following our January 2019 restructuring, we expect general and administrative expenses to go down in the near term, compared to 2018. However, subject to the availability of sufficient capital, we would expect our general and administrative expenses to eventually increase in the future as we expand our operating activities and prepare for potential commercialization of our product candidates, and support a public company, including increased expenses related to legal, accounting, regulatory andtax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission (SEC) requirements, foreign subsidiary management, directors and officers liability insurance premiums and investor relations activities.

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Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in the notes to our consolidated financial statements included elsewhere in this Annual Report onForm 10-K, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our consolidated financial statements and understanding and evaluating our reported financial results.

Clinical Trial Accruals

As part of the process of preparing our consolidated financial statements, we are required to estimate expenses resulting from our obligations under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. Our objective is to reflect the appropriate trial expenses in our consolidated financial statements by matching those expenses with the period in which services and efforts are expended. We account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. We determine accrual estimates through financial models taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, we adjust the rate of clinical expense recognition if actual results differ from our estimates. We make estimates of accrued expenses as of each balance sheet date in our consolidated financial statements based on the facts and circumstances known at that time. 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 amounts that are too high or too low for any particular period. Through December 31, 2018, there have been no material adjustments to our prior period estimates of accrued expenses for clinical trials. Our clinical trial accrual is dependent in part upon the timely and accurate reporting of contract research organizations and other third-party vendors.

In-Process Research and Development and Goodwill

Intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Intangible assets related toin-process research and development, or IPR&D, are treated as indefinite lived intangible assets and not amortized until completion of the associated research and development efforts, typically upon regulatory approval. At that time, we will determine the useful life of the asset and begin amortization. Intangible assets are reviewed for impairment at least annually, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable and upon establishment of technological feasibility or regulatory approval. There were no impairments of intangible assets for the years ended December 31, 2018 and 2017.

Determining fair value for purposes of an impairment analysis requires us to make significant estimates and assumptions regarding the amount and timing of costs to complete the project and the amount, timing and

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probability of achieving revenues from the completed product similar to how the acquisition date fair value of the project was determined. There are often major risks and uncertainties associated with IPR&D projects as we are required to obtain regulatory approvals in order to be able to market these products. Such approvals require completing clinical trials that demonstrate a product candidate is safe and effective. Consequently, the eventual realized value of the acquired IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods which could have a material adverse effect on our results of operations.

We believe our estimations of future cash flows used for assessing impairment of long-lived assets are based on reasonable assumptions given the facts and circumstances as of the related dates of the assessments.

Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination. We evaluate goodwill for impairment annually and upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment. An impairment loss is recognized when the fair value of the reporting unit to which the goodwill relates is below its carrying value for the difference between the fair value and its carrying amounts. There was no impairment of goodwill for the years ended December 31, 2018 and 2017.

Success Payments

We have certain payment obligations related to the Success Payment Agreement that we entered into with certain of our existing stockholders in October 2015. These success payments are based on certain specified threshold per share values of our common stock measured at specific times through October 2020. Success payments are payable in cash or, in our sole discretion, common stock, and will be owed, if ever, in the event that the value of our common stock meets or exceeds certain specified share price thresholds on any of the following dates during the success payment period: (1) any date after October 30, 2017, the 90th day after we completed our IPO; (2) the date on which we sell, lease, transfer or exclusively license all or substantially all of our assets to another company; and (3) the date on which we merge or consolidate with or into another entity (other than a merger in which ourpre-merger stockholders own a majority of the shares of the surviving entity). In the case of our IPO, success payments would be triggered when the per share value of our common stock, as determined based on the average trading price of a share of our common stock over the consecutive90-day period preceding the date the success payment is triggered, meets or exceeds specified per share thresholds. In the case of an asset sale, license or sale of the company, success payments are triggered when the per share value of our common stock, as determined based on the consideration paid in the transaction for each share of our stock, meets or exceeds specified per share thresholds. Each per share threshold is associated with a success payment, ascending from $10.0 million at $53.71 per share to $35.0 million at $71.61 per share to $60.0 million at $107.42 per share, subject to adjustment for any stock dividend, stock split, combination of shares, or other similar events. Any previous success payments made to stockholders pursuant to the Success Payment Agreement are credited against the success payment owed as of any future valuation date. The first payout is $10.0 million, the second payout is $35.0 million (inclusive of the first $10.0 million success payment, if previously paid) and the third payout is $60.0 million (inclusive of any previous success payments, if made). The success payments paid to such stockholders will not exceed, in aggregate, $60.0 million.

Upon their issuance, the success payments did not require any future service to be provided by the recipients and as such, the success payments were accounted for under accounting guidance for derivatives and hedging. Accordingly, we recorded an initial liability at fair value and will remeasure the liability each reporting period, with changes being recognized in the consolidated statement of operations in other income and expense. The fair value of the success payments liability was estimated based on a third-party valuation using a model which simulates the future movement of stock prices based on several key variables. The following variables were incorporated in the estimated fair value of the success payment liability: estimated term of the success payments, fair value of common stock, expected volatility, and risk-free interest rate. The computation of expected volatility was estimated using a combined weighted average of our historical average volatility and the historical volatility

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of stocks of similar publicly traded companies for a period matching the expected term assumption. Based on this analysis, we recorded a liability of $0.7 million upon execution of the Success Payments Agreement in October 2015. During the years ended December 31, 2018, 2017 and 2016 we recorded net other income of $3.3 million, and net other expense of $2.0 million and $0.6 million, respectively, due to remeasurement of the liability.

In determining the fair value of the success payments, judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates. Significant increases or decreases in the common stock price and other inputs could result in a significantly higher or lower fair value measurement, respectively.

Stock-Based Compensation

We measure employee and director stock-based compensation expense for all stock-based awards at the grant date based on the fair value measurement of the award. The expense is recorded on a straight-line basis over the requisite service period, which is generally the vesting period, for the entire award. Expense is adjusted for actual forfeitures of unvested awards as they occur. Stock options issued tonon-employees are valued on their grant date and remeasured at the current fair value at the end of each reporting period until they vest.

We calculate the fair value measurement of stock options using the Black-Scholes valuation model. In determining the fair value of stock options granted, the following weighted average assumptions were used in the Black-Scholes option-pricing model for awards granted for the years ended December 31, 2018, 2017 and 2016.

Year Ended December 31,

2018

2017

2016

Expected stock price volatility

65.40–74.21

59.13–64.09

46.72–54.76

Expected dividend yield

—

Expected term (in years)

5.0–6.1

5.3–10.0

4.0–10.0

Risk-free interest rate

2.55–3.06

1.77–2.60

1.12–2.42

Due to limited historical data, we estimate stock price volatility based on a combined weighted average of the Company’s historical average volatility and that of a selected peer group of comparable publicly traded companies over the expected life of the award. We have never paid, and do not expect to pay dividends in the foreseeable future. The expected term represents the average time that awards that vest are expected to be outstanding. For employee awards that have an early exercise provision, there is sufficient information to utilize four years as an expected term. For awards without an early exercise provision, there is not sufficient history of stock option exercises to estimate the expected term and, thus, we calculate the expected term using the simplified method, based on the midpoint between the average vesting date and the contractual term. For allnon-employees, the expected term is equivalent to the contractual term of 10 years. The risk-free interest rate is based on the United States Treasury yield curve for the expected life of the option. For awards issued prior to the listing of our common stock on The Nasdaq Global Select Market, or Nasdaq, the fair value of the common stock utilized in the fair value estimation of award arrangements has been determined by our board of directors, utilizing contemporaneous third-party valuations. Following the listing of our common stock on Nasdaq, we use the closing stock price as reported on Nasdaq on the grant date for the fair value of its stock.

We recorded noncash stock-based compensation expense for employee and nonemployee stock option grants and the ESPP for the years ended December 31, 2018, 2017 and 2016, as follows:


	Year Ended December 31,
	2018		2017		2016
	(in thousands)
Research and development	$	1,519	$	487	$	104
General and administrative		3,181		1,625		254

	$	4,700	$	2,112	$	358

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As of December 31, 2018, there was $13.6 million of unrecognized compensation expense related to unvested employee stock award agreements, which is expected to be recognized over a weighted-average period of approximately 3.17 years. As a result of the corporate restructure in January 2019, a portion of this expense will not be recognized. For stock option awards subject to graded vesting, we recognize compensation cost on a straight-line basis over the service period for the entire award.

Prior to its termination in connection with the effectiveness of our 2017 Incentive Award Plan, our 2010 Equity Incentive Plan allowed us to grant to employees the right to exercise stock options in exchange for cash before the requisite services are provided (e.g., before the award is vested under its original terms); however, such arrangements permit us to subsequently repurchase such shares at the exercise price if the employee ceases to be a service provider. Such an exercise is not substantive for accounting purposes. Therefore, the payment received for the exercise price is recognized as an early exercise liability in the consolidated balance sheets and will be transferred to common stock and additional paid in capital as such shares vest. As of December 31, 2018 and December 31, 2017, 307,504 and 546,065 unvested shares were issued and outstanding, respectively. In connection with these unvested shares, we recorded an early exercise liability as of December 31, 2018 and December 31, 2017 of $0.3 million and $0.5 million, respectively, of which $0.2 million and $0.2 million is included in other current liabilities and $0.1 million and $0.3 million is included in othernon-current liabilities in the consolidated balance sheets at December 31, 2018 and 2017, respectively. These shares are excluded from basic net loss per share until the repurchase right lapses and the shares are no longer subject to the repurchase feature.

Creabilis Acquisition

In December 2016, we entered into a Share Purchase Agreement, or the Purchase Agreement, to acquire the entire issued share capital of Creabilis. Upon closing of the transaction, we obtained our proprietary technology platform and related product candidates, includingSNA-120 andSNA-125. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible assets and identifiable intangible assets acquired and liabilities assumed were recorded at fair value, with the remaining purchase price recorded as goodwill. Upon closing, Creabilis became our direct wholly-owned subsidiary in exchange for an upfront payment of approximately $0.2 million in cash, 1,407,679 shares ofSeries A-3 convertible preferred stock with a fair value of $11.2 million, the settlement of $6.7 million of liabilities and certain contingent payments up to an aggregate of $58.0 million in a combination of cash and stock upon the achievement of certain development and approval milestones. In October 2017, we commenced an additional Phase 2b clinical trial forSNA-120, triggering the first contingent milestone payment, less certain offsets. As a result, we issued 201,268 shares of common stock to the former Creabilis shareholders for the aggregate value of $4.2 million. Upon the commencement of a Phase 3 clinical trial ofSNA-120, we will become obligated to issue $18.0 million in shares of our common stock, less certain offsets if applicable, to the former Creabilis shareholders. In addition, we are obligated to make certain contingent payments up to an aggregate of $80.0 million in cash upon the achievement of certain annual net sales thresholds andone-time cash royalties of less than 1% of the amount by which annual net sales exceed each threshold in the year such threshold is achieved. Where milestone payments are required to be paid in stock, the number of shares will be determined based on the volume weighted average price of the common stock as reported on Nasdaq, for the preceding20-day trading period.

The agreement to pay the future milestones and potentialone-time royalties resulted in the recognition of contingent consideration, which was recognized at the inception of the transaction. Other than these payments, subsequent changes to the estimated amounts of contingent consideration to be paid are recognized in the consolidated statement of operations. The fair value of the contingent consideration is based on preliminary cash flow projections, which are based on expected product sales, probabilities around the achievement of certain development, approval and sales milestones and other assumptions. Based on these assumptions, the fair value of the contingent consideration was determined to be $29.2 million as of December 31, 2018 and $22.9 million as of December 31, 2017. The fair value of the contingent consideration was and continues to be determined by a

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third-party valuation firm by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate commensurate with our cost of capital and expectation of the revenue growth for products based on their life cycle stage.

We recorded a deferred tax liability of $9.4 million for thenon-deductiblein-process research and development intangible assets acquired on the date of the acquisition. The deferred tax liability is a foreign denominated liability subject to translation at each balance sheet date and had a carrying value of $10.5 million and $11.0 million at December 31, 2018 and 2017, respectively. The change in carrying value during the year ended December 31, 2018 was related to translation adjustments of $0.5 million. The recording of the deferred tax liability resulted in goodwill in the amount of $9.8 million on the date of acquisition. Goodwill is foreign denominated and subject to translation at each balance sheet date and had a carrying value of $11.0 million and $11.5 million at December 31, 2018 and 2017, respectively. The change in carrying value during the year ended December 31, 2018 was due to translation adjustments of $0.5 million. The net impact of all translation adjustments is included in other comprehensive loss. Goodwill is not amortized but is tested at least annually for impairment. No impairment has been recognized as of December 31, 2018 or 2017.

For the years ended December 31, 2018, 2017 and 2016, the Creabilis net loss included in our consolidated statement of operations was $3.3 million, $2.6 million and $0.2 million, respectively.

Net Operating Loss and Research and Development Carryforwards

As of December 31, 2018, we had deferred tax assets of $45.4 million and deferred tax liabilities of approximately $10.5 million. The deferred tax assets have been offset by a valuation allowance due to uncertainties surrounding our ability to realize these tax benefits. The deferred tax assets are primarily composed of amortization related to capitalized R&D and net operating loss (NOL) carryforwards. As of December 31, 2018, we had federal and state NOL carryforwards of $60.0 million and foreign NOL carryforwards of $41.3 million available to potentially offset future taxable income. As of December 31, 2018, we also had federal research and development tax credit carryforwards of approximately $2.9 million available to potentially offset future federal income taxes. The federal and state NOL carryforwards and research and development tax credit carryforwards expire at various dates between 2031 and 2038. In general, if we experience a greater than 50 percentage point aggregate change in ownership of certain significant stockholders over a three-year period, or a Section 382 ownership change, utilization of ourpre-change NOL or research and development tax credit carryforwards are subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended. Such limitations may result in expiration of a portion of the NOL or research and development credit carryforwards before utilization and may be substantial. We have not conducted an assessment to determine whether there may have been a Section 382 ownership change. If we have experienced a Section 382 ownership change or if we experience a Section 382 ownership change as a result of future changes in our stock ownership, some of which changes are outside of our control, the tax benefits related to the NOL or research and development tax credit carryforwards may be limited or lost.

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Results of Operations

Comparison of the Years Ended December 31, 2018 and 2017

The following table sets forth our results of operations for the periods indicated:


	Year Ended December 31,						Change
	2018			2017			$			%
	(in thousands, except percentages)
Operating expenses:
Research and development	$	51,592		$	30,484		$	21,108			69	%
General and administrative		24,906			18,087			6,819			38

Total operating expenses		76,498			48,571			27,927			57

Loss from operations		(76,498	)		(48,571	)		(27,927	)		57
Other income (expense), net		3,027			(2,264	)		5,291			(234	)

Net loss before taxes		(73,471	)		(50,835	)		(22,636	)		45
Income tax benefit		—			290			(290	)		(100	)

Net loss	$	(73,471	)	$	(50,545	)	$	(22,926	)		45	%

Research and development expenses

Research and development expenses were $51.6 million for the year ended December 31, 2018, compared to $30.5 million for the year ended December 31, 2017. The increase in research and development expenses is primarily due to an increase in clinical trial costs of $13.6 million as result of the progression of clinical studies forSNA-120 of $11.8 million andSNA-125 of $3.4 million, offset by a decrease in clinical trial costs forSNA-001 of $1.6 million. Other increases in research and development expenses include increases in personnel related costs such as wages, taxes and bonuses of $3.8 million due to an increase in headcount, manufacturing costs of $2.3 million to support the increase in the clinical trial activity, and research, consulting and other outside services of $1.4 million.

General and administrative expenses

General and administrative expenses were $24.9 million for the year ended December 31, 2018, compared to $18.1 million for the year ended December 31, 2017. The increase of $6.8 million was due to an increase in the expense recorded to adjust the fair value of the contingent consideration liability relating to the acquisition of Creabilis of $3.3 million. This liability relates to the amounts we agreed to pay based on the achievement of certain development, approval and sales milestones and is revalued at each balance sheet date based on a third-party valuation. The change in the fair value at each balance sheet date is recorded as general and administrative expense. The remaining increase relates to an increase of $2.8 million in personnel and related costs and an increase of $0.7 million in outside services primarily related to marketing costs.

Other income (expense), net

Other income and expense was net income of $3.0 million and net expense of $2.3 million for the years ended December 31, 2018 and 2017, respectively. The change of $5.3 million is primarily due an increase in the income recorded in connection with the change in the fair value of the success payment liability of $5.3 million, plus interest income earned on the Company’s cash balances, offset by interest charges in the second half of 2018 in connection with the SVB Loan.

Income tax benefit

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first quarter of 2017 relating to the beneficial conversion feature due to the 15% discount on conversion of the convertible notes that was bifurcated and allocated to additional paid in capital during the first quarter of 2017. See further discussion in Note 8, “Convertible Notes” and Note 14, “Income Taxes” of our audited consolidated financial statements in this Annual Report onForm 10-K.

Comparison of the Years Ended December 31, 2017 and 2016

The following table sets forth our results of operations for the periods indicated:


	Year Ended December 31,						Change
	2017			2016			$			%
	(in thousands, except percentages)
Operating expenses:
Research and development	$	30,484		$	10,993		$	19,491			177	%
General and administrative		18,087			9,696			8,391			87

Total operating expenses		48,571			20,689			27,882			135

Loss from operations		(48,571	)		(20,689	)		(27,882	)		135
Other income (expense), net		(2,264	)		(473	)		(1,791	)		379

Net loss before taxes		(50,835	)		(21,162	)		(29,673	)		140
Income tax benefit		290			—			290			*

Net loss	$	(50,545	)	$	(21,162	)	$	(29,383	)		139	%

*	Percentage not meaningful.

Research and development expenses

Research and development expenses were $30.5 million for the year ended December 31, 2017, compared to $11.0 million for the year ended December 31, 2016. The increase in research and development expenses is primarily due to an increase in clinical trial costs of $10.5 million as result of the progression of our pivotalSNA-001 studies and initiation ofSNA-120 andSNA-125 studies. Other increases in research and development expenses include personnel related costs such as wages, taxes and bonuses of $2.8 million due to an increase in headcount, manufacturing costs of $3.9 million to support the increase in the clinical trial activity, and research, consulting and other outside services of $2.3 million.

General and administrative expenses

General and administrative expenses were $18.1 million for the year ended December 31, 2017, compared to $9.7 million for the year ended December 31, 2016. The increase of $8.4 million was due to an increase in the fair value of the contingent consideration liability relating to the acquisition of Creabilis of $3.0 million. This liability relates to the amounts we agreed to pay based on the achievement of certain development, approval and sales milestones and is revalued at each balance sheet date based on a third-party valuation. The change in the fair value at each balance sheet date is recorded as general and administrative expense. The remaining increase relates to an increase of $4.1 million in personnel and related costs and an increase in outside service and legal fees of $2.8 million related to becoming a public company, offset by $1.5 million of transaction costs for the Creabilis acquisition in the prior year.

Other income (expense), net

Other income and expense was a net expense of $2.3 million and $0.5 million for the years ended December 31, 2017 and 2016, respectively. The increase in other expense is primarily due to $2.0 million related

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to the change in the fair value of the success payment liability, plus $0.7 million for the amortization of the debt discount relating to the convertible promissory notes that we issued in January and March 2017, the “Series B Bridge Notes”, which converted into shares of our Series B Preferred Stock in April 2017. Other expense was offset by interest earned on the proceeds from our IPO during 2017.

Income tax benefit

Income tax benefit for the year ended December 31, 2017 was $0.3 million. The income tax benefit resulted from a deferred tax liability recorded in additional paid in capital in the consolidated balance sheets during the first quarter of 2017 relating to the beneficial conversion feature due to the 15% discount on conversion of the convertible notes that was bifurcated and allocated to additional paid in capital during the first quarter of 2017. See further discussion in Note 8, “Convertible Notes” and Note 14, “Income Taxes” of our audited consolidated financial statements in this Annual Report onForm 10-K.

Liquidity, Capital Resources and Requirements

We have incurred operating losses and have an accumulated deficit as a result of ongoing efforts to develop our product candidates, including conducting nonclinical and clinical trials and providing general and administrative support for these operations. We had an accumulated deficit of $159.4 million and $85.9 million as of December 31, 2018 and 2017, respectively. We had net losses of $73.5 million, $50.5 million and $21.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. We had net cash used in operating activities of $61.7 million, $41.0 million and $17.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. We intend to spend substantially all of our current capital resources on the clinical development ofSNA-120 to move it through Phase 3 development. We will need additional capital to achieve top-line results and complete regulatory filings forSNA-120 if successful in Phase 3 development, as well as to moveSNA-125 forward or pursue any other product candidates.

We have historically financed our operations primarily through private and public equity issuances and debt securities, term loans and proceeds from our ATM Offering Program, as well as our recent follow on offering that was completed in February 2019 and will continue to be dependent upon equity and/or debt financing until we are able to generate positive cash flows from our operations.

In January 2017, we entered into a note purchase agreement pursuant to which we issued, in two tranches, the Series B Bridge Notes in an aggregate principal amount of $3.9 million, with an annual interest rate of 6.0%. In April 2017, in connection with the issuance of Series B Preferred Stock, the entire outstanding principal under the Series B Bridge Notes, plus accrued interest, converted into 378,838 shares of Series B Preferred Stock. In April 2017, we issued an aggregate of 2,985,422 shares of our Series B Preferred Stock for aggregate proceeds to us of $36.5 million, excluding the shares of Series B Preferred Stock issued upon conversion of the Series B Bridge Notes. In August 2017, we completed our IPO of 4,983,333 shares of common stock, which included the exercise in full by the underwriters of their option to purchase up to 650,000 additional shares of common stock, at an offering price to the public of $15.00 per share, and raised net proceeds of approximately $66.4 million after deducting underwriting discounts, commissions and estimated offering expenses payable by us.

In June 2018 we entered into the SVB Loan Agreement, pursuant to which SVB would provide us with access to term loans in an aggregate principal amount of up to $40.0 million. On June 29, 2018, we drew down term loans of an aggregate principal amount of $30.0 million, which is repayable in monthly installments until July 1, 2023, including an initial interest-only period through July 31, 2020. In January 2019, we entered into an amendment to the loan and security agreement (as amended, the “SVB Agreement”). Under the SVB Agreement, our total access to term loans is $30.0 million and, if our unrestricted cash at SVB falls below the greater of (i) $30.0 million and (ii) the sum of (x) $15.0 million, plus (y) the Company’s six month cash burn, tested monthly as of the last day of each month, then we have the option to either (a) prepay the term loans in denominations of $15.0 million (plus accrued and unpaid interest, the final payment fee in respect to the portion of the terms loans

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being repaid and the prepayment fee in respect to the pro rata portion of the term loans being prepaid in excess of $15.0 million) or (b) immediately cash secure not less than the lesser of the outstanding balance or $15.0 million of the principal balance of all outstanding indebtedness under the term loans. In connection with the amendment, we issued to SVB and its affiliate, Life Science Loans II, LLC, warrants to purchase an aggregate of 535,714 shares of our common stock at an exercise price of $2.80 per share.

On August 3, 2018, we entered into a Sales Agreement with Cowen, pursuant to which we may sell from time to time, at our option, up to $75.0 million of our common stock through an ATM Offering Program. On August 3, 2018, we also filed a Registration Statement on FormS-3 (the “Shelf Registration Statement”), covering the offering up to $250.0 million of common stock, preferred stock, debt securities, warrants, purchase contracts and units. The Shelf Registration Statement included a prospectus covering the offering, issuance and sale of up to $75.0 million of our common stock from time to time through the ATM Offering Program. The Registration Statement became effective on August 14, 2018. The shares to be sold under the Sales Agreement, may be issued and sold pursuant to the Shelf Registration Statement. During the year ended December 31, 2018, we issued 340,307 shares of our common stock through the ATM Offering Program and received net proceeds of approximately $5.0 million, after deducting commissions of $0.2 million and other offering expenses of $0.4 million.

In February 2019, we entered into an underwriting agreement with Cowen and BMO Capital Markets Corp., as representatives of the several underwriters named therein, pursuant to which we issued 9,200,000 shares of our common stock to the underwriters, which included the exercise in full by the underwriters of their option to purchase up to 1,200,000 additional shares. Our net proceeds, after deducting underwriting discounts, commissions and offering related transaction costs, were $21.3 million.

We believe that our current capital resources will be sufficient to fund operations through at least the next twelve months based on our expected cash burn rate. We will need to raise substantial additional capital to fund our operations through the sale of our equity securities, incurring debt, entering into licensing or collaboration agreements with partners, grants or other sources of financing. There can be no assurance that sufficient funds will be available to us at all or on attractive terms when needed from these sources. If we are unable to obtain additional funding from these or other sources when needed it may be necessary to significantly reduce our current rate of spending through reductions in staff and delaying, scaling back, or stopping certain research and development programs. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

•

the scope, progress, results and costs of researching and developing our current product candidates or any future product candidates, and conducting nonclinical studies and clinical trials, in particular our potential Phase 3 pivotal clinical trials ofSNA-120;

•

the timing of, and the costs involved in, obtaining regulatory approvals or clearances for our lead product candidates or any future product candidates;

•

the number and characteristics of any additional product candidates we develop or acquire;

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•

the timing of any cash milestone payments to the former Creabilis shareholders if we successfully achieve certain predetermined milestones;

•

the timing and amount of any success payments we elect to pay in cash to certain of our existing shareholders if the market price of our common stock meets or exceeds certain specified share price thresholds;

•

the cost of manufacturing our lead product candidates or any future product candidates and any products we successfully commercialize, including costs associated with building our supply chain;

•

the cost of commercialization activities if our lead product candidates or any future product candidates are approved or cleared for sale, including marketing, sales and distribution costs;

•

the cost of building a sales force in anticipation of product commercialization;

•

our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such agreements that we may enter into;

•

any product liability or other lawsuits related to our products;

•

the expenses needed to attract and retain skilled personnel;

•

the costs associated with being a public company;

•

the costs associated with maintaining subsidiaries in foreign jurisdictions;

•

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including ongoing litigation costs related toSNA-001 and the outcome of this and any other future patent litigation we may be involved in; and

•

the timing, receipt and amount of sales of any future approved or cleared products, if any.

Cash Flows Comparison of the Years Ended December 31, 2018, 2017 and 2016

The following table sets forth our cash flows for each of the three years ended December 31, 2018, 2017 and 2016:


	Year Ended December 31,
	2018			2017			2016
	(in thousands)
Net cash provided by (used in)
Operating activities	$	(61,693	)	$	(41,012	)	$	(17,609	)
Investing activities		(39	)		(266	)		(7,059	)
Financing activities		35,960			106,778			28,843
Effect of exchange rate changes on cash		(169	)		(52	)		28

Net (decrease)/increase in cash, cash equivalents and restricted cash	$	(25,941	)	$	65,448		$	4,203

Net Cash Used in Operating Activities

During the year ended December 31, 2018, net cash used in operating activities was $61.7 million and consisted primarily of a net loss of $73.5 million and a decrease in fair value of the success payment liability of $3.3 million, offset by an increase in fair value of the contingent consideration of $6.3 million, thenon-cash stock-based compensation expense of $4.7 million, and thenon-cash interest expense of $0.5 million. In addition, there was an increase in accounts payable and other accrued liabilities of $2.2 million and a decrease in prepaid expenses and other current assets of $1.0 million.

During the year ended December 31, 2017, net cash used in operating activities was $41.0 million and consisted primarily of a net loss of $50.5 million, offset by the increase in fair value of both the success payment

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liability and the contingent consideration of $2.0 million and $3.0 million, respectively, the amortization of the debt discount of $0.7 million associated with the Series B Bridge Notes, and thenon-cash stock-based compensation expense of $2.1 million. In addition, there was an increase in prepaid expenses and other current assets of $1.3 million primarily relating to the prepayment of insurance and prepaid clinical trial expenses. This was offset by the $2.9 million favorable change in accounts payable and other accrued liabilities due to our overall growth and increased research and development spending.

During the year ended December 31, 2016, net cash used in operating activities was $17.6 million and consisted primarily of a net loss of $21.2 million, a $2.9 million favorable change in accounts payable and other accrued liabilities andnon-cash amounts related to stock-based compensation expense of $0.4 million. The increase in accounts payable and other accrued liabilities was due to accrued transaction costs of $1.2 million related to the acquisition of Creabilis, additional accruals of $0.7 million in connection with headcount related expenses as well as a $1.0 million increase in accounts payable relating to our overall growth and increased research and development spending.

Net Cash Used in Investing Activities

During the years ended December 31, 2018 and 2017, net cash used in investing activities was $39,000 and $0.3 million, respectively, and represented purchases of property and equipment.

During the year ended December 31, 2016, net cash used in investing activities was $7.1 million, of which $6.8 million related to the purchase of Creabilis.

Net Cash Provided by Financing Activities

During the year ended December 31, 2018, net cash provided by financing activities was $36.0 million, which consisted primarily of the $30.0 million received from the SVB Loan Agreement offset by debt issuance costs of $0.1 million. There was an additional $5.0 million received relating to the proceeds from our ATM Offering Program and $0.7 million in proceeds from the issuance of common stock in connection with the ESPP.

During the year ended December 31, 2017, net cash provided by financing activities was $106.8 million from the proceeds received from our IPO, the issuance of our Series B Bridge Notes and the issuance of our Series B Preferred Stock.

During the year ended December 31, 2016, net cash provided by financing activities was $28.8 million, consisting primarily of $28.0 million in proceeds from the sale of our SeriesA-3 Preferred Stock plus the exercise of employee stock options.

Contractual Obligations and Contingent Liabilities

The following is a summary of our long-term contractual cash obligations as of December 31, 2018 (in thousands):


	Payments Due by Period
Contractual Obligations⁽¹⁾	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
Long-term debt⁽²⁾		39,194		2,427		18,165		18,602		—
Operating leases⁽³⁾		506		432		74		—		—

Total	$	39,700	$	2,859	$	18,239	$	18,602	$	—

(1)	Does not include milestone or contractual payment obligations contingent upon the achievement of certain milestones or events. We have contingent payment obligations related to the acquisition of Creabilis for

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clinical, regulatory and sales milestones. We are obligated to make certain contingent payments up to an aggregate of $80.0 million in cash upon the achievement of certain annual net sales thresholds andone-time royalties of less than 1% of the amount by which annual net sales exceeds each threshold in the year such threshold is achieved. Where milestone payments are required to be paid in stock, the number of shares will be determined based on the volume weighted average price of the common stock as reported on Nasdaq for the preceding20-day trading period. Upon the commencement of the Phase 3 clinical trial ofSNA-120 we will become obligated to issue $18.0 million in shares of our common stock, less certain offsets if applicable. For more detail regarding amounts to be paid, see “Creabilis Acquisition” above.

We have certain payment obligations related to the Success Payment Agreement that we entered into with certain of our existing stockholders in October 2015. These success payments are based on certain specified threshold per share values of our common stock measured at specific times through October 2020. Success payments are payable in cash or, in our sole discretion, common stock, and will be owed, if ever, in the event that the value of our common stock meets or exceeds certain specified share price thresholds on any of the following dates during the success payment period: (1) any date after the 90th day after our IPO; (2) the date on which we sell, lease, transfer or exclusively license all or substantially all of our assets to another company; and (3) the date on which we merge or consolidate with or into another entity (other than a merger in which ourpre-merger stockholders own a majority of the shares of the surviving entity). In the case of an initial public offering, success payments are triggered when the per share value of our common stock, as determined based on the average trading price of a share of our common stock over the consecutive90-day period preceding the date the success payment is triggered, meets or exceeds specified per share thresholds. In the case of an asset sale, license or sale of the company, success payments are triggered when the per share value of our common stock, as determined based on the consideration paid in the transaction for each share of our stock, meets or exceeds specified per share thresholds. Each per share threshold is associated with a success payment, ascending from $10.0 million at $53.71 per share to $35.0 million at $71.61 per share to $60.0 million at $107.42 per share, and subject to further adjustment for any stock dividend, stock split, combination of shares, or other similar events. Any previous success payments made to stockholders pursuant to the Success Payment Agreement are credited against the success payment owed as of any future valuation date. The success payments paid to such stockholders will not exceed, in aggregate, $60.0 million. During the first year following our IPO we will not be required to make any success payments triggered by the per share market value of our common stock until the first anniversary of the closing of our IPO (or a90-day grace period following such anniversary, at our option if we are contemplating a capital market transaction during such grace period). In order to satisfy our obligations to make these success payments, if and when they are triggered, we may issue equity securities that may cause dilution to our stockholders, or we may use our existing cash or incur debt obligations to satisfy the success payment obligation in cash, which may adversely affect our financial position.

(2)

Long-term debt relates to our loan and security agreement, including principal and interest payments, with Silicon Valley Bank, pursuant to which Silicon Valley Bank agreed to make available to us term loans with an aggregate principal amount of up to $40.0 million. The first credit extension, of a principal amount of $30.0 million was funded on June 29, 2018 and is repayable in monthly installments until July 1, 2023, including an initial interest-only period through July 31, 2020. In January 2019, the Company entered into an amendment to the loan and security agreement and total access to term loans is now $30.0 million, with additional minimum liquidity requirements.

(3)

Includes minimum lease payments related to the lease of our headquarters in Westlake Village, California. In June 2017, we amended the lease agreement to include approximately 6,000 additional square feet of office space, beginning August 21, 2017 and to provide for an allowance for leasehold improvement of up to $0.1 million. The amended lease expires on February 29, 2020 and includes a renewal option for a term of three years. The expansion space is subject to fixed rate escalation increases with an initial base rent of $16,000 per month and total payments over the lease term of approximately $0.5 million.

We enter into contracts in the normal course of business with clinical research organizations for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies, research supplies and

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other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore we believe that ournon-cancelable obligations under these agreements are not material.

We have an exclusive license and supply agreement with nanoComposix, pursuant to which we owe minimum annual royalties of $50,000 or low single digit royalties on net sales of licensed products.

Indemnification

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.

In accordance with our certificate of incorporation and bylaws, we have indemnification obligations to our officers and directors for specified events or occurrences, subject to some limits, while they are serving at our request in such capacities. There have been no claims to date, and we have director and officer insurance that may enable us to recover a portion of any amounts paid for future potential claims.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, anyoff-balance sheet arrangements, as defined under SEC rules.

Emerging Growth Company

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, 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 also qualify as a “smaller reporting company,” as defined in the Exchange Act. As a smaller reporting company and so long as we remain a smaller reporting company, we benefit from similar exemptions and exclusions as an emerging growth company, including: (1) scaled executive compensation disclosures; and (2) the requirement to provide only two years of audited financial statements, instead of three years. We cannot predict if investors will find our common stock less attractive because we will 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. We may take advantage of these reporting exemptions until we are no longer an emerging growth company and/or smaller reporting company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following August 1, 2022, the fifth anniversary of the completion of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held bynon-affiliates exceeds $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion innon-convertible debt during the prior three-year period. We will remain a smaller reporting company until (1) the market value of our common stock heldby non-affiliates is greater than $250.0 million as of the prior June 30th and our annual revenue exceeds $100 million, or (2) the market value of our common stock heldby non-affiliates is greater than $700.0 million, regardless of our annual revenue.

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Recent Accounting Pronouncements

Accounting Pronouncements Adopted

In March 2018, the FASB issued ASU2018-05, “Income Taxes (Topic 740)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”,a new accounting standard to incorporate Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 118 (SAB 118), which addresses the accounting implications of the major tax reform legislation, Public LawNo. 115-97, commonly referred to as the Tax Cuts and Jobs Act (the 2017 Tax Act), enacted on December 22, 2017. The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the 2017 Tax Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the Act are incomplete by the due date of the financial statements and if possible, provide a reasonable estimate. The Company has completed its evaluation of the impact of the 2017 Tax Act and there were no additional material adjustments to the Company’s initial analysis.

In May 2017, the FASB issuedASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The Company adopted this standard as of January 1, 2018 and will apply it prospectively. The impact of the adoption of this guidance on its consolidated financial statements will be dependent on future modifications to share-based payment awards, if any.

In January 2017, the FASB issuedASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”,which simplifies how an entity is required to test goodwill for impairment by eliminating the second step from the goodwill impairment test. An entity will instead apply aone-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company adopted ASU2017-04 effective January 1, 2017. The Company performed its annual impairment test during the fourth quarter of fiscal 2018 and noted no impairment to Goodwill as of December 31, 2018.

In January 2017, the FASB issuedASU 2017-01“Business Combinations (Topic 805): Clarifying the Definition of a Business”,which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output to be considered a business. The Company adopted this standard as of January 1, 2018 and will apply it prospectively. Adoption of this new standard may result in more transactions being accounted for as asset acquisitions versus business combinations. The impact on the consolidated financial statements in future periods will depend on the facts and circumstances of future transactions.

In November 2016, the FASB issuedASU 2016-18,“Statement of Cash Flows (Topic 230): Restricted Cash”(“ASU 2016-18”). The update is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within those fiscal years. Early adoption is permitted. The purpose of UpdateNo. 2016-18 is to clarify guidance and presentation related to restricted cash in the statement of cash flows. The amendment requiresbeginning-of-period andend-of-period total amounts shown on the statement of cash flows to include cash and cash equivalents as well as restricted cash and restricted cash equivalents. This amended guidance was retrospectively adopted on January 1, 2018. As a result of adopting ASU2016-18, the Company includes its restricted cash balance in the cash, cash equivalents and restricted cash reconciliation of operating, investing and financing activities. The adoption of this guidance did not have a significant impact on the statement of cash flows.

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presented and classified in the statement of cash flows, including contingent consideration cash payments made after a business combination. The Company adopted this standard on January 1, 2018 with no impact on the consolidated financial statements.

In May 2014, the FASB issuedASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU2014-09”) which amended the existing accounting standards for revenue recognition.ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. This guidance is effective for fiscal years beginning after December 15, 2017, with an option to early adopt for fiscal years beginning after December 15, 2016. The Company adopted this standard on January 1, 2018 and as the Company has no revenues, there was no impact on the consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU No.2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This new standard modifies certain disclosure requirements on fair value measurements. This new standard will be effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not expect the adoption of this new standard to have a significant impact on its disclosures.

In June 2018 the FASB issued ASU2018-07, “Compensation —Stock Compensation (Topic 718) —Improvements to Nonemployee Share-Based Payment Accounting”(“ASU2018-07”), which expands the scope of Topic 718, Compensation—StockCompensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU2018-07 supersedes Subtopic505-50, Equity—Equity-Based Payments toNon-Employees.The amendments in ASU2018-07 are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers.The Company will adopt this standard effective January 1, 2019 and is currently evaluating the impact of adopting this standard on the consolidated financial statements and disclosures, but does not expect it to have a significant impact.

In February 2018, the FASB issued ASU2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, which provides the option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The new authoritative guidance will be effective for all entities for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on the consolidated financial statements and disclosures, but does not expect it to have a significant impact.

In February 2016, the FASB issued ASUNo. 2016-02,Leases (ASC 842),which requires lessees to recognize most leases on the balance sheet. This is expected to increase both reported assets and liabilities. The standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance, using a modified retrospective approach to adoption. The primary effect of adoption will be the requirement to recordright-of-use assets and corresponding lease obligations for current operating leases. The requirements of this standard include a significant increase in required disclosures.

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The FASB subsequently issued the following amendments to ASU2016-02, which have the same effective date and transition date of January 1, 2019:

•

ASUNo. 2018-10,Codification Improvements to Topic 842, Leases, which amends certain narrow aspects of the guidance issued in ASU2016-02; and

•

ASUNo. 2018-11,Leases (Topic 842): Targeted Improvements, which allows for a transition approach to initially apply ASU2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption as well as an additional practical expedient for lessors to not separatenon-lease components from the associated lease component.

The Company has nearly completed its assessment of ASU2016-02 and its impact on the consolidated financial statements and related disclosures, and currently estimates the adoption of this standard will result in the recognition ofright-of-use assets of approximately $0.8 million and related lease liabilities on the consolidated balance sheets as of January 1, 2019 of approximately $1.0 million related to its operating lease commitments, with no material impact to the opening balance of retained earnings.

The Company will adopt the new leasing standards using the modified retrospective transition approach to be applied to leases existing as of, or entered into after, January 1, 2019 and prior periods will not be adjusted. The new standard provides a number of optional practical expedients in transition. The Company has elected the package of practical expedients to not reassess prior conclusions about lease identification under the new standard, lease classification, and initial direct costs. The Company also elected the practical expedient allowing the use of hindsight in determining the lease term and assessing impairment ofright-of-use assets based on all facts and circumstances through the effective date of the new standard. The new standard also provides practical expedients for ongoing lease accounting, including electing the recognition exemption for short-term leases for all leases that qualify. Under this exemption, the Company will not recognizeright-of-use, assets or lease liabilities for those leases that qualify as a short-term lease (leases with lease terms of 12 months or less), which includes not recognizingright-of-use assets or lease liabilities for existing short-term leases in transition. The Company also elected the practical expedient to not separate lease andnon-lease components for all leases.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks in the ordinary course of our business. These market risks are principally limited to interest rate fluctuations and foreign currency exchange rates fluctuations.

Interest Rate Risk

As of December 31, 2018, the outstanding principal amount of the term loans under the SVB Loan Agreement was $30.0 million. The interest payments under our term loans may be subject to interest rate risk and our interest expense could increase if market interest rates increase. The interest on the term loans accrue at a per annum rate of the greater of (i) the Wall Street Journal prime rate plus 2.50% and (ii) 7.25%. Accordingly, increases in these published rates would increase our interest payments under the term loans. The rate at December 31, 2018 was 8.00%. A hypothetical 1% change in interest rates would increase expense by approximately $0.2 million annually and would not have a material impact on our results of operations.

Cash, Cash Equivalents and Restricted Cash

As of December 31, 2018, we had cash and cash equivalents of $48.5 million and restricted cash of $0.2 million, which consist of bank deposits and cash invested in U.S. Treasury money market funds. As of December 31, 2017, we had cash and cash equivalents of $74.5 million and restricted cash of $0.2 million, which consist of bank deposits and cash invested in U.S. Treasury money market funds. Currently, a portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments

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to manage our interest rate risk exposure. A hypothetical 1% change in interest rates during any of the periods presented would not have a material impact on our consolidated financial statements, and we do not expect interest rate fluctuations to have a material impact on our results of operations.

Foreign Currency Exchange Risk

The majority of our transactions occur in U.S. dollars. Our foreign subsidiaries operate with the euro and British pound as its functional currencies. The fluctuation in the value of the U.S. dollar against the euro and British pound affect the reported amounts of expenses, assets and liabilities. If we expand our international operations, our exposure to exchange rate fluctuations will increase. Our balance sheet as of December 31, 2018 includes cash balances of $0.1 million denominated in euros. At December 31, 2017 we had cash balances of $0.7 million and $0.2 million denominated in euros and British pounds, respectively. We currently do not hedge any foreign currency exposure. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

ITEM 8. Financial Statements and Supplementary Data.

Our consolidated financial statements, together with the independent registered public accounting firm report thereon, are incorporated by reference from the applicable information set forth in Part IV Item 15, “Exhibits, Financial Statement Schedules” of this Annual Report onForm 10-K.

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

None.

ITEM 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2018, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in this Annual Report on Form10-K was (a) reported within the time periods specified by SEC rules and regulations, and (b) communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding any required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on our assessment, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the year ended December 31, 2018 identified in connection with the evaluation required byRule 13a-15(d) and15d-15(d) of the Exchange Act that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

ITEM 9B. Other Information.

None.

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PART III

ITEM 10. Directors, Executive Officers and Corporate Governance.

The information required by this item is incorporated by reference from the applicable information set forth in “Executive Officers,” “Election of Directors,” “Corporate Governance,” and Section 16(a) Beneficial Ownership Reporting Compliance” which will be included in our definitive Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC.

ITEM 11. Executive Compensation.

The information required by this item is incorporated by reference from the applicable information set forth in “Executive Compensation,” and “Director Compensation” and “Corporate Governance” which will be included in our definitive Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC.

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

The information required by this item is incorporated by reference from the applicable information set forth in “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” which will be included in our definitive Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC.

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

The information required by this item is incorporated by reference from the applicable information set forth in “Certain Relationships and Related Party Transactions” and “Corporate Governance” which will be included in our definitive Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC.

ITEM 14. Principal Accounting Fees and Services.

The information required by this item is incorporated by reference from the applicable information set forth in “Ratification of Selection of Independent Registered Public Accounting Firm” which will be included in our definitive Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC.

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PART IV

ITEM 15. Exhibits, Financial Statement Schedules.

(a)

Documents filed as part of this report

Financial Statements

The following consolidated financial statements are included herein:


	Page
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets		F-2
Consolidated Statements of Operations and Comprehensive Loss		F-3
Consolidated Statements of Stockholders’ Equity		F-4
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-7

Consolidated Financial Statement Schedules

All other financial statement schedules are omitted because the information is inapplicable or presented in the notes to the financial statements.

(b)

Exhibits: The exhibits listed on the accompanying Exhibit Index are filed as part of, or hereby incorporated by reference into, this Annual Report on Form10-K.

131

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Sienna Biopharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Sienna Biopharmaceuticals, Inc. (the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on 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 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, 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. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.

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 regarding the amounts and disclosures in the financial 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 statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2016.

Los Angeles, California

March 14, 2019

F-1

Sienna Biopharmaceuticals, Inc.

Consolidated Balance Sheets

(in thousands, except per share amounts)


	December 31,
	2018			2017
Assets
Current assets:
Cash and cash equivalents	$	48,526		$	74,467
Restricted cash		181			181
Prepaid expenses and other current assets		1,705			2,698

Total current assets		50,412			77,346
Property and equipment, net		311			432
In-process research and development		45,594			47,597
Goodwill		10,989			11,472

Total assets	$	107,306		$	136,847

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,792		$	2,357
Accrued personnel costs		3,057			2,646
Other accrued expenses		4,787			3,007
Contingent consideration, current portion		13,500			—
Early exercise liability, current portion		213			231

Total current liabilities		24,349			8,241
Contingent consideration—net of current portion		15,700			22,900
Early exercise liability—net of current portion		45			258
Success payment liability		3			3,285
Long-term debt, net		30,125			—
Deferred tax liability		10,503			10,964

Total liabilities		80,725			45,648
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 10,000 shares authorized, no shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively		—			—
Common stock, $0.0001 par value, 300,000 shares authorized, 21,177 and 20,740 shares issued and 20,870 and 20,194 outstanding at December 31, 2018 and December 31, 2017, respectively		—			—
Additional paid in capital		182,750			171,726
Accumulated other comprehensive income		3,199			5,370
Accumulated deficit		(159,368	)		(85,897	)

Total stockholders’ equity		26,581			91,199

Total liabilities and stockholders’ equity	$	107,306		$	136,847

See accompanying notes.

F-2

Sienna Biopharmaceuticals, Inc.

Consolidated Statement of Operations and Comprehensive Loss

(in thousands, except per share amounts)


	Year Ended December 31,
	2018			2017			2016
Operating expenses:
Research and development	$	51,592		$	30,484		$	10,993
General and administrative		24,906			18,087			9,696

Total operating expenses		76,498			48,571			20,689

Loss from operations		(76,498	)		(48,571	)		(20,689	)
Other income (expense), net		3,027			(2,264	)		(473	)

Net loss before taxes		(73,471	)		(50,835	)		(21,162	)
Income tax benefit		—			290			—

Net loss	$	(73,471	)	$	(50,545	)	$	(21,162	)

Other comprehensive income (loss):
Cumulative translation adjustment		(2,171	)		5,736			(366	)

Comprehensive loss	$	(75,642	)	$	(44,809	)	$	(21,528	)

Per share information:
Net loss, basic and diluted	$	(3.59	)	$	(5.19	)	$	(12.49	)

Basic and diluted weighted average shares outstanding		20,450			9,735			1,694

See accompanying notes.

F-3

Sienna Biopharmaceuticals, Inc.

Years ended December 31, 2018, 2017 and 2016

Consolidated Statements of Stockholders’ Equity

(in thousands)


	Stockholders’ Equity
	Series A-1 Preferred Stock						Series A-2 Preferred Stock						Series A-3 Preferred Stock						Series B Preferred Stock						Common Stock					Additional Paid in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
	Series A-1 Preferred Stock						Series A-2 Preferred Stock						Series A-3 Preferred Stock						Series B Preferred Stock						Shares			Par Value
	Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares			Par Value
Balance at December 31, 2015		373		$	328			1,102		$	1,455			2,650		$	18,567			—		$	—			1,690		$	—	$	(2,109	)	$	—		$	(14,190	)	$	4,051
Issuance of common stock in connection with exercise of stock options		—			—			—			—			—			—			—			—			351			—		831			—			—			831
Early exercise liability		—			—			—			—			—			—			—			—			(343	)		—		(817	)		—			—			(817	)
Issuance of common stock for services		—			—			—			—			—			—			—			—			21			—		55			—			—			55
Issuance ofSeries A-3 shares at $1.21 per share, net of issuance costs of $50		—			—			—			—			3,950			28,012			—			—			—			—		—			—			—			28,012
Issuance ofSeries A-3 shares in connection with the Creabilis Acquisition		—			—			—			—			1,408			11,155			—			—			—			—		—			—			—			11,155
Stock-based compensation expense		—			—			—			—			—			—			—			—			—			—		358			—			—			358
Foreign currency translation adjustments		—			—			—			—			—			—			—			—			—			—		—			(366	)		—			(366	)
Net loss		—			—			—			—			—			—			—			—			—			—		—			—			(21,162	)		(21,162	)

Balance at December 31, 2016		373		$	328			1,102		$	1,455			8,008		$	57,734			—		$	—			1,719		$	—	$	(1,682	)	$	(366	)	$	(35,352	)	$	22,117
Issuance of common stock in connection with exercise of stock options		—			—			—			—			—			—			—			—			92			—		206			—			—			206
Early exercise liability		—			—			—			—			—			—			—			—			353			—		327			—			—			327
Stock-based compensation expense		—			—			—			—			—			—			—			—			—			—		2,112			—			—			2,112
Issuance of common stock for services		—			—			—			—			—			—			—			—			6			—		—			—			—			—
Issuance of Series B shares upon conversion of Series B Bridge Notes at $10.40 per share		—			—			—			—			—			—			379			3,940			—			—		—			—			—			3,940
Issuance of Series B shares at $12.24 per share		—			—			—			—			—			—			2,985			36,306			—			—		—			—			—			36,306
Repurchase of common stock		—			—			—			—			—			—			—			—			(7	)		—		(16	)		—			—			(16	)
Issuance of shares of common stock at $15.00 per share, net of issuance cost of $8,367		—			—			—			—			—			—			—			—			4,983			—		66,378			—			—			66,378
Convertible notes beneficial conversion feature, net of taxes		—			—			—			—			—			—			—			—			—			—		439			—			—			439
Conversion of preferred stock into common stock		(373	)		(328	)		(1,102	)		(1,455	)		(8,008	)		(57,734	)		(3,364	)		(40,246	)		12,847			—		99,763			—			—			—
Issuance of common stock in settlement of contingent consideration milestone		—			—			—			—			—			—			—			—			201			—		4,199			—			—			4,199
Foreign currency translation adjustments		—			—			—			—			—			—			—			—			—			—		—			5,736			—			5,736
Net loss		—			—			—			—			—			—			—			—			—			—		—			—			(50,545	)		(50,545	)

F-4

Sienna Biopharmaceuticals, Inc.

Years ended December 31, 2018, 2017 and 2016

Consolidated Statements of Stockholders’ Equity

(in thousands)


	Stockholders’ Equity
	Series A-1 Preferred Stock				Series A-2 Preferred Stock				Series A-3 Preferred Stock				Series B Preferred Stock				Common Stock					Additional Paid in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
	Series A-1 Preferred Stock				Series A-2 Preferred Stock				Series A-3 Preferred Stock				Series B Preferred Stock				Shares			Par Value
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares			Par Value
Balance at December 31, 2017		—	$	—		—	$	—		—	$	—		—	$	—		20,194		$	—	$	171,726		$	5,370		$	(85,897	)	$	91,199
Issuance of common stock in connection with exercise of stock options		—		—		—		—		—		—		—		—		37			—		407			—			—			407
Early exercise liability		—		—		—		—		—		—		—		—		239			—		231			—			—			231
Stock-based compensation expense		—		—		—		—		—		—		—		—		—			—		4,700			—			—			4,700
Shares issued pursuant to the employee stock purchase plan		—		—		—		—		—		—		—		—		68			—		707			—			—			707
Issuance of shares of common stock, net of issuance cost of $600 pursuant to the ATM Offering Program		—		—		—		—		—		—		—		—		340			—		4,997									4,997
Repurchase of common stock		—		—		—		—		—		—		—		—		(8	)		—		(18	)								(18	)
Foreign currency translation adjustments		—		—		—		—		—		—		—		—		—			—		—			(2,171	)		—			(2,171	)
Net loss		—		—		—		—		—		—		—		—		—			—		—			—			(73,471	)		(73,471	)

Balance at December 31, 2018		—	$	—		—	$	—		—	$	—		—	$	—		20,870		$	—	$	182,750		$	3,199		$	(159,368	)	$	26,581

See accompanying notes.

F-5

Sienna Biopharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(in thousands)


		Year Ended December 31,
		2018			2017			2016
Operating activities
Net loss		$	(73,471	)	$	(50,545	)	$	(21,162	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			157			120			67
Amortization of debt discount and issuance costs			259			729			—
Stock-based compensation			4,700			2,112			413
Fair value adjustment of success payment liability			(3,282	)		2,023			568
Fair value adjustment of contingent consideration			6,300			2,989			—
Non-cash interest expense			476			34			—
Loss on disposal of property and equipment			3			5			—
Changes in assets and liabilities:
Prepaid expenses and other current assets			997			(1,349	)		(346	)
Accounts payable and other accrued liabilities			2,168			2,870			2,851

Net cash used in operating activities			(61,693	)		(41,012	)		(17,609	)
Investing activities
Investment in property and equipment			(39	)		(274	)		(238	)
Proceeds from sale of property and equipment			—			8			—
Acquisition of Creabilis, net of cash received			—			—			(6,821	)

Net cash used in investing activities			(39	)		(266	)		(7,059	)
Financing activities
Proceeds from issuance of common stock, net of issuance costs, early exercise liability and repurchase of unvested early exercise stock options			5,387			188			831
Net proceeds from issuance of long-term debt			29,866			—			—
Proceeds from issuance of common stock for ESPP purchase			707			—			—
Proceeds from issuance of convertible promissory notes			—			3,906			—
Net proceeds from issuance ofSeries A-3 preferred stock			—			—			28,012
Net proceeds from issuance of Series B preferred stock			—			36,306			—
Proceeds from initial public offering, net of issuance costs			—			66,378			—

Net cash provided by financing activities			35,960			106,778			28,843

Effect of exchange rate changes on cash			(169	)		(52	)		28
Net (decrease)/increase in cash, cash equivalents and restricted cash			(25,941	)		65,448			4,203
Cash, cash equivalents and restricted cash at beginning of period			74,648			9,200			4,997

Cash, cash equivalents and restricted cash at end of period		$	48,707		$	74,648		$	9,200

Supplemental disclosures
Common stock issued for acquisition		$	—			—		$	11,155
Fair value of contingent consideration for acquisition	��	$	—			—		$	24,110
Fair value ofin-process research and development intangible asset		$	—			—		$	42,254
Fair value of goodwill		$	—			—		$	9,788
Fair value of deferred tax liability		$	—			—		$	9,412
Preferred stock issued upon conversion of notes payable		$	—		$	3,940		$	—
Preferred stock issued relating to beneficial conversion feature of notes payable		$	—		$	729		$	—
Fair value of contingent consideration settled in common stock		$	—		$	4,199		$	—
Shares issued for services		$	—		$	126		$	55
Interest paid in cash		$	982		$	—		$	—

See accompanying notes.

F-6

Sienna Biopharmaceuticals, Inc.

Notes to Consolidated Financial Statements

December 31, 2018

1. Organization and Description of Business

In these notes to the consolidated financial statements, the “Company,” “Sienna,” “we,” “us,’” and “our” refers to Sienna Biopharmaceuticals, Inc. (formerly Sienna Labs, Inc.) and its subsidiaries on a consolidated basis.

Sienna Biopharmaceuticals, Inc., was incorporated on July 27, 2010, under the laws of the State of Delaware and is headquartered in Westlake Village, California. The Company is a clinical-stage biopharmaceutical company focused on bringing unconventional scientific innovations to patients whose lives remain burdened by their disease.

On July 20, 2017, the Company amended and restated its certificate of incorporation, giving effect to a1-for-5.87 reverse stock split of the Company’s capital stock. All share and per share information included in the accompanying consolidated financial statements has been adjusted to reflect this reverse stock split.

On August 1, 2017, the Company completed its initial public offering, or IPO, of 4,983,333 shares of common stock, which included the exercise in full by the underwriters of their option to purchase up to 650,000 additional shares of common stock, at an offering price to the public of $15.00 per share. The Company received net proceeds of approximately $66.4 million after deducting underwriting discounts, commissions and offering related transaction costs. In connection with the IPO, the Company’s outstanding shares of convertible preferred stock were automatically converted into 12.8 million shares of common stock. As of December 31, 2018, the Company had 21.2 million shares of common stock outstanding. See Note 13, “Stockholders’ Equity.”

In connection with the completion of its IPO, on August 1, 2017, the Company’s certificate of incorporation was amended and restated to provide for 300.0 million authorized shares of common stock with a par value of $0.0001 per share and 10.0 million authorized shares of preferred stock with a par value of $0.0001 per share.

On June 29, 2018, the Company entered into a new loan and security agreement (the “SVB Loan Agreement”) with Silicon Valley Bank (“SVB”), pursuant to which SVB agreed to make available to the Company term loans with an aggregate principal amount of up to $40.0 million, $30.0 million of which was funded on June 29, 2018. On January 28, 2019, the Company entered into an amendment to the loan and security, under which the Company’s total access to term loans is now $30.0 million, with additional minimum liquidity requirements. See Note 10, “Long-Term Debt” and Note 16, “Subsequent Events.”

On August 3, 2018 the Company entered into a sales agreement (the “Sales Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may sell from time to time, at its option, up to $75.0 million of the Company’s common stock through an“at-the-market” equity offering program under which Cowen will act as sales agent (the “ATM Offering Program”).

On August 3, 2018, the Company also filed a Registration Statement on FormS-3 (the “Shelf Registration Statement”), covering the offering of up to $250.0 million of common stock, preferred stock, debt securities, warrants, purchase contracts and units. The Shelf Registration Statement included a prospectus covering the offering, issuance and sale of up to $75.0 million of the Company’s common stock from time to time through the ATM Offering Program. The Registration Statement became effective on August 14, 2018. The shares to be sold under the Sales Agreement, may be issued and sold pursuant to the Shelf Registration Statement. During the year ended December 31, 2018, the Company issued 340,307 shares of its common stock through the ATM Offering Program and received net proceeds of approximately $5.0 million, after deducting commissions of $0.2 million and other offering expenses of $0.4 million. See Note 13, “Stockholders’ Equity” and Note 16, “Subsequent Events.”

F-7

On January 2, 2019, the Company implemented a corporate restructuring to focus resources on its lead product candidate,SNA-120 for psoriasis and the associated pruritus, resulting in a reduction in force to reduce operational costs and preserve capital. The restructuring resulted in an elimination of 20 positions, or approximately 34% of the Company’s workforce.

In February 2019, the Company closed a follow on offering and completed the sale and issuance of an aggregate of 9,200,000 shares of common stock. The Company received net proceeds from the offering of approximately $21.3 million, after deducting the underwriters’ discounts and commissions and estimated offering expenses payable by the Company. See Note 13, “Stockholders’ Equity” and Note 16, “Subsequent Events.”

2. Liquidity Risks

The Company has incurred operating losses and has an accumulated deficit as a result of ongoing efforts to develop product candidates, including conducting preclinical and clinical trials and providing general and administrative support for these operations. The Company had an accumulated deficit of $159.4 million and $85.9 million as of December 31, 2018 and 2017, respectively. The Company had net losses of $73.5 million, $50.5 million and $21.2 million for the years ended December 31, 2018, 2017 and 2016, respectively, and net cash used in operating activities of $61.7 million, $41.0 million and $17.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.

The Company has historically financed its operations primarily through private and public equity issuances and debt offerings, and more recently through term loans under the SVB Loan Agreement and proceeds from the Company’s ATM Offering Program. See Note 10 “Long-Term Debt” and Note 16, “Subsequent Events.”

The Company had cash and cash equivalents of $48.5 million and $74.5 million at December 31, 2018 and 2017, respectively. The Company believes that its current capital resources will be sufficient to fund operations through at least the next twelve months based on the expected cash burn rate. The Company will be required to raise additional capital to fund future operations through the sale of its equity securities, incurring additional debt, entering into licensing or collaboration agreements with partners, grants or other sources of financing. There can be no assurance that sufficient funds will be available to the Company at all or on attractive terms when needed from equity or debt financings. If the Company is unable to obtain additional funding from these or other sources when needed, or to the extent needed, it may be necessary to significantly reduce its current rate of spending through reductions in staff and delaying, scaling back, or stopping certain research and development programs. Insufficient liquidity may also require the Company to relinquish rights to product candidates at an earlier stage of development or on less favorable terms to it or its stockholders than the Company would otherwise choose.

3. Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, or GAAP.

Principles of Consolidation

The consolidated financial statements include the accounts of Sienna Biopharmaceuticals, Inc. and results of its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated. For the years ended December 31, 2018, 2017 and 2016, the subsidiaries’ net loss included in the Company’s consolidated statement of operations was $3.3 million, $2.6 million and $0.2 million, respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and

F-8

accompanying notes. Actual results could differ materially from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. The most significant estimates in the Company’s consolidated financial statements relate to equity awards, the success payment liability, clinical trial accruals and the valuation of contingent consideration obligations and the impairment assessment of thein-process research and development incurred in connection with the acquisition of Creabilis plc, or Creabilis. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates and assumptions.

Segment Reporting

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

Cash and Cash Equivalents

The Company’s investment policy limits investments to certain types of instruments such as certificates of deposit, money market instruments, and obligations issued by U.S. government and U.S. government agencies, and places restrictions on maturities and concentration by type and issuer. The Company considers all highly liquid securities with original final maturities of three months or less from the date of purchase to be cash equivalents. As of December 31, 2018, cash and cash equivalents are comprised of funds in cash and U.S. Treasury money market funds. From time to time, the Company maintains cash balances in excess of amounts insured by the Federal Deposit Insurance Corporation. The accounts are monitored by management to mitigate the risk.

Restricted Cash

At December 31, 2018 and 2017, the Company held $0.2 million of restricted cash related to cash collateralized standby letters of credit in connection with obligations under the facility lease.

Fair Value Measurements

The Company’s financial instruments, in addition to those presented in Note 7, “Fair Value Measurements”, include restricted cash, accounts payable, accrued liabilities and long-term debt. The carrying amount of restricted cash, accounts payable and accrued liabilities approximate fair value because of the short-term nature of these instruments. Further, based on the borrowing rates currently available to the Company for loans with similar terms, the Company believes the carrying amount of the long-term debt approximates its fair value.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets which range from three to five years. Maintenance and repairs are expensed as incurred. The Company reviews the carrying values of its property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairments recognized during the years ended December 31, 2018 and 2017.

F-9

In-process Research and Development and Goodwill

Intangible assets acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date (which is regarded as their cost). Intangible assets related to acquiredin-process research and development are treated as indefinite lived intangible assets and not amortized until they become definite lived assets upon regulatory approval. At that time, the Company will determine the useful life of the asset and begin amortization. Indefinite lived intangible assets are reviewed for impairment at least annually or if indicators of potential impairment exist. There were no impairments of intangible assets for the years ended December 31, 2018 and 2017.

Goodwill represents the excess of the purchase price over the estimated fair value of the identifiable assets acquired and liabilities assumed in a business combination. The Company evaluates goodwill for impairment annually and upon the occurrence of triggering events or substantive changes in circumstances that could indicate a potential impairment. An impairment loss is recognized when the fair value of the reporting unit to which the goodwill relates is below its carrying value. There was no impairment of goodwill for the years ended December 31, 2018 and 2017.

Other Income and Expense

Other income and expense includes amounts relating to the remeasurement of the success payment liability, interest earned on the Company’s bank accounts, interest expense incurred in connection with the SVB term loan described in Note 10, “Long-Term Debt”, and the amortization of the debt discount in connection with the Series B Bridge Notes described in Note 8, “Convertible Notes”.

Research and Development Costs

Research and development costs are expensed as incurred. These costs include direct program expenses, which are payments made to third parties that specifically relate to the Company’s research and development, such as payments to clinical research organizations, clinical investigators, manufacturing of clinical material,pre-clinical testing and consultants. In addition, employee costs (salaries, payroll taxes, benefits, stock-based compensation and travel) for employees contributing to research and development activities are classified as research and development costs.

Stock-Based Compensation

The Company measures employee and director stock-based compensation expense for all stock-based awards at the grant date based on the fair value measurement of the award. The expense is recorded on a straight-line basis over the requisite service period, which is generally the vesting period, for the entire award. Expense is adjusted for actual forfeitures of unvested awards as they occur. The Company calculates the fair value measurement of stock options using the Black-Scholes valuation model. Stock options issued tonon-employees are valued on their grant date and remeasured at the current fair value at the end of each reporting period until they vest. Proceeds from options exercised by employees prior to vesting pursuant to an early exercise provision, the related shares of which the Company has the option to repurchase prior to the vesting date should employment of the early exercise holder be terminated, are recognized as a liability until the shares vest.

Clinical Trial Accruals

As part of the process of preparing its consolidated financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company’s objective is

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to reflect the appropriate trial expenses in its consolidated financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. The Company determines accrual estimates through financial models taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, the Company adjusts its rate of clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date in its consolidated financial statements based on the facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its 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 the Company reporting amounts that are too high or too low for any particular period. Through December 31, 2018, there have been no material adjustments to the Company’s prior period estimates of accrued expenses for clinical trials. The Company’s clinical trial accrual is dependent in part upon the timely and accurate reporting of contract research organizations and other third-party vendors.

Prepaid expenses and other current assets include no prepaid clinical trial costs as of December 31, 2018 and $1.1 million as of December 31, 2017. Other accrued expenses include accrued clinical trial costs of $2.3 million and $0.9 million as of December 31, 2018 and 2017, respectively.

Basic and Diluted Net Loss Per Common Share

Basic net loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period, excluding the effects of converting preferred stock, stock options and unvested restricted stock outstanding. Diluted net loss per common share is computed by dividing the net loss by the sum of the weighted average number of shares of common stock outstanding during the period plus the potential dilutive effects of convertible preferred stock, convertible notes, stock options and unvested restricted stock outstanding during the period calculated in accordance with the treasury stock method but are excluded if their impact is anti-dilutive. Because the impact of these items is anti-dilutive during periods of net loss, there was no difference between the weighted average number of shares used to calculate basic and diluted net loss per common share for the years ended December 31, 2018, 2017 and 2016. Shares excluded from the calculation were 2.6 million, 1.7 million and 11.0 million at December 31, 2018, 2017 and 2016, respectively.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred taxes are recognized based on the differences between financial statement and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company has provided a full valuation allowance on its deferred tax assets. The provision for income taxes represents the current tax payable for the period and the change during the period in deferred tax assets and liabilities. The Company recognizes the effect of an income tax position only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as income tax expense.

Business combinations

Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method, assets acquired, includingin-process research and development projects, and liabilities assumed are recorded at their respective fair values as of the acquisition date in our consolidated financial statements. The final purchase price may be adjusted up to one year from the date of the acquisition. Identifying the fair value of the tangible and intangible assets and liabilities acquired requires the use of estimates by management and third-party valuation firms and was based upon currently available data. The excess of the fair value of consideration

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transferred over the fair value of the net assets acquired is recorded as goodwill. Contingent consideration obligations incurred in connection with a business combination are recorded at their fair values on the acquisition date and remeasured at their fair values each subsequent reporting period until the related contingencies are resolved. The resulting changes in fair values are recorded in earnings. See Note 4, “Creabilis Acquisition” and Note 7, “Fair Value Measurements”.

Other Comprehensive Income (Loss)

Included in other comprehensive income (loss) for the years ended December 31, 2018, 2017 and 2016 are an unrealized foreign currency translation loss of $2.2 million, a gain of $5.7 million and a loss of $0.4 million, respectively. This is the Company’s only component of other comprehensive income (loss) for the years ended December 31, 2018, 2017 and 2016.

Foreign currency translation

The net assets of international subsidiaries where the local currencies have been determined to be the functional currencies are translated into U.S. dollars using current exchange rates. These include the entities acquired as part of the Creabilis acquisition. See Note 4, “Creabilis Acquisition”. As part of this transaction, the Company acquired entities in the United Kingdom, denominated in British pounds, and Italy and Luxembourg, denominated in euros. The U.S. dollar effects that arise from translating net assets of these subsidiaries at changing rates are recognized in other comprehensive income (loss) in the consolidated balance sheet. The earnings or loss of these subsidiaries are translated into U.S. dollars using average exchange rates for the periods.

Recently Issued Accounting Standards

Accounting Pronouncements Adopted

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In August 2016, the FASB issuedASU 2016-15,“Statement of Cash Flows (Topic 230)”(“ASU 2016-15”), which seeks to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows, including contingent consideration cash payments made after a business combination. The Company adopted this standard on January 1, 2018 with no impact on the consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In June 2018 the FASB issued ASU2018-07, “Compensation —Stock Compensation (Topic 718) —Improvements to Nonemployee Share-Based Payment Accounting”(“ASU2018-07”), which expands the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. ASU2018-07 supersedes Subtopic505-50, Equity—Equity-Based Payments toNon-Employees.The amendments in ASU2018-07 are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers.The Company will adopt this standard effective

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January 1, 2019 and is currently evaluating the impact of adopting this standard on the consolidated financial statements and disclosures, but does not expect it to have a significant impact.

The FASB subsequently issued the following amendments to ASU2016-02, which have the same effective date and transition date of January 1, 2019:

•

ASUNo. 2018-10,Codification Improvements to Topic 842, Leases, which amends certain narrow aspects of the guidance issued in ASU2016-02; and

•

4. Creabilis Acquisition

In December 2016, the Company entered into a Share Purchase Agreement, or the Purchase Agreement, to acquire the entire issued share capital of Creabilis. Pursuant to the acquisition of Creabilis, the Company

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obtainedSNA-120,SNA-125 and the related intellectual property.SNA-120 is afirst-in-class inhibitor of Tropomyosin receptor kinase A (TrkA) inhibitor for the treatment of psoriasis, as well as the associated pruritus.SNA-125 is a topical dual Janus kinase 3 (JAK3)/TrkA inhibitor being developed for the treatment of various inflammatory conditions, including atopic dermatitis, psoriasis and the associated pruritus. The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible assets and identifiable intangible assets acquired and liabilities assumed were recorded at fair value, with the remaining purchase price recorded as goodwill.

Upon closing, Creabilis became a direct wholly owned subsidiary in exchange for an upfront payment of approximately $0.2 million in cash, 1,407,679 shares ofSeries A-3 convertible preferred stock with a fair value of $11.2 million, the settlement of $6.7 million of liabilities, and contingent payments up to an aggregate of $58.0 million in a combination of cash and stock upon the achievement of certain development and approval milestones. In addition, the Company is obligated to make certain contingent payments up to an aggregate of $80.0 million in cash upon the achievement of certain annual net sales thresholds andone-time royalties of less than 1% of the amount by which annual net sales exceeds each threshold in the year such threshold is achieved. Where milestone payments are required to be paid in stock, the number of shares will be determined based on the volume weighted average price of the common stock as reported on The Nasdaq Global Select Market, (“Nasdaq”), for the preceding20-day trading period.

The agreement to pay the future milestones and potentialone-time royalties resulted in the recognition of a contingent consideration liability, which is recognized at the inception of the transaction. Other than these payments, subsequent changes to the estimated amounts of contingent consideration to be paid are recognized in the consolidated statement of operations in general and administrative expense. The fair value of the contingent consideration is based on preliminary cash flow projections, based on expected product sales, probabilities around the achievement of certain development, approval and sales milestones and other assumptions. Based on the assumptions, the fair value of the contingent consideration was determined to be $29.2 million at December 31, 2018 and $22.9 million at December 31, 2017. The fair value of the contingent consideration was and continues to be determined by a third-party valuation firm applying the income approach, using several significant unobservable inputs as discussed in Note 7, “Fair Value Measurements”. These inputs are considered Level 3 inputs under the fair value measurements and disclosure guidance.

On October 19, 2017, the Company achieved the first dosing of a human subject in a phase 2b clinical trial forSNA-120, triggering the obligation to settle the first contingent payment to the former Creabilis shareholders, subject to certain offsets. As a result, the Company issued 201,268 shares of its common stock valued at $20.86 per share for the aggregate value of $4.2 million to the former Creabilis shareholders. Accordingly, the shares were issued to the former Creabilis shareholders for no additional cash consideration. The Company recognized the additional change in fair value of the contingent consideration liability through the date of settlement and reclassified the related contingent consideration liability balance to equity in the consolidated balance sheet. Upon the commencement of the Phase 3 clinical trial ofSNA-120, the Company will become obligated to issue $18.0 million in shares of common stock, less certain offsets if applicable, to the former Creabilis shareholders.

The Company recorded a deferred tax liability of $9.4 million for thenon-deductiblein-process research and development intangible assets acquired on the date of the acquisition. The deferred tax liability is a foreign denominated liability subject to translation at each balance sheet date and had a carrying value of $10.5 million and $11.0 million at December 31, 2018 and 2017, respectively. The change in carrying value during the year ended December 31, 2018 was related to translation adjustments of $0.5 million. The recording of the deferred tax liability resulted in goodwill in the amount of $9.8 million on the date of acquisition. Goodwill is foreign denominated and subject to translation at each balance sheet date and had a carrying value of $11.0 million and $11.5 million at December 31, 2018 and 2017, respectively. The change in carrying value during the year ended December 31, 2018 was due to translation adjustments of $0.5 million. The net impact of all translation adjustments is included in other comprehensive loss. Goodwill is not amortized but is tested at least annually for impairment. No impairment has been recognized as of December 31, 2018 and 2017.

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For the years ended December 31, 2018, 2017 and 2016, Creabilis’ net loss included in the Company’s consolidated statement of operations was $3.3 million, $2.6 million and $0.2 million, respectively. Additionally, $1.7 million of transaction costs related to the acquisition are included in general and administrative expense for the year ended December 31, 2016.

5. Identifiable Intangible Assets

The Company’s only identifiable intangible assets werein-process research and development related toSNA-120 andSNA-125 as of December 31, 2018 and 2017. The total intangiblein-process research and development assets were recorded at an initial value of $42.3 million as a result of the Company’s acquisition of Creabilis, are foreign denominated and subject to translation, and had a carrying value of $45.6 million and $47.6 million as of December 31, 2018 and 2017, respectively. The Company used the income approach to determine the fair value of thein-process research and development assets. This approach calculated fair value by estimating future cash flows attributable to the assets, using several unobservable inputs such as future revenues and expenses, time and resources needed to complete development and probabilities of obtaining market approval, and then discounting these cash flows to a present value using a risk-adjusted discount rate commensurate with the Company’s cost of capital and expectation of the revenue growth for products at their life cycle stage. These inputs are considered Level 3 inputs under the fair value measurements and disclosure guidance. See Note 7, “Fair Value Measurements”.

Identifiable intangible assets are initially measured at their respective fair values and will not be amortized until commercialization. If commercialization occurs, intangible assets will be amortized over their estimated useful lives.In-process research and development assets were initially recognized at their fair value as determined on the date of acquisition of December 6, 2016 and are reviewed for impairment at least annually or whenever changes in circumstances indicate a potential impairment or upon regulatory approval resulting in the reclassification to a finite-lived intangible asset. No impairment has been recognized as of December 31, 2018 and 2017. Changes in value as a result of translation adjustments are included in other comprehensive income in the consolidated balance sheets.

6. Property and Equipment

Property and equipment consisted of the following as of December 31, 2018 and 2017 (in thousands):


	Estimated Useful Life (in years)		December 31,
			2018			2017
Lab equipment		5	$	307		$	307
Computer hardware		3		142			116
Capital lease equipment		3		46			46
Furniture and fixtures		5		87			91
Software		3		9			—
Leasehold improvements				105			105

Total				696			665
Less accumulated depreciation				(385	)		(233	)

Property and equipment, net			$	311		$	432

Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the related asset. Depreciation expense was $0.2 million, $0.1 million and $0.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.

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7. Fair Value Measurements

We determine the fair value of financial and nonfinancial assets and liabilities using the fair value hierarchy, which describes three levels of inputs that may be used to measure fair value, as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities;

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities based on the best information available in the circumstances.

In certain cases where there is limited activity or less transparency around inputs to valuation, assets are classified as Level 3 within the valuation hierarchy.

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis based on the three-tier fair value hierarchy as of December 31, 2018 and 2017 (in thousands):


	December 31, 2018
	Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	48,526	$	—	$	—

Total	$	48,526	$	—	$	—

Liabilities:
Success payment liability	$	—	$	—	$	3
Contingent consideration		—		—		29,200

Total	$	—	$	—	$	29,203


	December 31, 2017
	Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	74,467	$	—	$	—

Total	$	74,467	$	—	$	—

Liabilities:
Success payment liability	$	—	$	—	$	3,285
Contingent consideration		—		—		22,900

Total	$	—	$	—	$	26,185

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The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):


	Success Payment Liability			Contingent Consideration
Balance at December 31, 2017	$	3,285		$	22,900
Change in fair value due to remeasurement		(3,282	)		6,300

Balance at December 31, 2018	$	3		$	29,200

Cash equivalents

At December 31, 2018, the Company’s cash equivalents are comprised of U.S. Treasury money market funds whose value is based upon quoted market prices in active markets for identical assets or liabilities with no adjustments applied. Accordingly, these investments are classified as Level 1 of the fair value measurements and disclosure guidance.

Intangible assets

In connection with the acquisition of Creabilis, the Company acquired intangiblein-process research and development assets which were recorded at fair value based on significant unobservable (Level 3) inputs. The fair value ofin-process research and development (“IPR&D”) assets was determined by an independent third-party valuation firm applying the income approach. This approach calculates fair value by estimating future cash flows attributable to the IPR&D assets using several significant unobservable inputs, including a risk adjusted discount rate commensurate with the perceived risk of the IPR&D assets of 20.5%, projected future revenues and expenses based on the cumulative probabilities of multiple scenarios with individual probabilities ranging from 0.1% to 22.5%, and estimates of the timing of the achievement of the various product development, regulatory approval and sales milestones. These intangible assets are not measured at fair value on a recurring basis but are subject to fair value measurement as part of the related impairment test.

Contingent consideration

In connection with the acquisition of Creabilis, the Company agreed to pay additional amounts based on the achievement of certain development, approval and sales milestones. The valuation of contingent consideration uses assumptions the Company believes would be made by a market participant. The Company assesses these estimates on anon-going basis as additional data impacting the assumptions is obtained. Contingent consideration may change significantly as development progresses and additional data is obtained, impacting the Company’s assumptions regarding probabilities of successful achievement of related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. In evaluating the fair value information, judgment is required to interpret the market data used to develop the estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.

The fair value of the contingent consideration was determined by an independent third-party valuation firm applying the income approach. This approach calculates fair value by estimating future cash flows attributable to the related IPR&D assets using several significant unobservable inputs, including risk adjusted discount rates ranging from 7.6% to 16.9%, projected future revenues and expenses based on the cumulative probabilities of multiple scenarios with individual probabilities ranging from 3.8% to 50.1%, and estimates of the timing of the achievement of the various product development, regulatory approval and sales milestones. Significant increases or decreases in any of the probabilities of success and other inputs would result in a significantly higher or lower fair value measurement, respectively. Changes in the fair values of the contingent consideration obligations are recorded in general and administrative expense in the consolidated statement of operations.

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In October 2017, the Company commenced the additional Phase 2b clinical trial forSNA-120, triggering the first contingent milestone payment of $5.0 million, less certain offsets totaling approximately $0.3 million, which was satisfied by issuing an aggregate of 201,268 shares of common stock to the former Creabilis shareholders. The number of shares issued was based on the volume weighted average price of the Company’s common stock over the20-day trading period preceding the commencement of the trial. Concurrently, the Company recognized the additional change in fair value of the contingent consideration liability in general and administrative expense and recognized the settlement of the first contingent milestone in shares of common stock totaling $4.2 million by reclassifying the related contingent consideration liability balance to equity in the consolidated balance sheet. The change in value during the year ended December 31, 2018 was an increase of $6.3 million, primarily related to increased probabilities surrounding regulatory, product approval and sales milestones driven by the completion of the Phase 2b clinical trial forSNA-120. The change in value during the year ended December 31, 2017 was a decrease of $1.2 million which represented the settlement of the first contingent milestone in shares of common stock totaling $4.2 million, offset by an increase in fair value of $3.0 million, primarily related to changes in external market factors and probability adjustments.

Success payment liability

In October 2015, as a result of an agreement in which the Company agreed to pay certain stockholders success payments if the stock price of the Company’s common stock reached certain thresholds, the Company recorded a success payment liability. The success payment liability was recorded at fair value based on significant unobservable inputs, as discussed in Note 9, “Success Payment Liability”. The change in fair value during the years ended December 31, 2018, 2017 and 2016 resulted in net other income of $3.3 million and net other expense of $2.0 million and $0.6 million, respectively, and was recorded to other income and expense in the consolidated statements of operations. Changes in the fair value is primarily related to the changes in the Company’s stock price and the passage of time. The determination of the fair value of the success payment liability uses assumptions the Company believes would be made by a market participant and the Company assesses these estimates on anon-going basis as additional data impacting the assumptions is obtained. In evaluating the fair value information, judgement is required to interpret the market data used to develop the estimates. The use of different market assumptions and/ or different valuation techniques could result in materially different fair value estimates. Significant increases or decreases in the probabilities of meeting the common stock price thresholds or in the timing or likelihood of achieving the triggering events and other inputs would result in a significantly higher or lower fair value measurement, respectively.

There were no transfers of assets or liabilities between the fair value measurement levels during the years ended December 31, 2018 and 2017.

8. Convertible Notes

In January 2017, the Company entered into a note purchase agreement pursuant to which the Company issued, in two tranches, subordinated convertible promissory notes (the “Series B Bridge Notes” and together with the note purchase agreement, the “Series B Bridge Note Agreements”) in an aggregate principal amount of $3.9 million. The Series B Bridge Notes provided for an annual interest rate of 6.0% and a maturity date of January 27, 2018. Under the terms of the Series B Bridge Note Agreements, under certain circumstances, the unpaid principal of the Series B Bridge Notes, including any accrued but unpaid interest thereon, would convert into shares of convertible preferred stock upon the closing of a future preferred stock financing that met specified criteria. Such conversion would be at a 15% discount to the per share price of the convertible preferred stock sold in the financing. In addition, the notes were voluntarily convertible into shares upon the occurrence of anon-qualified financing or upon maturity, and such conversion would still be at a 15% discount to the per share price of the convertible preferred stock sold in the financing.

The conversion feature included a 15% discount in the convertible notes, which constituted a beneficial conversion feature, that was bifurcated and allocated to additional paid in capital. The intrinsic value of the

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beneficial conversion feature due to the 15% discount on conversion of the principal and accrued interest was calculated to be $0.7 million. This resulted in a discount of $0.7 million being allocated to the Series B Bridge Notes which was being amortized to interest expense in the consolidated statement of operations on an effective interest method from the date of issuance of each Series B Bridge Notes through the maturity date of January 27, 2018.

In April 2017, in connection with the Company’s Series B convertible preferred stock financing, the outstanding principal under the Series B Bridge Notes of $3.9 million, plus $34,000 of accrued interest, converted into an aggregate of 0.4 million shares of Series B convertible preferred stock at a rate of $10.40 per share and the Series B Bridge Notes were cancelled. In connection with the IPO, the Series B convertible preferred stock was automatically converted into 0.4 million shares of common stock. The remaining unamortized discount was recognized in interest expense in the consolidated statement of operations. Included in other income and expense for the year ended December 31, 2017 is amortization of the debt discount of $0.7 million and accrued interest expense of $34,000.

9. Success Payment Liability

In October 2015, the Company entered into a letter agreement with certain stockholders pursuant to which the Company agreed to make success payments to such stockholders (the “Success Payment Agreement”). The agreement ends on its fifth anniversary in October 2020. Success payments are payable in cash or common stock at the Company’s sole discretion and will be owed in the event that the value of its common stock meets or exceeds certain specified share price thresholds on any of the following dates during the success payment period: (1) any date after the 90th day after the date on which the Company completes an initial public offering of its common stock; (2) the date on which the Company sells, leases, transfers, or exclusively licenses all or substantially all of its assets to another company; and (3) the date on which the Company merges or consolidates with or into another entity (other than a merger in which thepre-merger stockholders own a majority of the shares of the surviving entity). In the case of an initial public offering, the success payments are triggered when the value of the Company’s common stock, as determined by the average daily volume-weighted average trading price per share over the preceding consecutive90-day period, meets or exceeds the specified share price thresholds. In the case of an asset sale, license or sale of the Company, the success payment is triggered when the value of the Company’s common stock, as determined by the per share consideration paid in the transaction, is in excess of the specified share price thresholds.

The amount of the success payment is determined based on whether the value of the common stock of the Company meets or exceeds certain specified share price thresholds, subject to adjustment for any stock dividend, stock split, combination of shares, or other similar events. Each success payment and the associated share price threshold is ascending from $10.0 million payable at a share price threshold of $53.71 per share to $35.0 million payable at $71.61 per share and with a maximum payment of $60.0 million at a share price threshold of $107.42 per share. Each success payment is inclusive of any preceding payments, if previously made, such that the success payments to stockholders will not exceed $60.0 million in the aggregate.

Upon their issuance, the success payments did not require any future service to be provided by the recipients and as such, the success payments were accounted for under accounting guidance for derivatives and hedging. Accordingly, the Company recorded an initial liability at fair value and remeasures the liability each reporting period, with changes being recognized in the consolidated statement of operations. The fair value of the success payments liability was estimated based on a third-party valuation using a model which simulates the future movement of stock prices based on several key variables. The following variables were incorporated in the estimated fair value of the success payment liability: estimated term of the success payments, fair value of common stock, expected volatility, and risk-free interest rate. The computation of expected volatility was estimated using a combination of available information about the historical volatility of stocks of similar publicly-traded companies for a period matching the expected term assumption. During the years ended December 31, 2018, 2017 and 2016, the Company recorded net other income of $3.3 million and net other expense of $2.0 million and $0.6 million, respectively, due to remeasurement of the liability.

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10. Long-Term Debt

On June 29, 2018 the Company entered into the SVB Loan Agreement with SVB. Under the SVB Loan Agreement, SVB will provide the Company with access to term loans in an aggregate principal amount of up to $40.0 million. The first credit extension, of a principal amount of $30.0 million, was funded on June 29, 2018, and is repayable in monthly installments until July 1, 2023, including an initial interest-only period through July 31, 2020. On January 28, 2019, the Company entered into an amendment to the loan and security agreement (as amended, the “SVB Agreement”). See Note 16, “Subsequent Events.”

Interest on the term loans accrue at a per annum rate of the greater of (i) the Wall Street Journal prime rate plus 2.50% and (ii) 7.25%. On December 31, 2018, the rate was 8.0%. Under the amended SVB Agreement, the Company’s total access to term loans is $30.0 million and, if unrestricted cash at SVB falls below the greater of (i) $30.0 million and (ii) the sum of (x) $15.0 million, plus (y) the Company’s six month cash burn, tested monthly as of the last day of each month, then the Company has the option to either (a) prepay the term loans in denominations of $15.0 million (plus accrued and unpaid interest, the final payment fee in respect to the portion of the terms loans being repaid and the prepayment fee in respect to the pro rata portion of the term loans being prepaid in excess of $15.0 million) or (b) immediately cash secure not less than the lesser of the outstanding balance or $15.0 million of the principal balance of all outstanding indebtedness under the term loans. In addition, the final payment fee has been increased by 1% to 6.5% of the total term loans advanced. In connection with the amendment, the Company issued to SVB and its affiliate, Life Science Loans II, LLC, warrants to purchase an aggregate of 535,714 shares of the Company’s common stock at an exercise price of $2.80 per share. The warrants are immediately exercisable and have a term of ten years.

Under the terms of the SVB Loan Agreement, the Company granted first priority liens and security interests in substantially all of the Company’s assets (excluding all of its intellectual property, which is subject to a negative pledge) and a pledge of the shares of one of its wholly-owned subsidiaries as collateral for the obligations thereunder. The SVB Loan Agreement also contains representations and warranties by the Company and SVB and indemnification provisions in favor of SVB and customary covenants (including limitations on other indebtedness, liens, acquisitions, investments and dividends, but no financial covenants), and events of default (including payment defaults, breaches of covenants following any applicable cure period, a material impairment in the perfection or priority of SVB’s security interest in the collateral, and events relating to bankruptcy or insolvency).

As of December 31, 2018, the carrying value of the term loan consists of $30.0 million principal outstanding less the debt issuance costs of approximately $0.1 million. The final maturity payment of $1.7 million is recognized over the life of the term loan through interest expense using the effective interest method. The debt issuance costs have been recorded as a debt discount which are being accreted to interest expense through the maturity date of the term loan. Interest expense relating to the term loan for the year ended December 31, 2018 was $1.5 million. Interest expense is calculated using the effective interest method, and is inclusive ofnon-cash amortization of capitalized loan costs. At December 31, 2018, the effective interest rate was 9.39%.

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Future principal payments for the long-term debt are as follows (in thousands):


	December 31, 2018
2019		—
2020		4,500
2021		9,586
2022		10,393
2023		5,521

Total principal payments		30,000
Final fee due at maturity in 2023		1,650

Total principal and final fee payments		31,650
Unamortized discount and debt issuance costs		(1,525	)

Long-term debt, net	$	30,125

11. Commitments and Contingencies

Operating Lease

In May 2016, the Company entered into a40-month lease obligation for office space in Westlake Village, California, which commenced on October 10, 2016, and terminates on February 29, 2020. In June 2017, the Company amended the lease agreement to include an additional 5,973 square feet and an allowance for leasehold improvements of up to $0.1 million. The lease is subject to fixed rate escalation increases and includes a period of free rent. As a result, the Company recognizes rent expense on a straight-line basis for the full amount of the commitment including the minimum rent increases over the life of the lease and the free rent period. The lease contains a renewal option for an additional three-year term. Future minimum rental payments under the lease arrangements as of December 31, 2018, are as follows (in thousands):


Year ending December 31:
2019	$	432
2020		74
2021		—
2022		—
Thereafter		—

Total minimum lease payments	$	506

During the years ended December 31, 2018, 2017 and 2016, the Company incurred $0.4 million, $0.5 million and $0.2 million for rent expense, respectively.

License and Supply Agreement

The Company has an exclusive license and supply agreement with nanoComposix, pursuant to which the Company owes minimum annual royalties of $50,000 or low single digit royalties on net sales of licensed products.

Contingencies

From time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business, including those set forth in Part 1, Item 3 “Legal Proceedings”. As of December 31, 2018, there are no matters where there is at least a reasonable probability that a material loss has been or will be incurred.

F-22

12. Related Party Transactions

Venvest Biotech, LLC

Dr. Beddingfield, the Company’s President and Chief Executive Officer and a member of the Company’s board of directors, is an advisor to Venvest Biotech, LLC, or Venvest, and is considered anon-managing member of Venvest. Dr. Beddingfield has an economic interest in any gain associated with the shares of the Company’s capital stock purchased by Venvest in the Company’sSeries A-3 and Series B Preferred Stock financings. On May 17, 2018, Dr. Beddingfield acquired 47,594 shares pursuant to a mandatory distribution from Venvest, resulting from the economic gain associated with those shares. Dr. Beddingfield has no management or voting rights in respect of Venvest (including no voting or investment power with respect to shares of the Company’s capital stock held by Venvest).

Stock Purchase Rights

In January 2016, in connection with his commencement of employment with the Company, the Company’s board of directors granted Dr. Beddingfield, the Company’s President and Chief Executive Officer, the right to purchase 553,652 shares of the Company’s common stock for a purchase price of $2.35 per share, which the board of directors determined was the fair market value on the date of grant. With respect to 454,912 shares subject to the stock purchase right, 25% of the shares vest on the first anniversary of the grant, and 1/48th of the shares vest monthly thereafter, subject to Dr. Beddingfield continuing to provide services to the Company through each such vesting date. With respect to 49,370 shares subject to the stock purchase right, 50% of the shares vest on the first date the volume-weighted average trading price of the Company’s common stock equals or exceeds $71.03 per share, and 1/24th of the shares vest monthly thereafter, subject to Dr. Beddingfield continuing to provide services to the Company through each such vesting date. With respect to the remaining 49,370 shares subject to the stock purchase right, 50% of the shares vest upon achievement of a milestone related to clinical development, and 1/24th of the shares vest monthly thereafter, subject to Dr. Beddingfield continuing to provide services to the Company through each such vesting date. On December 3, 2018, 50% of these shares vested as a result of achieving the clinical development milestone relating to thetop-line results from the Phase 2b studyof SNA-120 for the treatment of itch and psoriasis. The Company determined that the stock purchase rights effectively represented an option and the fair value of the option was $1.3 million which is being amortized as compensation expense over the performance period of the award with $0.3 million, $0.5 million and $0.1 million recognized as compensation expense for the years ended December 31, 2018, 2017 and 2016, respectively.

In May 2016, Dr. Beddingfield exercised his stock purchase rights in full and purchased restricted stock that vests on the same schedule as the stock purchase rights by providing a promissory note to the Company in the principal amount of $1.3 million, with an interest rate of 1.43% per annum. The promissory note was considered to be substantivelynon-recourse and, as such, the issuance of the unvested restricted shares in exchange for the note continued to constitute a stock option for accounting purposes. As the promissory note wasnon-recourse, it was not reflected on the Company’s balance sheet at December 31, 2016. In June 2017, the Company forgave all outstanding principal and accrued interest under the related partynon-recourse promissory note effective as of July 2, 2017, and the note was cancelled. The total outstanding principal balance and accrued but unpaid interest forgiven on the promissory note was $1.3 million. As of December 31, 2018 and 2017, 0.4 million and 0.2 million shares subject to the award had vested, respectively.

Success Payments

Todd Harris, a member of the Company’s board of directors, is a beneficiary of the Success Payments Agreement, as described in Note 9 “Success Payment Liability” and will receive 25.22% of any related payouts.

13. Stockholders’ Equity

As of December 31, 2018, the authorized stock of the Company was 300.0 million shares of common stock, $0.0001 par value per share, and 10.0 million shares of preferred stock, $0.0001 par value per share.

F-23

Common Stock

Holders of common stock are entitled to one vote per share and, upon liquidation, dissolution, or winding up of the Company, are entitled to receive all assets available for distribution to stockholders. The holders have no preemptive or other subscription rights and there are no redemption or sinking fund provisions with respect to such shares.

Shares of common stock reserved for future issuance were as follows as of December 31, 2018 and 2017 (in thousands):


	2018		2017
Common stock awards outstanding		2,263		1,159
Common stock awards available for grant under employee benefit plans		1,370		1,533

Total shares of common stock reserved for future issuance		3,633		2,692

Convertible Preferred Stock

As of December 31, 2018 and 2017, there was no convertible preferred stock outstanding. In connection with the Company’s IPO, all outstanding shares of convertible preferred stock were automatically converted into 12.8 million shares of common stock.

In April 2017, the Company issued an aggregate of 3.0 million shares of Series B convertible preferred stock at a price per share of $12.24 for aggregate proceeds of $36.5 million, exclusive of 0.4 million shares of Series B convertible preferred stock issued upon conversion of the Series B Bridge Notes. See Note 8 “Convertible Notes”. All of the Company’s outstanding Series B convertible preferred stock was automatically converted into common stock in connection with the IPO.

ATM Offering Program

In August 2018, the Company entered into a sales agreement with Cowen pursuant to which the Company may sell from time to time, at its option, up to $75.0 million of the Company’s common stock through ATM Offering Program, under which Cowen will act as sales agent. The aggregate compensation payable to Cowen shall be 3% of the gross sales price of the common stock sold by Cowen pursuant to the Sales Agreement. During the year ended December 31, 2018, the Company issued 340,307 shares of its common stock through its ATM Offering Program and received net proceeds of approximately $5.0 million, after deducting commissions of $0.2 million and other offering expenses of $0.4 million.

Stock Awards and Stock-Based Compensation

In July 2017, the Company’s board of directors approved the 2017 Incentive Award Plan, or the 2017 Plan, which became effective upon the completion of the IPO on August 1, 2017. The 2017 Plan serves as the successor incentive award plan to the Company’s 2010 Equity Incentive Plan, or the 2010 Plan, and has 1.0 million shares of common stock available for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and other stock-based awards, plus shares of common stock that were reserved for issuance pursuant to future awards under the 2010 Plan at the time the 2017 Plan became effective, plus shares represented by awards outstanding under the 2010 Plan that are forfeited or lapse unexercised and which following the effective date of the 2017 Plan are not issued under the 2010 Plan. In addition, the 2017 Plan reserve will increase on January 1, 2018 and each subsequent anniversary through 2027, by an amount equal to the lesser of (a) four percent of the shares of stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (b) such smaller number of shares of stock as determined by our board of directors; provided, however, that no more than 12.0 million shares of stock may be issued upon the exercise of incentive stock options.

F-24

The terms of awards pursuant to the 2017 Plan are determined by the administrator of the 2017 Plan. The 2017 Plan is administered by the compensation committee of the Company’s board of directors unless the Company’s board of directors assumes authority for administration. In addition, the Company’s board of directors has delegated authority to grant awards to employees other than executive officers and certain senior executives of the Company to a committee consisting of the Company’s chief executive officer. Stock options granted pursuant to the 2017 Plan must have an exercise price of not less than the fair market value of the Company’s common stock on the date of grant, except that incentive stock options granted to an individual who owns (or is deemed to own) at least 10% of the total combined voting power of all classes of the Company’s capital stock (a “10% Holder”), must have an exercise price of at least 110% of the fair market value of a share of common stock on the date of grant. Stock options granted under the 2017 Plan generally expire ten years from the date of the grant, except that incentive stock options granted to a 10% Holder must not be exercisable after five years from the date of grant. The Company’s stock awards under the 2017 Plan vest based on terms in the stock award agreements and generally vest over four years.

Following the Company’s IPO and in connection with the effectiveness of the Company’s 2017 Plan, the 2010 Plan terminated and no further awards will be granted under that plan. However, all outstanding awards under the 2010 Plan will continue to be governed by their existing terms.

The fair value of each employee award granted during 2018, 2017 and 2016 was estimated on the grant date using the Black-Scholes option-pricing model. The fair value of eachnon-employee option granted was estimated on the grant date and subsequently remeasured each reporting period using the Black-Scholes option-pricing model. The following assumptions were used for grant date fair value for the years ended December 31, 2018, 2017 and 2016:

Year Ended December 31,

2018

2017

2016

Expected stock price volatility

65.40–74.21

59.13%–64.09

46.72%–54.76

Expected dividend yield

—

Expected term (in years)

5.0–6.1

5.3–10.0

4.0–10.0

Risk-free interest rate

2.55–3.06

1.77%–2.60

1.12%–2.42

Due to limited historical data, the Company estimates stock price volatility based on a combined weighted average of the Company’s historical average volatility and that of a selected peer group of comparable publicly traded companies over the expected life of the award. The Company has never paid and does not expect to pay dividends in the foreseeable future. The expected term represents the average time that awards that vest are expected to be outstanding. For employee awards that have an early exercise provision, the Company has sufficient information to utilize four years as an expected term. For awards without an early exercise provision, the Company does not have sufficient history of stock option exercises to estimate the expected term and, thus, calculates expected term using the simplified method, based on the midpoint between the average vesting date and the contractual term. For allnon-employees, the expected term is equivalent to the contractual term of 10 years. The risk-free interest rate is based on the United States Treasury yield curve for the expected life of the option. For awards issued prior to the listing of the Company’s common stock on Nasdaq, the fair value of the common stock utilized in the fair value estimation of award arrangements has been determined by the Company’s board of directors, utilizing contemporaneous third-party valuations. Following the listing of the common stock on Nasdaq, the Company uses its closing stock price as reported on Nasdaq on the grant date for the fair value of its stock. The Company has elected to record forfeitures as they occur and does not adjust its expense based on an estimated forfeiture rate.

F-25

The table below summarizes the stock option activity for the years ended December 31, 2018, 2017 and 2016:


	Number of Shares (in thousands)			Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2015		—			—		—
Granted		1,020		$	2.35		—
Exercised		(372	)		2.35	$	87
Cancelled		(75	)		2.35		—

Outstanding at December 31, 2016		573		$	2.35	$	1,412
Granted		686			12.22		—
Exercised		(92	)		2.35		260
Cancelled		(8	)		2.35		—

Outstanding at December 31, 2017		1,159		$	8.19	$	11,795
Granted		1,358			15.95		—
Exercised		(37	)		11.04		168
Cancelled		(217	)		12.14		—

Outstanding at December 31, 2018		2,263		$	12.42	$	18

Exercisable at December 31, 2018		561		$	7.05	$	17

The Company grantednon-employee options to purchase 35,000 and 65,000 shares of its common stock during the years ended December 31, 2017 and 2016, respectively, which are included in the stock option activity above. The Company did not grant anynon-employee options to purchase shares of its common stock during the year ended December 31, 2018.

Total compensation cost recorded in the consolidated statements of operations and comprehensive loss, which includesnon-cash stock-based compensation expense, restricted shares issued tonon-employees subject to vesting and the value of stock and options issued tonon-employees for services andnon-cash stock-based compensation expense relating to the ESPP are allocated as follows (in thousands):


	Year Ended December 31,
	2018		2017		2016
Research and development	$	1,519	$	487	$	104
General and administrative		3,181		1,625		254

	$	4,700	$	2,112	$	358

The weighted-average grant date fair value of all stock options granted during the year ended December 31, 2018 was $15.95. The weighted-average remaining contractual life of options outstanding at December 31, 2018 is 8.8 years. The total fair value of the shares vested during the year ended December 31, 2018 was $3.3 million. Additionally, stock compensation expense includes $0.3 million, $0.8 million and $48,000 related tonon-employee option grants during the years ended December 31, 2018, 2017 and 2016, respectively.

Prior to its termination in connection with the effectiveness of the 2017 Plan, the 2010 Plan allowed the Company to grant to employees the right to exercise stock options in exchange for cash before the requisite

F-26

service was provided (e.g., before the award is vested under its original terms); however, such arrangements permit the Company to subsequently repurchase such shares at the exercise price if the employee ceases to be a service provider. Such an exercise is not substantive for accounting purposes. Therefore, the payment received for the exercise price is recognized as an early exercise liability in the consolidated balance sheets and will be transferred to common stock and additional paid in capital as such shares vest. As of December 31, 2018 and 2017, 307,504 and 546,065 unvested shares, respectively, were legally issued but are not considered outstanding for accounting purposes and are therefore excluded from basic and diluted net loss per share until the repurchase right lapses and the shares are no longer subject to the repurchase feature. In connection with these unvested shares, the Company has recorded an early exercise liability as of December 31, 2018 and 2017, of $0.3 million and $0.5 million, respectively, of which $0.2 million and $0.2 million is included in current liabilities, and $0.1 million and $0.3 million is included innon-current liabilities in the consolidated balance sheet at December 31, 2018 and 2017, respectively.

2017 Employee Stock Purchase Plan

The Company adopted the 2017 Employee Stock Purchase Plan, or the ESPP, which became effective upon the completion of the IPO on August 1, 2017. The ESPP is designed to allow the Company’s eligible employees to purchase shares of the Company’s common stock, at semi-annual intervals, with their accumulated payroll deductions. Under the ESPP, participants are offered the option to purchase shares of the Company’s common stock at a discount during a series of successive offering periods. The option purchase price will be the lower of 85% of the closing trading price per share of the Company’s common stock on the first trading date of an offering period in which a participant is enrolled or 85% of the closing trading price per share on the purchase date, which will occur on the last trading day of each offering period. The Company began the first offering period on December 31, 2017.

The ESPP is intended to qualify under Section 423 of the U.S. Internal Revenue Service Code of 1986, as amended. The maximum number of the Company’s common stock which will be authorized for sale under the ESPP is equal to the sum of (a) 198,883 shares of common stock and (b) an annual increase on the first day of each year beginning in 2018 and ending in 2027, equal to the lesser of (i) 1% of the shares of common stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (ii) such number of shares of common stock as determined by the Company’s board of directors; provided, however, no more than 3.0 million shares of the Company’s common stock may be issued under the ESPP. The ESPP has 0.3 million shares of common stock reserved for future issuance pursuant to the plan.

The Company recognized $0.3 million in compensation expense related to the ESPP for the year ended December 31, 2018. During the year ended December 31, 2018, 67,508 shares of common stock were issued under the ESPP.

14. Income Taxes

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act, or the Act. The Act amends the Internal Revenue Code of 1986, as amended, or the Code, to reduce tax rates and modify policies, credits and deductions for individuals and businesses. For businesses, the Act reduces the corporate tax rate from a maximum of 35% to a flat 21% rate. The rate reduction became effective on January 1, 2018.

A U.S. shareholder of a specified foreign corporation, or SFC, must include in gross income, at the end of the SFC’s last tax year beginning January 1, 2018, the U.S. shareholder’s pro rata share of the SFC’s undistributed and previously untaxed post-1986 foreign earnings and profits. The amount of earnings and profits taken into account is the greater of the amounts determined as of November 2, 2017, or December 31, 2017, unreduced by dividends to other SFCs during the SFC’s last taxable year beginning before January 1, 2018. As of December 31, 2017, the Company’s controlled foreign corporations had negative cumulative earnings and

F-27

profits; therefore, the Company did not have an income inclusion as a result of the mandatory deemed repatriation.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allowed the Company to record provisional amounts for the effects of the TCJA in the period it was enacted for a measurement period not extend beyond one year from the enactment date. Under SAB 118, the Company recorded a provisional reduction in its deferred tax assets and associated valuation allowance of $9.0 million in 2017 for the effects of the TCJA, which was primarily attributable to the reduction in federal tax rates. The Company completed its assessment of the final impact of the TCJA within the required measurement period under SAB 118 and determined that there were no material adjustments to the provisional amounts previously recorded.

The amount of loss before taxes (in thousands):


	Year Ended December 31,
	2018			2017			2016
U.S. loss before taxes	$	(70,206	)	$	(48,258	)	$	(20,937	)
Foreign loss before taxes		(3,265	)		(2,577	)		(225	)

Loss before income taxes	$	(73,471	)	$	(50,835	)	$	(21,162	)

Income tax benefit for the years ended December 31, 2018, 2017 and 2016 consists of the following (in thousands):


	Year Ended December 31,
	2018		2017			2016
Current:
Federal	$	—	$	(226	)	$	—
State		—		(64	)		—
Foreign		—		—			—

Total Current	$	—	$	(290	)	$	—

Deferred:
Federal	$	—	$	—		$	—
State		—		—			—
Foreign		—		—			—

Total Deferred		—		—			—

Income Tax Benefit	$	—	$	(290	)	$	—

F-28

A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows (in thousands):


	Year Ended December 31,
	2018			2017			2016
Tax computed at federal statutory rate	$	(15,429	)	$	(17,284	)	$	(7,407	)
State income taxes, net of federal tax benefit		(1,867	)		(1,713	)		(1,058	)
Rate difference onnon-US earnings		(96	)		482			33
Research and development credits		(1,527	)		(929	)		(359	)
Success based payments		(689	)		688			199
Valuation allowance		18,637			6,222			7,582
Uncertain tax positions		—			—			379
Transaction costs		—			—			587
Tax Cut and Jobs Act		—			8,960			—
Contingent consideration		1,323			1,016			—
Return to provision andtrue-ups		(718	)		2,499			—
Permanent items		366			(231	)		44

Income tax benefit	$	—		$	(290	)	$	—

The components that comprise the Company’s net deferred tax assets at December 31, 2018 and 2017 consist of the following (in thousands):


	Year Ended December 31,
	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	19,868		$	15,815
Amortization		20,754			8,818
Stock-based compensation		1,021			392
R&D credit carryforwards		2,894			1,367
Accrued expenses		648			600
Other		176			168

Total deferred tax assets	$	45,361		$	27,160

Deferred tax liabilities
Foreign intangibles	$	(10,503	)	$	(10,964	)
Fixed assets		(18	)		(30	)

Total deferred tax liabilities	$	(10,521	)	$	(10,994	)

Net deferred tax assets	$	34,840		$	16,166
Valuation allowance		(45,343	)		(27,130	)

Net deferred tax liabilities	$	(10,503	)	$	(10,964	)

Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Management periodically evaluates the recoverability of the deferred tax assets and assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Because of the Company’s recent history of operating losses, management believes the future benefits of deferred tax assets are not likely to be realized. Based on the weight of all evidence, including a history of operating losses and the Company’s ability to generate future taxable income to realize these assets, management has determined it is more likely than not that the net deferred tax assets will not be realized and a full valuation allowance has been established to offset the net deferred tax asset. The Company’s valuation allowance increased by $18.2 million from 2017 to 2018. Additionally, the

F-29

company has a deferred tax liability of $10.5 million related the acquisition ofin-process research and development assets in anon-taxable transaction. This deferred tax liability cannot be assumed to be a source of future income to provide benefit to the Company’s deferred tax assets given the uncertainties as to the timing of its realization.

As of December 31, 2018, the Company had federal net operating loss carryforwards of approximately $48.8 million, with $25.1 million of net operating losses generated during 2018 carrying forward indefinitely and $23.7 million of net operating losses beginning to expire between 2031 and 2037. There are state net operating loss carryforwards of approximately $11.2 million and foreign net operating loss carryforwards of $41.3 million. The state net operating loss carryforwards will begin to expire in 2031 and the foreign net operating loss carryforwards will begin to expire in 2034. In addition, the Company also has federal credit carryforwards of approximately $2.9 million as of December 31, 2018 which may be available to offset future tax liabilities. These federal credits will expire between 2036 and 2038.

Utilization of the net operating loss and research credit carryforwards may be subject to substantial annual limitations due to ownership change limitations that may have occurred or that could occur in the future, as required by Sections 382 and 383 of the Code, as well as similar state provisions. Under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use itspre-change net operating loss carryforwards and otherpre-change tax attributes (such as research and development tax credits) to offset its post-change income or taxes may be limited.

The Company has not completed a study to assess whether an ownership change has occurred. If the Company has experienced an ownership change, utilization of the net operating loss and research credit carryforwards would be subject to an annual limitation under Sections 382 and 383 of the Code. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate. Any carryforwards that will expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.

The following table summarizes the changes in the amount of our unrecognized tax benefits (in thousands):


Unrecognized tax benefits at December 31, 2016		984
Increase / (Decrease) for prior year tax positions		4
Increase for current year tax positions		—

Unrecognized tax benefits at December 31, 2017	$	988
Increase / (Decrease) for prior year tax positions		—
Increase for current year tax positions		—

Unrecognized tax benefits at December 31, 2018	$	988

Any uncertain tax positions would be related to tax years that remain open and subject to examination by the relevant tax authorities. The Company has no liabilities related to uncertain tax positions, but does have unrecognized tax benefits of $1.0 million which have been recorded as a direct reduction to the deferred tax asset as of the year ended December 31, 2018. At December 31, 2018 and 2017, the Company had unrecognized tax benefits of $1.0 million and $1.0 million, respectively. The Company does not expect any significant increases or decreases to the Company’s unrecognized tax benefits within the next 12 months. If recognized, none of the unrecognized tax benefits would impact the Company’s effective tax rate due to the existence of the valuation allowance. The Company is subject to U.S. federal tax authority examinations and U.S. state tax authority examinations for all years with the net operating loss and credit carryforwards. At December 31, 2018, the Company has not accrued for interest or penalties associated with unrecognized tax liabilities. In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.

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15. Selected Quarterly Consolidated Financial Data (Unaudited)

The following table contains unaudited consolidated financial information on a quarterly basis for 2018 and 2017. The Company believes that the following information reflects all normal recurring adjustments necessary for a fair statement of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.


	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
	(in thousands, except per share amounts)
Year Ended December 31, 2018
Total operating expenses	$	18,477		$	21,668		$	16,584		$	19,769
Other income (expense), net		1,374			1,429			(210	)		434
Net loss		(17,103	)		(20,239	)		(16,794	)		(19,335	)
Net loss per share, basic and diluted	$	(0.85	)	$	(1.00	)	$	(0.82	)	$	(0.93)


	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
	(in thousands, except per share amounts)
Year Ended December 31, 2017
Total operating expenses	$	8,993		$	11,266		$	14,322		$	13,990
Other income (expense), net		(1,160	)		(1,672	)		(2,154	)		2,722
Net loss		(10,107	)		(12,857	)		(16,391	)		(11,190	)
Net loss per share, basic and diluted	$	(5.30	)	$	(6.50	)	$	(1.12	)	$	(0.56	)

16. Subsequent Events

On January 28, 2019, the Company executed an amendment to the loan and security agreement entered into with Silicon Valley Bank (“SVB”) on June 29, 2018. Under the original agreement, the Company drew down a principal amount of $30.0 million on June 29, 2018, with access to term loans in an aggregate principal amount of up to $40.0 million. Under the amendment, the Company’s total access to term loans is $30.0 million, with additional minimum liquidity requirements. The final payment fee has been increased by 1% to 6.5% of the total term loans advanced. In connection with the amendment, on the amendment effective date, the Company issued to SVB and its affiliate, warrants to purchase an aggregate of 535,714 shares of the Company’s common stock at an exercise price of $2.80 per share. The warrants are immediately exercisable and have a term of ten years.

On February 8, 2019, the Company announcedtop-line results from pivotal trials ofSNA-001 for the reduction of light-pigmented hair and the final pivotal trial ofSNA-001 for the treatment of acne and plans to seek a strategic partner to maximize the value ofSNA-001.

On February 20, 2019, the Company entered into an underwriting agreement with Cowen and Company, LLC and BMO Capital Markets Corp., pursuant to which the Company agreed to issue and sell 8,000,000 shares of its common stock, par value $0.0001 per share to the underwriters. The shares were sold at a public offering price of $2.50 per share, and were purchased by the underwriters from the Company at a price of $2.35 per share. Under the terms of the underwriting agreement, the Company granted the underwriters the option, for 30 days, to purchase up to 1,200,000 additional shares of common stock at the public offering price. The Offering was made under a prospectus supplement and related prospectus filed with the Securities and Exchange Commission pursuant to the Company’s effective shelf registration statement onForm S-3, as amended (RegistrationNo. 333-226595). On February 22, 2019, the offering closed and the Company completed the sale and issuance of an aggregate of 8,000,000 shares of common stock. The Company received net proceeds from the offering of approximately $18.5 million, after deducting the underwriters’ discounts and commissions and estimated offering expenses payable by the Company.

F-31

On February 28, 2019, the underwriters exercised in full their option to purchase 1,200,000 additional shares of the Company’s common stock. The Company received net proceeds from the offering option exercise of approximately $2.8 million, after deducting the underwriters’ discounts and commissions and estimated offering expenses payable by the Company.

F-32

Exhibits


Exhibit Number		Incorporated by Reference							Filed Herewith
Exhibit Number	Exhibit Description	Form		Date		Number			Filed Herewith

2.1†	Share Purchase Agreement, dated December 6, 2016, by and among Sienna Biopharmaceuticals, Inc., Shareholder Representative Services LLC and the Vendors set forth on Schedule 1 thereto.		S-1		7-3-2017		2.1

3.1	Amended and Restated Certificate of Incorporation, as amended.		8-K		8-1-2017		3.1

3.2	Amended and Restated Bylaws.		8-K		8-1-2017		3.2

4.1	Reference is made to exhibits 3.1 through3.2.

4.2	Form of Common Stock Certificate.		S-1/A		7-17-2017		4.2

4.3	Warrant to Purchase Common Stock, dated as of January 28, 2019, by and between Silicon Valley Bank and Sienna Biopharmaceuticals, Inc.		8-K		1-30-2019		4.1

4.4	Warrant to Purchase Common Stock, dated as of January 28, 2019, by and between Life Science Loans II, LLC and Sienna Biopharmaceuticals, Inc.		8-K		1-30-2019		4.2

10.1	Loan and Security Agreement dated as of June 29, 2018, by and between Silicon Valley Bank and Sienna Biopharmaceuticals, Inc.		8-K		7-2-2018		10.1

10.2	First Amendment to Loan and Security Agreement dated as of January 28, 2019, by and between Silicon Valley Bank and Sienna Biopharmaceuticals, Inc.		8-K		1-30-2019		10.1

10.3†	Amended and Restated Exclusive Supply and License Agreement, dated as of April19, 2017, by and between Sienna Biopharmaceuticals, Inc. and nanoComposix, Inc.		S-1/A		7-17-2017		10.1

10.4†	Letter Agreement, dated as of October 8, 2015, by and among Sienna Biopharmaceuticals, Inc. and certain of its stockholders listed therein.		S-1		7-3-2017		10.2

10.5	Amended and Restated Investors’ Rights Agreement, dated April 12, 2017, by and among Sienna Biopharmaceuticals, Inc. and the investors listed therein.		S-1		7-3-2017		10.3

10.6(a)	Office Lease, dated May 10, 2016, by and between Sienna Biopharmaceuticals, Inc. and Teachers Insurance and Annuity Association of America.		S-1		7-3-2017		10.4	(a)

10.7(b)	First Amendment to Office Lease, dated June 13, 2017, by and between Sienna Biopharmaceuticals, Inc. and Teachers Insurance and Annuity Association of America.		S-1		7-3-2017		10.4	(b)

10.8(a)#	2010 Equity Incentive Plan, as amended.		S-8		8-1-2017		99.1	(a)

10.9(b)#	Form of Stock Option Agreement under 2010 Equity Incentive Plan.		S-1		7-3-2017		10.5	(b)

10.10(c)#	Form of Stock Purchase Right Grant Notice and Restricted Stock Purchase Agreement under 2010 Equity Incentive Plan.		S-1		7-3-2017		10.5	(c)

Exhibit

Number

Incorporated by Reference

Filed
Herewith

Exhibit Description

Form

Date

Number

10.11(a)#

2017 Incentive Award Plan.

S-8

8-1-2017

99.2

(a)

10.12(b)#

Form of Stock Option Grant Notice and Stock Option Agreement under the 2017 Incentive Award Plan.

S-1/A

7-17-2017

10.6

(b)

10.13(c)#

Form of Restricted Stock Award Grant Notice under the 2017 Incentive Award Plan.

S-1/A

7-17-2017

10.6

(c)

10.14(d)#

Form of Restricted Stock Unit Award Grant Notice under the 2017 Incentive Award Plan.

S-1/A

7-17-2017

10.6

(d)

10.15#

Employment Agreement by and between Sienna Biopharmaceuticals, Inc. and Frederick C. Beddingfield III, dated as of July 26, 2017.

S-1

7-3-2017

10.7

10.16#

Employment Agreement by and between Sienna Biopharmaceuticals, Inc. and Timothy K. Andrews, dated as of July 26, 2017.

S-1

7-3-2017

10.9

10.17#

Employment Agreement by and between Sienna Biopharmaceuticals, Inc. and Diane Stroehmann, dated as of July 26, 2017.

S-1

7-3-2017

10.10

10.18#

Employment Agreement by and between Sienna Biopharmaceuticals, Inc. and Paul Lizzul, dated as of July 26, 2017.

S-1

7-3-2017

10.12

10.19#

Employment Agreement by and between Sienna Biopharmaceuticals, Inc. and John W. Smither, dated as of March 21, 2018

10-Q

5-4-2018

10.2

10.20#

Separation Agreement by and between Sienna Biopharmaceuticals, Inc. and Todd Harris, dated as of November 5, 2018.

10.21#

Non-Employee Director Compensation Program.

S-1/A

7-17-2017

10.13

10.22#

Form of Indemnification Agreement for directors and officers.

S-1

7-3-2017

10.14

10.23#

2017 Employee Stock Purchase Plan.

S-8

8-1-2017

99.3

21.1

List of Subsidiaries.

23.1

Consent of independent registered public accounting firm.

31.1

Certification of Chief Executive Officer of Sienna Biopharmaceuticals, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.

31.2

Certification of Chief Financial Officer of Sienna Biopharmaceuticals, Inc., as required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.

Exhibit

Number

Incorporated by Reference

Filed
Herewith

Exhibit Description

Form

Date

Number

32.1*

Certification by the Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 36 of Title 18 of the United States Code (18 U.S.C. §1350).

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

†	Confidential treatment has been granted for certain information contained in this Exhibit. Such information has been omitted and filed separately with the SEC.

#	Indicates management contract or compensatory plan.

The certification attached as Exhibit 32.1 that accompanies this Annual Report on Form10-K is not deemed filed with the SEC and is not to be incorporated by reference into any filing of Sienna Biopharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form10-K, irrespective of any general incorporation language contained in such filing.

SIGNATURES

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

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Frederick C. Beddingfield III, M.D., Ph.D. and John W. Smither, his or her true and lawfulattorney-in-fact and agent, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report onForm 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 saidattorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that saidattorney-in-fact and agent, or his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated opposite his or her name.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


/s/ FREDERICK C. BEDDINGFIELD III	Director, President and Chief Executive Officer (Principal Executive Officer)	March 14, 2019
Frederick C. Beddingfield III, M.D., Ph.D.

/s/ JOHN W. SMITHER	Chief Financial Officer (Principal Financial and Accounting Officer)	March 14, 2019
John W. Smither

/s/ KEITH R. LEONARD JR	Chairman of the Board of Directors	March 14, 2019
Keith R. Leonard Jr.

/s/ KRISTINA BUROW	Member of the Board of Directors	March 14, 2019
Kristina Burow

/s/ DENNIS M. FENTON, Ph.D.	Member of the Board of Directors	March 14, 2019
Dennis M. Fenton Ph.D.

/s/ TODD HARRIS, Ph.D.	Member of the Board of Directors	March 14, 2019
Todd Harris, Ph.D.

/s/ JAMES M. HINDMAN	Member of the Board of Directors	March 14, 2019
James M. Hindman

/s/ ROBERT MORE	Member of the Board of Directors	March 14, 2019
Robert More

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. junior Avg

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company