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As filed with the Securities and Exchange Commission on April 12, 2019

Registration No. 333-              


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



AXCELLA HEALTH INC.
(Exact name of registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  2836
(Primary Standard Industrial
Classification Code Number)
  26-3321056
(I.R.S. Employer
Identification Number)



840 Memorial Drive
Cambridge, MA 02139
(857) 320-2200

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



William Hinshaw
Chief Executive Officer
840 Memorial Drive
Cambridge, MA 02139
(857) 320-2200

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



Copies of all communications, including communications sent to agent for service, should be sent to:

Kingsley L. Taft
Laurie A. Burlingame
Goodwin Procter LLP
100 Northern Ave.
Boston, MA 02210
(617) 570-1000

 

Peter N. Handrinos
Wesley C. Holmes
Latham & Watkins LLP
200 Clarendon Street
Boston, MA 02116
(617) 948-6000



Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.

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

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

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

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

             Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  o           Accelerated Filer  o
Non-Accelerated Filer  ý           Smaller Reporting Company  o
            Emerging Growth Company  ý

             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 to Section 7(a)(2)(B) of the Securities Act.  o



CALCULATION OF REGISTRATION FEE

       
 
Title of each Class of Securities
to be Registered

  Proposed
Maximum Aggregate
Offering Price (1)(2)

  Amount of
Registration Fee (3)

 

Common Stock, par value $0.001 per share

  $86,250,000   $10,453.50

 

(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)
Includes the offering price of shares that the underwriters may purchase pursuant to an option to purchase additional shares.

(3)
Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

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

   


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

SUBJECT TO COMPLETION, DATED APRIL 12, 2019

PRELIMINARY PROSPECTUS

             Shares

LOGO

Axcella Health Inc.

Common Stock

          We are offering                  shares of our common stock. This is our initial public offering and no public market currently exists for our common stock. We anticipate that the initial public offering price will be between $             and $             per share.

          Prior to this offering, there has been no public market for our common stock. We have applied to list our common stock on The Nasdaq Global Market under the symbol "AXLA."



           Investing in our common stock involves risks. See "Risk Factors" beginning on page 12 of this prospectus.

           We are an "emerging growth company" as defined under U.S. federal securities laws and will be subject to reduced public company reporting requirements. See "Prospectus Summary—Implications of being an emerging growth company."

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

  Per Share   Total
 

Initial Public Offering Price

  $                       $                      

Underwriting Discounts and Commissions  (1)

  $                       $                      

Proceeds, before expenses, to us

  $                       $                      

                        

(1)
See "Underwriting" beginning on page 216 of this prospectus for additional information regarding total underwriter compensation.

          We have granted the underwriters an option for a period of up to 30 days to purchase up to additional shares of our common stock.

          Delivery of the shares of common stock is expected to be made on or about                    , 2019.

Joint Book-Running Managers

GOLDMAN SACHS & CO. LLC   J.P. MORGAN   SVB LEERINK

   

Prospectus dated                          , 2019


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TABLE OF CONTENTS

PROSPECTUS SUMMARY

    1  

RISK FACTORS

    12  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    86  

INDUSTRY AND MARKET DATA

    88  

USE OF PROCEEDS

    89  

DIVIDEND POLICY

    90  

CAPITALIZATION

    91  

DILUTION

    94  

SELECTED CONSOLIDATED FINANCIAL DATA

    96  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    97  

BUSINESS

    112  

MANAGEMENT

    177  

EXECUTIVE COMPENSATION

    185  

DIRECTOR COMPENSATION

    196  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

    198  

PRINCIPAL STOCKHOLDERS

    201  

DESCRIPTION OF CAPITAL STOCK

    204  

SHARES ELIGIBLE FOR FUTURE SALE

    210  

CERTAIN MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS

    212  

UNDERWRITING

    216  

LEGAL MATTERS

    221  

EXPERTS

    221  

WHERE YOU CAN FIND MORE INFORMATION

    221  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

    F-1  

           We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may provide you. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.

          Until                          , 2019 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

          For investors outside the United States: Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.

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PROSPECTUS SUMMARY

           This summary highlights information contained elsewhere in this prospectus. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus. As used in this prospectus, unless the context otherwise requires, references to the "company," "we," "us" and "our" refer to Axcella Health Inc. together with its consolidated subsidiaries. In this prospectus, we use the following defined terms:

           "AXA Candidate" to refer to one of our investigational product candidates.

          " AXA Development Platform" to refer to our proprietary human-focused development platform.

           "Clinical Trial" to refer to a human clinical study of a drug product candidate subject to the requirements for an effective Investigational New Drug application, or an IND.

           "dose" to refer to the exposure amount of an AXA Candidate in Clinical Trials and Non-IND, IRB-Approved Clinical Studies.

           "non-drug" to refer to a non-therapeutic use of an AXA Candidate. Such use may be as a food product or dietary supplement.

           "Non-IND, IRB-Approved Clinical Study" to refer to Institutional Review Board-approved, or IRB-Approved, clinical studies conducted in humans with our AXA Candidates under U.S. Food and Drug Administration, or the FDA, regulations and guidance supporting research with food outside of an IND (prior to any decision to develop an AXA Candidate as a drug product candidate under an IND or a non-drug product candidate). In these food studies, based on our understanding of FDA regulations and guidance, we evaluate in humans, including individuals with disease, an AXA Candidate for safety, tolerability and effects on the normal structures and functions of the body. These studies are not designed or intended to evaluate an AXA Candidate's ability to diagnose, cure, mitigate, treat or prevent a disease as these would be evaluated in Clinical Trials if we decide to develop an AXA Candidate as a drug or therapeutic.

Overview

          We are a biotechnology company pioneering the research and development of novel multifactorial interventions to support health and address dysregulated metabolism across a broad spectrum of consumers and patients who have limited options. Our AXA Candidates are generated from our proprietary, human-focused AXA Development Platform and harness the power of endogenous metabolic modulators, or EMMs, a broad family of molecules that fundamentally impact and regulate human metabolism.

          Using our AXA Development Platform, we have rapidly generated a pipeline of AXA Candidates that are novel compositions of EMMs engineered in distinct ratios and designed to target and maximize the fundamental role that EMMs play in regulating multiple metabolic functions. Our AXA Candidates are administered orally and anchored by amino acids, which have a history of safe use as food. As such, we expect our AXA Candidates may also be combinable with other modalities. We believe our current dataset supports the potential of our AXA Candidates to safely modulate the metabolic pathways they target. These features may make them an attractive development opportunity with significant commercial potential.

          In 2018, we completed three Non-IND, IRB-Approved Clinical Studies. In all three studies, our AXA Candidates were generally found to be well tolerated, and we generated positive normal structure and function data indicating potential metabolic modulation. We believe generating this rich human dataset at this early stage of development (i) eliminates the translational uncertainty associated with transitioning from animal studies to human studies, (ii) enables us to make

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high-insight, capital-efficient development decisions and (iii) potentially increases the probability of success for these AXA Candidates. For AXA Candidates we decide to develop under an IND, we will discuss with the FDA our ability to use data generated from our Non-IND, IRB-Approved Clinical Studies to begin Phase II or potential registrational Clinical Trials.

          On March 6, 2019, we had a face-to-face pre-IND meeting with the FDA for AXA1665, our lead AXA Candidate, during which we discussed clinical endpoints, assessment tools and other matters relating to a potential IND-opening Clinical Trial for AXA1665 in hepatic encephalopathy, or HE. After meeting with the FDA, we made a decision to pursue a drug development path for AXA1665. Under the planned IND, the initial indication would be for the treatment of HE, with time to breakthrough episode of overt HE event as the primary endpoint and key secondary muscle-related endpoints. We anticipate interacting with the FDA again prior to a formal IND submission for AXA1665. We anticipate initiating a Clinical Trial in the second half of 2020 for AXA1665 that we believe could potentially serve as a registrational (pivotal) trial to support the submission of a New Drug Application, or NDA.

Our Pipeline

          Our wholly-owned pipeline currently comprises five programs focused on the metabolic functions of the liver, muscle and blood. An overview of our AXA Candidates and their status is illustrated below.

GRAPHIC


(1)
In the above pipeline chart, "Development Path Decision" reflects the point in a program at which we decide whether to develop an AXA Candidate as a drug product candidate under an IND, develop it as a non-drug product candidate or terminate development. We have made a decision to develop AXA1665 as a drug product candidate and anticipate interacting with the FDA again prior to submitting an IND. We have not made a development path decision for any of our other AXA Candidates.

(2)
We believe that this Clinical Trial has the potential to serve as a registrational (pivotal) Clinical Trial, subject to continuing IND discussions and allowance by the FDA.

Definitions: NAFLD = non-alcoholic fatty liver disease; NASH = nonalcoholic steatohepatitis; OHE = overt hepatic encephalopathy.

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AXA1665 in Hepatic Encephalopathy

          In study AXA1665-001, subjects with mild and moderate hepatic insufficiency (Child-Pugh Class A and B) were divided into two groups: 14.7g/day and 44.1g/day of AXA1665, administered in three divided doses. In subjects receiving the higher dose of AXA1665, we observed a cumulative increase of 40% in the Fischer's ratio, the molar ratio of branched-chain amino acids to aromatic amino acids. These subjects also demonstrated a lower plasma ammonia area under the curve when sampled over five hours (AUC 0-5h ), and tended to maintain a leaner phenotype (i.e., increase in dry lean mass and decrease in fat mass as assessed by bioimpedance measurements) and muscle function (as assessed using a liver frailty index score) compared to those on a control regimen. Each of these markers are believed to have prognostic significance in assessing liver health, including cirrhosis.

          In 2019, prior to making a drug development path decision for AXA1665, we initiated an additional 12-week (with a four-week follow-up), randomized, placebo-controlled, Non-IND, IRB-Approved Clinical Study in approximately 60 mild and moderate hepatic insufficiency (Child-Pugh Class A and B) subjects. We anticipate the data readout from this study in the first half of 2020 and plan to include these data in the IND submission for AXA1665. Under the planned IND, the initial indication would be for the treatment of HE, with time to breakthrough episode of overt HE event as the primary endpoint and key secondary muscle-related endpoints. HE has multiple drivers, namely amino acid imbalance, dysregulated ammonia handling and sarcopenia.

AXA1125 and AXA1957 in Subjects with Non-alcoholic Fatty Liver Disease, or NAFLD

          In study AXA1125-002, administration of AXA1125 24g three times a day was associated with a trend of decreased liver fat, improved insulin sensitivity (i.e., lower Homeostatic Model Assessment of Insulin Resistance) and induction of fat oxidation (i.e., increased beta-hydroxybutyrate). In subjects who received AXA1125, mean blood levels of key fibroinflammatory biomarkers tended to decrease compared to the mean pre-administration baseline levels. We believe these data suggest AXA1125 has the potential to impact three critical drivers associated with NAFLD—metabolism, inflammation and fibrosis. Leveraging these findings, we rapidly designed AXA1957 to potentially address additional populations within the liver health and disease spectrum, including pediatrics.

          In January 2019, we initiated study AXA1125-003, a 16-week, randomized, single-blind, placebo-controlled, Non-IND, IRB-Approved Clinical Study to assess safety, tolerability and physiological impact on the normal structures and functions of AXA1125 and AXA1957 in approximately 105 adult subjects with NAFLD. We currently anticipate the data readout from this study in the second half of 2020. In the second half of 2019, we also plan to initiate AXA1957-002, a placebo-controlled, single-blind, randomized (2:1), controlled Non-IND, IRB-Approved Clinical Study to assess safety, tolerability and physiological impact on the normal structures and functions of AXA1957 in approximately 30 adolescent subjects with NAFLD.

AXA2678 in Healthy Subjects with Immobilization-Induced Acute Muscle Atrophy

          In study AXA2678-001, in subjects receiving AXA2678 24g three times a day, we observed attenuated muscle atrophy during the one-week immobilization period compared to placebo, reflected by a 76% relative difference in average muscle cross sectional area assessed by magnetic resonance imaging. Subjects receiving AXA2678 tended to have muscle fiber architecture preserved during immobilization and also tended to recover muscle strength to pre-immobilization baseline levels as compared to placebo within a short two-week recovery period. We are continuing to evaluate next steps for this program.

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          We believe that the consistency and nature of the data from our three completed Non-IND, IRB-Approved Clinical Studies indicate that this approach has significant promise. We are focused on actively expanding our pipeline and currently reviewing additional development opportunities in hematology, central nervous system, kidney and pulmonary function. Many diseases are driven by multifactorial dysregulated systemic metabolism, and we have already characterized over 50 diseases for prioritization.

          We have attracted a world-class leadership team that has significant experience in the successful development and commercialization of collectively more than 50 drugs across numerous therapeutic areas. We are supported by an industry-leading board of directors and scientific advisory board. Since inception, we have raised approximately $200 million in capital from leading life sciences investors, including our founder, Flagship Pioneering, Fidelity Management & Research Company, Nestlé Health Science US Holdings and Gurnet Point Capital Limited.

Our Strengths

          We believe we are well-positioned to execute on our corporate strategy based on the following competitive strengths:

    Deep understanding of metabolic dysregulation and the modulatory power of EMMs.   Applying our expertise in EMMs and metabolism, we aim to harness the potential of EMMs to directly and simultaneously support and modulate multiple metabolic pathways implicated both in complex diseases and overall health.

    Predictive, rapid and scalable human-focused AXA Development Platform.   We have built a first-of-its-kind integrated knowledge platform that has proven capable of rapidly designing our novel and proprietary AXA Candidates. To date, we have progressed three programs from biological hypothesis to readout of initial Non-IND, IRB-Approved Clinical Study data in less than 18 months.

    Informed and capital-efficient AXA Candidate early-stage development model.   In our Non-IND, IRB-Approved Clinical Studies, we have rapidly generated a rich dataset in healthy subjects and subjects with certain disease conditions. We believe that generating human data at this early stage of development enables us to make high-insight, capital-efficient development decisions and potentially increases the probability of success for these candidates.

    Pipeline with significant potential across a spectrum of disease and health. We currently have five AXA Candidate programs across multiple target areas, including in liver and muscle, and have characterized over 50 additional diseases for prioritization.

    Broad intellectual property portfolio with worldwide rights to our AXA Candidates.   As a first mover in our approach to EMMs, we are building a broad intellectual property portfolio to protect our AXA Candidates and AXA Development Platform.

    Experienced leadership team and board of directors.   Members of our management team and board of directors have extensive experience in product development and commercialization.

Our Strategy

          Our goal is to become the preeminent biotechnology company reprogramming metabolism to address a diverse set of complex diseases and support health. To achieve our goal, we are executing a strategy that includes the following core elements:

    Accelerate paths to market for our lead programs.

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    Further enhance and leverage our AXA Development Platform to advance multiple new programs per year in attractive markets.

    Expand patient and consumer access to AXA Candidates, if approved, and opportunistically leverage strategic partnerships.

    Establish ourselves as a global, fully-integrated biotechnology company.

Risks associated with our business

          Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the "Risk Factors" section of this prospectus immediately following the prospectus summary. These risks include the following:

    For AXA Candidates we decide to develop under an IND, such as AXA1665, the FDA will require substantial additional preclinical and/or clinical development in target diseased populations before we can seek and receive regulatory approval for and launch these products commercially. For any AXA Candidate under an IND, the FDA may reject data from previously completed Non-IND, IRB-Approved Clinical Studies or may require new, previously untested data points to be studied; the resulting Clinical Trial results may not support or be consistent with our prior data, and analysis or expectations for such AXA Candidate or the AXA Candidate may not meet therapeutic efficacy endpoints in Clinical Trials.

    Regulatory requirements for development of our AXA Candidates as non-drugs or drugs are uncertain and evolving. Changes in these laws, including our ability to conduct Non-IND, IRB-Approved Clinical Studies, or the current interpretation or application of these laws could have a significant adverse impact on our ability to research, develop and commercialize our products. Some of these risks include that the FDA may require that we conduct additional preclinical studies before proceeding to Clinical Trials, determine that our AXA Candidates cannot be marketed as a non-drug product, disagree with our determination that our AXA Candidates may be studied in humans without an effective IND, or subject us to litigation or enforcement actions.

    We have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in the future.

    Even if we consummate this offering, we will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be able to complete research or development and commercialization of our AXA Candidates.

    Any negative safety and efficacy data regarding or negative perceptions of EMMs, our novel approach to EMMs or our AXA Candidates could adversely affect our ability to successfully recruit for and complete our human studies. This could adversely affect our ability to conduct our business, obtain regulatory approvals, if required, identify alternate regulatory pathways to market for any AXA Candidates or enter into strategic partnerships, and materially and negatively impact our business and operations.

    Clinical development is a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of, obtain positive data for or commercialize any AXA Candidates, which could result in an impaired ability or inability to finance or fund the Company in the future.

    There can be no assurance that we will be able to develop in-house sales, distribution and other capabilities needed to commercialize drug or non-drug products or establish or

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      maintain relationships with third-party collaborators to successfully commercialize any AXA Candidates that receive regulatory approval in the United States or overseas.

    If we are unable to obtain or protect intellectual property rights related to our technology and current or future AXA Candidates and AXA Development Platform, or if our intellectual property rights are inadequate, we may not be able to compete effectively.

    We may not be able to establish a commercial manufacturing source and secure supply chain capacity sufficient to provide AXA Candidates and materials for preclinical studies, Non-IND, IRB-Approved Clinical Studies, Clinical Trials, if we decide to develop any AXA Candidate as a drug product candidate, and commercial quantities of any AXA Candidates.

    We may be unable to attract and retain key scientific or management personnel to successfully execute our business plans.

          For additional information about the risks we face, please see the section of this prospectus captioned "Risk Factors."

Axcella Health Inc. and Flagship Pioneering

          We were founded in 2008 by Flagship Labs, the institutional innovation foundry of Flagship Pioneering. A team comprising innovators and entrepreneurs Dr. David Berry, Dr. Geoffrey von Maltzahn and Dr. Noubar Afeyan started exploring the potential medical applications of diverse, orally-consumed proteins. The work of this team led to the understanding that specific amino acid combinations at different ratios have the potential to drive profound biological effects in both health and disease by impacting dysregulated metabolic pathways and multi-compartmental biology. With this transformational new approach, we are harnessing the potential for orally-administered EMM compositions to drive cellular biology in a specific and reproducible manner with the goal of delivering safe interventions for patients or consumers.

Corporate history

          We were incorporated in August 2008 under the laws of the state of Delaware under the name Newco LS16, Inc. Our name was changed to Axcella Health Inc. in June 2016. Our principal executive offices are located at 840 Memorial Drive, Cambridge, MA 02139, and our phone number is (857) 320-2200. Our website address is https://www.axcellahealth.com. The information contained in or accessible from our website is not incorporated into this prospectus, and you should not consider it part of this prospectus.

          We own various U.S. federal trademark applications and unregistered trademarks, including our company name and our logo. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus are referred to without the symbols ® and ™, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

Implications of being an emerging growth company

          We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act, or the JOBS Act, enacted in April 2012. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of

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holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

          We will remain an emerging growth company until the earlier to occur of (1) December 31, 2024, (2) the last day of the fiscal year in which we have total annual gross revenues of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a "large accelerated filer," under the rules of the U.S. Securities and Exchange Commission, or SEC, which means the market value of our equity securities that is held by non-affiliates exceeds $700 million as of the prior June 30th and (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

          In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected not to "opt out" of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to "opt out" of such extended transition period or (ii) no longer qualify as an emerging growth company.

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The Offering

Common stock offered by us

               shares

Common stock to be outstanding immediately after this offering

 

             shares

Option to purchase additional shares offered by us

 

             shares

Use of proceeds

 

We estimate that we will receive net proceeds from the sale of shares of our common stock in this offering of approximately $             million, or $             million if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering, together with our existing cash and cash equivalents: (i) to advance our current liver and other programs through additional Non-IND, IRB-Approved Clinical Studies, our planned IND filing for AXA1665 and other potential IND filing(s) and the ensuing Clinical Trials; (ii) to advance our AXA Development Platform and discovery efforts; (iii) to support organizational growth; and (iv) for working capital and other general corporate purposes. For a more complete description of our intended use of the proceeds from this offering, see "Use of Proceeds."

Risk factors

 

You should carefully read the "Risk Factors" section of this prospectus for a discussion of factors that you should consider before deciding to invest in our common stock.

Proposed Nasdaq Global Market symbol

 

"AXLA"

          The number of shares of our common stock to be outstanding after this offering is based on shares of our common stock (which includes                  issued but unvested shares of common stock subject to repurchase) outstanding as of December 31, 2018, and gives effect to the conversion of all outstanding shares of our preferred stock into an aggregate of shares of our common stock upon the completion of this offering, and excludes:

    112,795 shares of common stock issuable upon the exercise of warrants to purchase shares of Series A preferred stock that will become warrants to purchase common stock outstanding as of December 31, 2018, with a weighted-average exercise price of $1.95 per share;

    7,440,736 shares of common stock issuable upon the exercise of stock options outstanding as of December 31, 2018 under our 2010 Stock Incentive Plan, or our 2010 Plan, with a weighted-average exercise price of $3.08 per share;

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    75,947 shares of common stock reserved for future issuance as of December 31, 2018 under our 2010 Plan, which will cease to be available for issuance at the time that our 2019 Stock Option and Incentive Plan, or our 2019 Plan, becomes effective;

                 shares of our common stock that will become available for future issuance under our 2019 Plan upon the effectiveness of the registration statement of which this prospectus forms a part; and

                 shares of our common stock that will become available for future issuance under our 2019 Employee Stock Purchase Plan, or our 2019 ESPP, upon the effectiveness of the registration statement of which this prospectus forms a part.

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

    the filing of our restated certificate of incorporation and the effectiveness of our amended and restated bylaws in connection with the completion of this offering;

    the conversion of all outstanding shares of preferred stock into an aggregate of 26,970,598 shares of common stock upon the completion of this offering;

    the outstanding warrants to purchase our Series A preferred stock becoming warrants to purchase an aggregate of 112,795 shares of our common stock upon the closing of this offering;

    no exercise of outstanding options after                  , 2019;

    a one-for-             reverse split of our common stock effected on                  , 2019; and

    no exercise by the underwriters of their option to purchase up to                  additional shares of common stock in this offering.

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Summary Consolidated Financial Data

          You should read the following summary consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this prospectus. We have derived the consolidated statements of operations data for the years ended December 31, 2017 and 2018 from our audited consolidated financial statements appearing at the end of this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.

    December 31,
 

    2017     2018
 

    (in thousands,
except share and
per share data)
 

Consolidated Statements of Operations Data:

             

Operating expenses:

             

Research and development

  $ 22,916   $ 25,486  

General and administrative

    6,005     8,410  

Total operating expenses

    28,921     33,896  

Loss from operations

    (28,921 )   (33,896 )

Other income (expense):

             

Change in fair value of preferred stock warrant liability

    81     (14 )

Interest income (expense), net

    (2,100 )   (2,159 )

Total other income (expense), net

    (2,019 )   (2,173 )

Net loss

  $ (30,940 ) $ (36,069 )

Net loss per share, basic and diluted  (1)

  $ (4.00 ) $ (4.33 )

Weighted average common shares outstanding, basic and diluted  (1)

    7,758,355     8,374,425  

Pro forma net loss per share, basic and diluted (unaudited)  (1)

        $ (1.19 )

Pro forma weighted average common shares outstanding, basic and diluted (unaudited)  (1)

          30,372,277  

(1)
See Note 11 to our consolidated financial statements appearing at the end of this prospectus for details on the calculation of basic and diluted net loss per share and the calculation of basic and diluted pro forma net loss per share.

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    As of December 31, 2018
 

    Actual     Pro Forma  (1)     Pro Forma
As Adjusted  (2)
 

    (in thousands)  

Consolidated Balance Sheet Data:

                   

Cash and cash equivalents

  $ 79,466   $ 79,466   $    

Working capital  (3)

    73,390     73,390        

Total assets

    81,844     81,844        

Long term debt, net of discount

    24,521     24,521        

Preferred stock warrant liability

    425            

Other liabilities  (4)

    1,898     1,898        

Redeemable convertible preferred stock

    197,842            

Total stockholders' equity (deficit)

    (149,753 )   48,514        

(1)
The pro forma consolidated balance sheet data gives effect to (i) the conversion of all outstanding shares of our preferred stock into an aggregate of 26,970,598 shares of common stock upon the closing of this offering and (ii) all outstanding warrants to purchase shares of Series A preferred stock becoming warrants to purchase shares of common stock upon the closing of this offering.

(2)
The pro forma as adjusted balance sheet data give further effect to our issuance and sale of shares of our common stock in this offering at the initial public offering price of $             per share, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(3)
We define working capital as current assets less current liabilities.

(4)
Includes a $1.2 million success fee related to our loan and security agreement with Solar Capital Ltd., which is payable upon the consummation of this offering.

          The pro forma as adjusted information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, working capital, total assets and total stockholders' equity by approximately $              million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, working capital, total assets and stockholders' equity by approximately $              million, assuming the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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RISK FACTORS

           Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Risks related to our business, technology and industry

We have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in the future.

          We are a biotechnology company with a limited operating history. Investment in product development in the healthcare industry, including of biotechnology products, is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and/or become commercially viable. Our AXA Candidates are currently being studied in Non-IND, IRB-Approved Clinical Studies as food products. We have no products approved for commercial sale, have not generated any revenue from product sales to date and continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in each period since our inception in 2008. For the years ended December 31, 2017 and 2018, we reported net losses of $30.9 million and $36.1 million, respectively. As of December 31, 2018, we had an accumulated deficit of $157.0 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and if we choose to develop our AXA Candidates under an Investigational New Drug application, or IND, seek regulatory approvals for, our AXA Candidates. We anticipate that our expenses will increase substantially if, and as, we:

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          To become and remain profitable, we or any potential future collaborator must develop and eventually commercialize products with significant market potential at an adequate profit margin after cost of goods sold and other expenses. This will require us to be successful in a range of challenging activities, including: completing preclinical studies, Non-IND, IRB-Approved Clinical Studies and Clinical Trials for any AXA Candidate we elect to develop as a drug product candidate under an IND; obtaining marketing approval or identifying alternate regulatory pathways for AXA Candidates; manufacturing, marketing and selling products for which we may obtain marketing approval; or successfully identifying alternate regulatory pathways and satisfying any post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate revenue that is significant enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company, which could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.

          Even if we succeed in commercializing one or more of our AXA Candidates, we will continue to incur substantial research and development and other expenditures to develop and market additional AXA Candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business, which may be significant. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders' equity and working capital.

Even if we consummate this offering, we will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be able to complete development and commercialization of our AXA Candidates.

          Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts for our current and future programs: to conduct further research and development, preclinical studies, Non-IND, IRB-Approved Clinical Studies and Clinical Trials for any AXA Candidate we elect to develop as a drug product candidate under an IND, as we plan to do for our AXA1665 product candidate; to validate the manufacturing process and specifications for our AXA Candidates; to seek regulatory approvals for or identify alternate regulatory pathways to market for our AXA Candidates; and to launch and commercialize any

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products for which we receive regulatory approval or identify an alternate regulatory pathway to market, including potentially building our own commercial organization. As of December 31, 2018, we had $79.5 million of cash and cash equivalents on hand. Based on our current operating plan, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses, capital expenditure requirements and debt service obligations                          . However, our future capital requirements and the period for which our existing resources will support our operations may vary significantly from our expectations, and we will in any event require additional capital in order to complete clinical development of any of our current AXA Candidates. Our monthly spending levels will vary based on new and ongoing development and corporate activities. Because the length of time and activities associated with development of our AXA Candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any approved marketing and commercialization activities. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

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          We do not have any committed external source of funds or other support for our development efforts and we cannot be certain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient product or royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. If we raise additional funds through public or private equity offerings, the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. Further, to the extent that we raise additional capital through the sale of common stock or securities convertible into or exchangeable for common stock, your ownership interest will be diluted. If we raise additional capital through debt financing, we would be subject to fixed payment obligations and may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, declaring dividends or acquiring or licensing intellectual property rights. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our AXA Candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. We also could be required to seek collaborators for one or more of our current or future AXA Candidates at an earlier stage than otherwise would be desirable or relinquish our rights to AXA Candidates or technologies that we otherwise would seek to develop or commercialize ourselves. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our products or AXA Candidates or one or more of our other research and development initiatives. Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline, causing you to lose all or part of your investment.

We have a limited operating history, which may make it difficult to evaluate our technology and product development capabilities and predict our future performance.

          We are early in our development efforts and we have not initiated Clinical Trials for any of our AXA Candidates to allow for development of such candidates as drug product candidates. With the exception of AXA1665 for which we plan to file an IND, we are currently developing our AXA Candidates as non-drug products under food regulations, although the ultimate pathway under which we will develop our other AXA Candidates is subject to change depending on a number of factors. We were formed in 2008, have no products approved for commercial sale as drugs or marketed via other regulatory pathways (e.g., non-drug products) and have not generated any revenue from product sales. Our ability to generate product revenue or profits, which we do not expect will occur for many years, if ever, will depend on the successful development and eventual commercialization of our AXA Candidates, which may never occur.

          Our limited operating history may make it difficult to evaluate our technology and industry and predict our future performance. Specifically, to date we have conducted Non-IND, IRB-Approved Clinical Studies for our AXA Candidates to evaluate safety and tolerability only in healthy subjects or subjects with certain disease conditions. If we decide to develop an AXA Candidate under an IND with patient populations reflecting the desired indication for such AXA Candidate, the physiological structure and function data we observed in our Non-IND, IRB-Approved Clinical Studies for such

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AXA Candidate may not be replicated in or consistent with results from Clinical Trials and such AXA Candidate may not meet therapeutic efficacy endpoints in Clinical Trials.

          Our short history as an operating company makes any assessment of our future success or viability subject to significant uncertainty. We will encounter risks and difficulties frequently experienced by early-stage companies in evolving fields. If we do not address these risks successfully, our business will suffer. Similarly, we expect that our financial condition, expenditures and operating results will fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. As a result, our stockholders should not rely upon the results of any quarterly or annual period as an indicator of future operating performance.

          In addition, as an early-stage company, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown circumstances, which may be significant. As we advance our AXA Candidates, we will need to transition from a company with a research focus to a company capable of supporting clinical development and, if successful, commercial activities. We may not be successful in such transitions.

Any use of our AXA Candidates to support and maintain homeostasis, which helps support normal structures and functions of the body, or to modulate dysregulated metabolism is a novel approach and negative perception of any AXA Candidates that we develop could adversely affect our ability to conduct our business, obtain regulatory approvals or identify alternate regulatory pathways, to the extent required by applicable laws, to market such AXA Candidates.

          Using endogenous metabolic modulators, or EMMs, in the compositions, ratios and formulations we use in our AXA Candidates and the potential drug and non-drug applications of our AXA Candidates represents a novel approach. Our AXA Candidates in general may not be successfully developed or commercialized or gain the acceptance of the public or the medical community. For any AXA Candidate that we choose to develop as a drug product candidate, our success will depend upon physicians who specialize in the treatment of diseases targeted by our AXA Candidates, prescribing potential treatments that involve the use of our AXA Candidates in lieu of, or in addition to, existing treatments with which they are more familiar and for which greater clinical data may be available. For any AXA Candidate that we choose to develop as a non-drug product candidate, our success will depend on finding partners in a non-drug market who can help successfully commercialize AXA Candidates. In addition, our success will also depend on consumer acceptance and adoption of our products that we, or a future partner, commercialize. Adverse events in Non-IND, IRB-Approved Clinical Studies and Clinical Trials of our AXA Candidates or in studies or Clinical Trials of others developing similar products and the resulting publicity, as well as any other adverse events in the field of EMMs and metabolic pathways, could result in a decrease in demand for any product that we may develop. In addition, responses by the U.S. federal, state or foreign governments to negative public perception or ethical concerns may result in new legislation or regulations that could limit our ability to develop or commercialize any AXA Candidates, obtain or maintain regulatory approval, if applicable, identify alternate regulatory pathways to market or otherwise achieve profitability. More restrictive statutory regimes, government regulations or negative public opinion would have an adverse effect on our business, financial condition, results of operations and prospects, and may delay or impair the development and commercialization of our AXA Candidates or demand for any products we may commercialize.

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All of our AXA Candidates for which we make a drug development path decision, including any targeting the metabolic pathways of the liver and muscle that if dysregulated could result in loss of health or disease, will require significant additional preclinical and clinical development before we can seek regulatory approval for and launch a drug product commercially.

          For any AXA Candidate that we choose to develop as a drug product candidate, such as our AXA1665 drug product candidate for which we plan to submit an IND, our business and future success will depend on our ability to obtain regulatory approval of and then successfully launch and commercialize such AXA Candidate as a drug targeting a disease involving dysregulated metabolism, such as cirrhosis, non-alcoholic steatohepatitis or muscle atrophy. Any future Clinical Trials of AXA1665 and any other AXA Candidates that we decide to develop as drug product candidates may experience preliminary complications in trial execution, such as complexities surrounding regulatory clearance to initiate Clinical Trials, the need for additional preclinical data to support authorization to proceed with Clinical Trials, modifications in trial design and trial protocols, bioanalytical assay method development, dose level and regimen selection, patient recruitment and enrollment, quality and supply of clinical doses or safety issues. Additionally, even if additional preclinical studies, Non-IND, IRB-Approved Clinical Studies or Clinical Trials are successfully executed, there is no guarantee that the results produced by such additional studies will confirm or be consistent with the results obtained in our Non-IND, IRB-Approved Clinical Studies to date for our AXA Candidates.

          Any AXA Candidates that we decide to develop as drug product candidates will require significant additional development, including preclinical and clinical development, regulatory review or approval in the jurisdictions that we target for commercialization, identification of appropriate non-drug regulatory pathways to commercialization, substantial investment, access to sufficient validated and cGMP-compliant commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. In addition, if we choose to develop AXA1665, our lead candidate, as a drug product candidate and AXA1665 encounters safety, efficacy, supply or manufacturing problems, developmental delays, regulatory or commercialization issues or other problems, our development plans, including for our other AXA Candidates, and business would be significantly harmed.

The successful development of our AXA Candidates is highly uncertain.

          Successful development of our AXA Candidates is highly uncertain and is dependent on numerous factors, many of which are beyond our control. AXA Candidates that appear promising in the early phases of development may fail to reach the market for several reasons, including:

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          Even if we are successful in obtaining market approval for those AXA Candidates that we decide to develop as drug product candidates, commercial success of any approved drugs will also depend in large part on marketing acceptance, the availability of insurance coverage and adequate reimbursement from third-party payors, including government payors, such as the Medicare and Medicaid programs, and managed care organizations, which may be affected by existing and future healthcare reform measures designed to reduce the cost of healthcare. Third-party payors could require us to conduct additional studies, including post-marketing studies related to the cost-effectiveness of a product, to qualify for reimbursement, which could be costly and divert our resources. If government and other healthcare payors were not to provide adequate insurance coverage and reimbursement levels for one or any of our drug products once approved, market acceptance and commercial success would be reduced.

          In addition, if any AXA Candidate we decide to develop as a drug product candidate is approved for marketing, we will be subject to significant regulatory obligations regarding the submission of safety and other post-marketing information and reports and registration. If approved, our drug products may be subject to restrictions on our products' labels and other conditions of regulatory approval that may limit our ability to market our products for therapeutic indications. We will also need to comply (and ensure that our third-party contractors comply) with cGMPs and Good Clinical Practice, or GCP, as we (and our third-party contractors) will be required to comply with cGMPs for products used in Clinical Trials and for any Clinical Trials that we conduct post-approval with cGMPs for either drug or non-drug candidates. In addition, we will need to comply with full GCPs in development efforts for any therapeutic indications we develop for approval and for any additional therapeutic indications we develop after approval of our first drug candidate. In addition, there is always the risk that we or a regulatory authority might identify previously unknown problems with a drug product post-approval or with non-drug products after commercialization, such as adverse events of unanticipated severity or frequency. Compliance with regulatory requirements to address such issues could be costly and any failure to comply or other issues with our drug products post-approval or non-drug products post-commercialization could have a material adverse effect on our business, financial condition and results of operations.

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Clinical development is a lengthy and expensive process, with an uncertain outcome. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of any AXA Candidates, which could impair our ability to fund our operations or obtain financing on acceptable terms, or at all.

          To obtain the requisite regulatory approvals to commercialize any AXA Candidate that we decide to develop as a drug product candidate, we must demonstrate through extensive preclinical studies and Clinical Trials that our AXA Candidates are safe and effective in humans for their intended use. Non-IND, IRB-Approved Clinical Studies to commercialize non-drug products also require a significant financial investment to generate data that supports the claims we would make for such products and the safety of the product. Clinical testing is expensive, difficult to design and implement and can take many years to complete, and its outcome is inherently uncertain. We may be unable to establish, where applicable, endpoints, dose levels and regimens or bioanalytical assay methods that applicable regulatory authorities would consider clinically meaningful, and a Clinical Trial can fail at any stage of testing. Additionally, our Non-IND, IRB-Approved Clinical Studies or other studies may not result in data that supports intended claims for non-drug products. The outcome of preclinical studies, Non-IND, IRB-Approved Clinical Studies and early Clinical Trials may not be predictive of the success of later preclinical studies, Non-IND, IRB-Approved Clinical Studies and Clinical Trials, and interim results of these studies or trials do not necessarily predict final results. Differences in trial design between early-stage Clinical Trials and later-stage Clinical Trials make it difficult to extrapolate the results of earlier Clinical Trials to later Clinical Trials. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and Clinical Trials have nonetheless failed to obtain marketing approval of their product candidates, or have data that supports desirable marketing claims even where marketing approval is not required.

          Successful completion of Clinical Trials is a prerequisite to submitting an NDA to the FDA, or its equivalent in other foreign regulatory authorities such as a marketing authorization application to the EMA, for each product candidate for therapeutic indications and, consequently, the ultimate approval and commercial marketing of any product candidates for therapeutic indications. We do not know whether we will be able to initiate or complete Clinical Trials for AXA Candidates we decide to develop as drug product candidates on schedule, if at all.

          We may experience delays in completing our preclinical studies and initiating or completing Non-IND, IRB-Approved Clinical Studies and, for those AXA Candidates that we decide to develop as drug product candidates, Clinical Trials. We also may experience numerous unforeseen events during, or as a result of, any future Non-IND, IRB-Approved Clinical Studies or Clinical Trials that we may conduct that could delay or prevent our ability to receive marketing approval or commercialize our AXA Candidates, including:

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          We could also encounter delays if a preclinical study, Non-IND, IRB-Approved Clinical Study or Clinical Trial is suspended or terminated for any reason. A suspension or termination may be imposed due to a number of factors, including failure to conduct the Non-IND, IRB-Approved Clinical Study or Clinical Trial in accordance with regulatory requirements or our clinical protocols,

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inspection of the clinical trial operations or trial site by the FDA, other regulatory authorities or IRB resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product or treatment, failure to establish or achieve clinically meaningful endpoints, changes in governmental regulations or administrative actions or lack of adequate funding to continue the Non-IND, IRB-Approved Clinical Study or Clinical Trial. Many of the factors that cause, or lead to, a delay in the commencement or completion of Non-IND, IRB-Approved Clinical Studies or Clinical Trials may also ultimately lead to the denial of regulatory approval of our AXA Candidates for therapeutic indications, where applicable, or the failure to meet applicable regulatory requirements to support and commercialize non-drug products. Further, the FDA or other regulatory authorities may disagree with our Non-IND, IRB-Approved Clinical Study or Clinical Trial design and our interpretation of data from these clinical studies or trials, or may change the requirements for regulatory approval of a drug even after they have reviewed and commented on the design for our preclinical studies, Non-IND, IRB-Approved Clinical Studies or Clinical Trials.

          Our product development costs will increase if we experience delays in clinical testing and marketing approvals, if applicable, or otherwise meeting regulatory requirements to commercialize our AXA Candidates. We do not know whether any of our preclinical studies, Non-IND, IRB-Approved Clinical Studies or Clinical Trials, if applicable, will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant delays in our preclinical studies, Non-IND, IRB-Approved Clinical Studies or Clinical Trial also could shorten any periods during which we may have the exclusive right to commercialize our AXA Candidates and may allow our competitors to bring products to market before we do, potentially impairing our ability to successfully commercialize our AXA Candidates and harming our business and results of operations. Any delays in our preclinical or future clinical development programs may harm our business, financial condition and prospects significantly, and could impair our ability to fund our operations or obtain financing on acceptable terms, or at all.

Our planned Non-IND, IRB-Approved Clinical Studies or any future Clinical Trials, if applicable, or those of our future collaborators may reveal significant adverse events not seen in our preclinical studies, Non-IND, IRB-Approved Clinical Studies or other Clinical Trials and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our AXA Candidates.

          Before obtaining regulatory approvals for the commercial sale of any products for therapeutic indications, we must demonstrate through lengthy, complex and expensive preclinical studies and Clinical Trials that our AXA Candidates are both safe and effective for use in each target indication. Preclinical and clinical studies and testing are expensive and can take many years to complete, and their outcome is inherently uncertain. Failure can occur at any time during the preclinical or clinical study or trial process. The results of preclinical studies, Non-IND, IRB-Approved Clinical Studies as well as early Clinical Trials of our AXA Candidates may not be predictive of the results of later-stage clinical studies or trials. In addition, initial results in Non-IND, IRB-Approved Clinical Studies and Clinical Trials, in particular as shown by any interim data, may not be indicative of results obtained when such Non-IND, IRB-Approved Clinical Studies and Clinical Trials are completed. There is typically an extremely high rate of attrition from the failure of product candidates proceeding through clinical studies and trials. Our AXA Candidates have been generally well tolerated in our Non-IND, IRB-Approved Clinical Studies, but we are not certain that we will be able to dose participants at a high enough dose in any future Clinical Trials so as to demonstrate efficacy without unacceptable safety risk.

          AXA Candidates in later stages of Non-IND, IRB-Approved Clinical Studies may fail to show the desired safety profile despite having progressed through successful preclinical studies and earlier

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Non-IND, IRB-Approved Clinical Studies. AXA Candidates that we decide to develop as drug product candidates and that progress to Clinical Trials may fail to show the desired safety and efficacy profile despite having progressed successfully through preclinical studies, Non-IND, IRB-Approved Clinical Studies and, if applicable, initial Clinical Trials. A number of companies in the healthcare industry have suffered significant setbacks in later development, notwithstanding promising results in earlier trials. Most product candidates that commence Clinical Trials are never approved as products for therapeutic indications and there can be no assurance that any of our current or future Non-IND, IRB-Approved Clinical Studies or Clinical Trials will ultimately be successful or support further clinical development of any of our AXA Candidates.

          If significant adverse events or other side effects are observed in any of our current or future Non-IND, IRB-Approved Clinical Studies or Clinical Trials, we may have difficulty recruiting subjects or patients for our Non-IND, IRB-Approved Clinical Studies or Clinical Trials, subjects or patients may drop out of our Non-IND, IRB-Approved Clinical Studies or Clinical Trials or we may be required to significantly redesign or abandon Non-IND, IRB-Approved Clinical Studies or Clinical Trials or our development efforts of one or more AXA Candidates altogether. We, the FDA or other applicable regulatory authorities or an IRB may suspend Non-IND, IRB-Approved Clinical Studies or Clinical Trials of an AXA Candidate at any time for various reasons, including a belief that subjects or patients in such Non-IND, IRB-Approved Clinical Studies or Clinical Trials are being exposed to unacceptable health risks or adverse side effects or that our Non-IND, IRB-Approved Clinical Studies are designed to evaluate our AXA Candidates as drug product candidates. Some potential non-drug products and drug product candidates that initially showed promise for further development in early-stage testing, including in Non-IND, IRB-Approved Clinical Studies or Clinical Trials, have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude an AXA Candidate from obtaining or maintaining marketing approval, if applicable, or being commercialized, undesirable side effects may inhibit market acceptance of the commercialized product due to its tolerability versus other non-drug products or drugs. Any of these developments could materially harm our business, financial condition and prospects.

If we encounter difficulties enrolling study subjects or patients in our Non-IND, IRB-Approved Clinical Studies or any future Clinical Trials, our development activities could be delayed or otherwise adversely affected.

          We may experience difficulties in subject and patient enrollment in our Non-IND, IRB-Approved Clinical Studies and Clinical Trials for a variety of reasons. The timely completion of Non-IND, IRB-Approved Clinical Studies or Clinical Trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of subjects or patients who remain in the Non-IND, IRB-Approved Clinical Study or Clinical Trial until its conclusion. The enrollment of subjects or patients depends on many factors, including:

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          In addition, our Non-IND, IRB-Approved Clinical Studies and Clinical Trials will compete with other clinical studies or trials for product candidates that are in the same target markets as our AXA Candidates, and this competition will reduce the number and types of subjects or patients available to us, because some individuals who might have opted to enroll in our clinical studies or trials may instead opt to enroll in a study or trial being conducted by one of our competitors. Because the number of qualified clinical investigators is limited, we expect to conduct some of our Non-IND, IRB-Approved Clinical Studies or Clinical Trials at the same sites that some of our competitors use, which will reduce the number of subjects or patients who are available for our Non-IND, IRB-Approved Clinical Studies and Clinical Trials in such sites. Moreover, because our AXA Candidates represent a departure from more commonly used methods in the non-drug and drug areas we may pursue, potential subjects or patients and their doctors may be inclined to use conventional products or therapies, rather than enroll subjects or patients in any future clinical study or trial.

          Delays in subject or patient enrollment may result in increased costs or may affect the timing or outcome of our planned Non-IND, IRB-Approved Clinical Studies or future Clinical Trials, which could prevent completion of these clinical studies or trials and adversely affect our ability to advance the development of our AXA Candidates.

Interim and preliminary data from our Non-IND, IRB-Approved Clinical Studies or future Clinical Trials that we announce or publish from time to time may change as more subject or patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

          To date, our Non-IND, IRB-Approved Clinical Studies have been exploratory in nature and in small numbers of subjects. Data from larger subsequent studies may not support or may be inconsistent with our observations in our completed Non-IND, IRB-Approved Clinical Studies. From time to time, we may conduct Non-IND, IRB-Approved Clinical Studies and Clinical Trials that result in interim or preliminary data. These data are subject to the risk that one or more of the outcomes may materially change as preclinical studies complete, subject enrollment continues and more subject data become available. Preliminary or top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Material inconsistencies between preliminary or interim data and final data could significantly harm our business prospects.

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If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

          We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our research and development activities may involve the use of biological and hazardous materials and may produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-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 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. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may negatively impact our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

          Although we maintain workers' compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of biological waste or hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. We do not carry specific biological waste or hazardous waste insurance coverage, workers compensation or property and casualty and general liability insurance policies that include coverage for damages and fines arising from biological or hazardous waste exposure or contamination.

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

          We face an inherent risk of product liability as a result of testing our AXA Candidates in Non-IND, IRB-Approved Clinical Studies and Clinical Trials, if we decide to develop any AXA Candidate as a drug product candidate, and will face an even greater risk if we commercialize any products. For example, we may be sued, or claims may be made against us, if our informed consents for subjects or patients in any preclinical, Non-IND, IRB-Approved Clinical Studies or Clinical Trials are or are alleged to be inadequate or inaccurate in any way or fail to fully inform subjects or patients of any potential risks involved with their participation or other material or required information. We may also be sued, or claims may be made against us, if our AXA Candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during Non-IND, IRB-Approved Clinical Studies, Clinical Trials, manufacturing, marketing or after sale. Any such product liability claims may include, without limitation, allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, marketing or promotional claims or a breach of warranties. Claims could also be asserted under state consumer protection or other statutes or regulations. If we cannot successfully defend ourselves against product liability claims or any other claims related to our products, we may incur

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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 could have a material adverse effect on our business and operations, and may result in, among other things:

          We maintain clinical trial insurance. We review our clinical trial insurance policy annually and we believe that our coverage is currently adequate to cover any claims that may arise in connection with our Non-IND, IRB-Approved Clinical Studies or Clinical Trials. There is no guarantee that we will be able to obtain additional clinical trial insurance at an acceptable cost in the future, which could prevent or inhibit the ongoing development of our products.

          Since we have not yet commenced marketing of any products we do not yet hold product liability insurance for commercialization of our products. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with collaborators. If and when coverage is secured, our insurance policies may also have various exclusions, and we may be subject to a product liability claim for which we have no or inadequate coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.

The market opportunities for our AXA Candidates may be limited and our estimates of the incidence and prevalence of our target patient populations may be inaccurate.

          Our projections of both the non-drug and drug market sizes we may target and the number of people who have the diseases or conditions we may target, as well as the subset of people with these diseases or conditions in a position to receive any drug or non-drug we develop, if approved, are based on our beliefs and estimates. These estimates have been derived from a variety of

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sources, including scientific literature, input from key opinion leaders, patient foundations or secondary market research databases, and may prove to be incorrect. Further, new studies may change the estimated market sizes or the incidence or prevalence of target diseases we may target with AXA Candidates that we decide to develop as drug product candidates. For those AXA Candidates we develop under an IND, regulatory approvals may include limitations for use or contraindications that decrease the addressable patient population. The number of subject individuals may turn out to be lower than expected. Additionally, the potentially addressable patient population for our AXA Candidates that we decide to develop as drugs may be limited or may not be amenable to treatment with our AXA Candidates. For instance, we estimate that there are approximately 633,000 patients currently diagnosed with cirrhosis in the United States and upwards of 518,000 patients undergoing or recovering from procedures that are associated with limb immobilization-induced acute atrophy. Even if we obtain significant market share for our AXA Candidates, because certain potential target populations are small, we may never achieve profitability without obtaining regulatory approval for additional indications for drugs or expanding the target market size for non-drug products.

We are early in our development efforts and may not be successful in our efforts to use our AXA Development Platform to build a pipeline of AXA Candidates and develop marketable products.

          We are developing our AXA Candidates and AXA Development Platform to reprogram metabolism and maintain and restore metabolic health. However, our AXA Development Platform has not yet led, and may never lead, to marketable drug or non-drug products. We are developing our initial AXA Candidates and have additional AXA Candidates that we intend to investigate, including in liver, muscle, central nervous system and blood, and in the future, we may decide to develop any AXA Candidate as a drug product candidate. We may have problems applying our technologies to these and other future target areas, and our AXA Candidates may not demonstrate a comparable ability in supporting or maintaining health or treating disease, where applicable. Even if we are successful in identifying additional AXA Candidates, they may not be suitable for clinical development as a result of limited efficacy, unacceptable safety profiles or other characteristics that indicate that they are unlikely to be products that will receive marketing approval or achieve market acceptance. The success of our AXA Candidates will depend on several factors, including the following:

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          If we do not successfully develop and commercialize AXA Candidates using our AXA Development Platform, we will not be able to obtain product revenue in future periods, which could result in significant harm to our financial position and adversely affect our stock price.

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

          The healthcare industry is characterized by intense competition and rapid innovation. Our competitors may be able to develop other drug or non-drug products that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical, nutritional foods companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff, experienced marketing and manufacturing organizations and well-established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel drugs or to in-license novel drugs that could make any AXA Candidate that we develop as a drug product candidate obsolete. Mergers and acquisitions in the healthcare industry may result in even more resources being concentrated amongst our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on exclusive basis non-drug products that are more effective, safer, more easily commercialized or less costly than our AXA Candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products. We believe the key competitive factors that will affect the development and commercial success of our AXA Candidates are efficacy, safety, tolerability, reliability, convenience of use, price and reimbursement, if applicable depending on the development path we choose. We also anticipate that we will face increased competition in the future as additional companies enter our market and scientific developments surrounding other non-drug products and drugs targeted at metabolic pathways continue to accelerate.

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          In addition, there are additional companies that are working on modulating specific metabolic pathways involved in various health and disease conditions, although we are not aware of any company creating AXA Candidate-like products with multifactorial activity. Companies with clinical programs that could compete with our AXA Candidates include Madrigal Pharmaceuticals, Inc., Intercept Pharmaceuticals, Inc., Gilead Sciences, Inc., Novartis AG, Bristol-Myers Squibb Co., Esperion Therapeutics, Inc., Viking Therapeutics, Inc., Scholar Rock Holding Corporation, NGM Biopharmaceuticals Inc., Genfit SA and Kaleido Biosciences, Inc., among others.

          We also anticipate competing with the largest consumer health companies and nutritional and amino acid companies in the world, such as Nestlé Health Science S.A., Abbott Laboratories, Johnson & Johnson, The Procter & Gamble Company and Ajinomoto Co., Inc., all of which are currently conducting research in competitive indications or may be interested in using amino acids and other EMMs as therapeutics as well as nutritional supplements.

          Even if we obtain regulatory approval to market our AXA Candidates as drugs or are successful in identifying alternate regulatory pathways to market our AXA Candidates under regulations that would apply to non-drug products, the availability and price of our competitors' products could limit the demand and the price we are able to charge for our AXA Candidates. We may not be able to implement our business plan if the acceptance of our AXA Candidates is inhibited by price competition or the reluctance of consumers to accept of our AXA Candidates and choose them over other competitive products on the market or, for AXA Candidates we develop as drugs, of physicians to switch from existing methods of treatment to our AXA Candidates, or if physicians switch to other new drug or biologic products or choose to reserve our AXA Candidates for use in limited circumstances. For additional information regarding our competition, see "Business—Competition."

Even if an AXA Candidate we develop as a drug product candidate receives marketing approval, or otherwise is commercialized as a non-drug product, such products may fail to achieve the degree of market acceptance by physicians, patients, third-party payors, consumers and others in the medical or healthcare community or other target markets necessary for commercial success.

          If any AXA Candidate we decide to develop as a drug product candidate receives marketing approval or otherwise is commercialized under applicable regulations as a non-drug product, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors, consumers and others in the medical or health community or other target markets. If the AXA Candidates we develop do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of any AXA Candidate, if approved for commercial sale, will depend on a number of factors, including:

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

          As of December 31, 2018, we had 49 full-time employees. As our research, development, manufacturing and commercialization plans and strategies develop, and as we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial and other personnel. Future growth would impose significant added responsibilities on members of management, including:

          Our future financial performance and our ability to commercialize our AXA Candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

          We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain organizations, advisors and consultants to provide certain services, including many aspects of regulatory affairs, clinical management and manufacturing. There can be no assurance that the services of these organizations, advisors and consultants will continue to be available to us on a timely basis when needed or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical development may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our AXA Candidates, if required, or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.

          If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our AXA Candidates and, accordingly, may not achieve our research, development and commercialization goals.

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Our current operations are located in Massachusetts; and we or the third parties upon whom we depend may be adversely affected by natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

          Our current operations are located in Massachusetts. Any unplanned event, such as flood, fire, explosion, earthquake, extreme weather condition, medical epidemics, power shortage, telecommunication failure or other natural or manmade accidents or incidents that result in us being unable to fully utilize our facilities, or the manufacturing facilities of our third-party contract manufacturers, may have a material and adverse effect on our ability to operate our business, particularly on a daily basis, and have significant negative consequences on our financial and operating conditions. Loss of access to these facilities may result in increased costs, delays in the development of our AXA Candidates or interruption of our business operations. Natural disasters could further disrupt our operations, and have a material and adverse effect on our business, financial condition, results of operations 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 research facilities or the manufacturing facilities of our third-party contract manufacturers, 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 may prove inadequate 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 could have a material adverse effect on our business. As part of our risk management policy, we maintain insurance coverage at levels that we believe are appropriate for our business. However, in the event of an accident or incident at these facilities, we cannot assure our investors that the amounts of insurance will be sufficient to satisfy any damages and losses. If our facilities or the manufacturing facilities of our third-party contract manufacturers are unable to operate because of an accident or incident or for any other reason, even for a short period of time, any or all of our research and development programs may be harmed. Any business interruption may have a material and adverse effect on our business, financial condition, results of operations and prospects.

If we lose key management personnel, or if we are unable to recruit additional highly skilled personnel, our ability to identify and develop new or next generation AXA Candidates will be impaired, could result in loss of markets or market share and could make us less competitive.

          Our ability to compete in the highly competitive biotechnology industry depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, including David Epstein, our Chairman of the Board, William Hinshaw, our Chief Executive Officer and President, Thomas Leggett, our Chief Financial Officer and Senior Vice President of Finance, Manu Chakravarthy, M.D., Ph.D., our Chief Medical Officer and Senior Vice President of Clinical Development, Tony Tramontin, Ph.D., our Chief Scientific Officer and Senior Vice President of Research and Development, Stephen Mitchener, PharmD, our Chief Business Officer and Senior Vice President and Paul Fehlner, J.D., Ph.D., our Chief Intellectual Property Officer and Senior Vice President. The loss of the services of any of our executive officers, other key employees and other scientific and medical advisors, and our inability to find suitable replacements could result in delays in product development and harm our business.

          We conduct our operations in Massachusetts. Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.

          To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock options that vest over time. The value to employees of stock

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options that vest over time may be significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Employment of our key employees is at-will, which means that any of our employees could leave our employment at any time, with or without notice. We do not maintain "key man" insurance policies on the lives of these individuals or the lives of any of our other employees. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level and senior managers as well as junior, mid-level and senior scientific and medical personnel.

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

          Our operations, and those of our CROs, contract manufacturing organizations, or CMOs, manufacturers of the raw materials used in our AXA Candidates and other contractors and consultants, could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. For our Non-IND, IRB-Approved Clinical Studies, we rely on third-party manufacturers to produce our AXA Candidates, on CROs for conducting various portions of such studies and on various consultants throughout the study process. For materials to be used in any future Clinical Trials for AXA Candidates that we decide to develop as drug product candidates, we plan to rely on an external CMO for the entire manufacturing supply chain and plan to continue using CROs and consultants in connection with conducting such trials. Our ability to obtain supplies of our AXA Candidates and services from CROs and consultants could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption.

Our internal computer systems, or those used by our CROs, CMOs or other contractors or consultants, may fail or suffer security breaches.

          Despite the implementation of security measures, our internal computer systems and those of our CROs, CMOs and other contractors and consultants are vulnerable to damage from computer viruses and unauthorized access. While we have not experienced any such material system failure or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of data from any future Clinical Trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we currently rely on third parties for the manufacture of our AXA Candidates and to conduct Non-IND, IRB-Approved Clinical Studies, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our AXA Candidates could be delayed.

          Regulators globally are also imposing greater monetary fines for privacy violations. For example, in 2016, the European Union adopted a new regulation governing data practices and privacy called the General Data Protection Regulation, or GDPR, which became effective on May 25, 2018. The GDPR applies to any company that collects and uses personal data in connection with offering goods or services to individuals in the European Union or the monitoring of their behavior. Non-compliance with the GDPR may result in monetary penalties of up to €20 million or 4% of worldwide revenue, whichever is higher. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of personal data, such as healthcare data or other sensitive information, could greatly increase the cost of providing our AXA Candidates, if approved, or even prevent us from offering our AXA Candidates, if approved, in certain jurisdictions.

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Our employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

          We are exposed to the risk of employee fraud or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors. Misconduct by these parties could include intentional, reckless or negligent conduct that fails to comply with the laws of the FDA and other similar foreign regulatory bodies, provide true, complete and accurate information to the FDA and other similar foreign regulatory bodies, comply with manufacturing standards we have established, comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws or report financial information or data accurately or to disclose unauthorized activities to us. If we obtain FDA approval of any of our AXA Candidates and begin commercializing those products in the United States, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. These laws may impact, among other things, our current activities with principal investigators and research subjects, as well as proposed and future sales, marketing and education programs.

A variety of risks associated with testing and developing our AXA Candidates internationally could materially adversely affect our business.

          In addition to researching, developing and commercializing our AXA Candidates in the United States, we also intend to engage in these activities outside of the United States and, accordingly, we expect that we will be subject to additional risks related to operating in foreign countries, if our AXA Candidates are approved, including:

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          Additionally, we intend to contract with third parties to conduct some of our Clinical Trials outside the United States, which will subject us to additional risks and regulations. These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations.

We currently have no marketing and sales organization and have no experience in marketing products for therapeutic or non-drug uses. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our AXA Candidates, we may not be able to generate product revenue.

          We currently have no sales, marketing or distribution capabilities and have no experience in marketing products for therapeutic uses or other non-drug uses. We intend to develop an in-house marketing organization and sales force, which will require significant capital expenditures, management resources and time. We will have to compete with other healthcare companies to recruit, hire, train and retain marketing and sales personnel.

          In addition to establishing internal sales, marketing and distribution capabilities, we intend to optimistically pursue collaborative arrangements regarding the sales and marketing of our products, in particular for products we develop as non-drug products; however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had commercialized our AXA Candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our AXA Candidates.

          There can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships with third-party collaborators to commercialize any product in the United States or overseas.

Comprehensive tax reform legislation could adversely affect our business and financial condition.

          On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, or the TCJA, that significantly reforms the Internal Revenue Code of 1986, as amended, or the Code. The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal tax rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses, or NOLs, to 80% of annual taxable income and elimination of NOL carrybacks and modifying or repealing many business deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as "orphan drug." We continue to examine the impact this tax reform legislation may have on our business. However, the effect of the TCJA on our business, whether adverse or favorable, is uncertain and may not become evident for some period of time. We urge investors to consult with their legal and tax advisers regarding the implications of the TCJA on an investment in our common stock.

Our ability to use NOLs and research and development credits to offset future taxable income may be subject to certain limitations.

          As of December 31, 2018, we had U.S. federal and state NOL carryforwards of $140.6 million and $139.4 million, respectively, both of which expire at various dates beginning in 2030. As of December 31, 2018, we also had U.S. federal and state research and development tax credit

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carryforwards of $4.2 million and $1.6 million respectively, both of which expire at various dates through 2038. These NOL and tax credit carryforwards could expire unused and be unavailable to offset future taxable income or tax liabilities, respectively. In addition, in general, under Sections 382 and 383 of the Code, and corresponding provisions of state law, a corporation that undergoes an "ownership change" is subject to limitations on its ability to utilize its pre-change NOL carryforwards or tax credits, or Credits, to offset future taxable income or taxes. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation's stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. Our existing NOLs or Credits may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change in connection with or after this offering, our ability to utilize NOLs or Credits could be further limited by Sections 382 and 383 of the Code. In addition, future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Sections 382 and 383 of the Code. Our NOLs or Credits may also be impaired under state law. Accordingly, we may not be able to utilize a material portion of our NOLs or Credits. Furthermore, our ability to utilize our NOLs or Credits is conditioned upon our attaining profitability and generating U. S. federal and state taxable income. We have incurred significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; and therefore, we do not know whether or when we will generate the U.S. federal or state taxable income necessary to utilize our NOLs or Credits that are subject to limitation by Sections 382 and 383 of the Code. The reduction of the corporate tax rate under the TCJA caused a reduction in the economic benefit of our NOL carryforwards and other deferred tax assets available to us. Under the TCJA, NOLs generated after December 31, 2018 will not be subject to expiration; however, any NOLs generated after December 31, 2018 may only offset 80% of our annual taxable income.

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.

          As widely reported, global credit and financial markets have experienced extreme volatility and disruptions in the past, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that future volatility, disruption or deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets continue to be volatile or are disrupted or deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.

          As of December 31, 2018, we had cash and cash equivalents of approximately $79.5 million. While we are not aware of any downgrades, material losses or other significant deterioration in the fair value of our cash equivalents since December 31, 2018, no assurance can be given that further deterioration of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or our ability to meet our financing objectives. Furthermore, our stock price may decline due in part to the volatility of the stock market and the general economic downturn.

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Our loan agreement subjects us to operating restrictions and financial covenants and may restrict our business and financing activities.

          On January 9, 2018, we entered into a loan and security agreement with Solar Capital Ltd., or Solar, for term loans in an aggregate principal amount of $26 million, which we amended on October 5, 2018 and November 30, 2018. Our obligations under the loan agreement are secured by a first priority security interest in our assets, excluding intellectual property and certain other exceptions. We are subject to a negative pledge covenant with respect to our intellectual property. The loan agreement contains customary representations, as well as customary affirmative and negative covenants. Among other restrictions, the negative covenants, subject to exceptions, prohibit or limit our ability to: declare dividends or redeem or purchase equity interests; incur additional liens; make investments; incur additional indebtedness; engage in mergers, acquisitions and asset sales; transact with affiliates; undergo a change in control; add or change business locations; and engage in businesses that are not related to its existing business. These covenants may restrict our ability to finance our operations and to pursue our business activities and strategies. Our ability to comply with these covenants may be affected by events beyond our control.

Risks related to government regulation

We are very early in our development efforts. AXA Candidates we decide to develop as drug product candidates will require significant additional preclinical and clinical development before we seek regulatory approval. AXA Candidates that we decide to bring to market as non-drug products may also require additional development, and all AXA Candidates may require significant interactions with regulators and investments before their respective commercial launches. If we are unable to advance our AXA Candidates to final development, meet regulatory requirements, including obtaining regulatory approval, where applicable, or ultimately commercialize our AXA Candidates or experience significant delays in doing so, our business will be materially harmed.

          We are very early in our development efforts and have invested substantially all of our efforts and financial resources in the identification and early clinical development of AXA Candidates. To date, we have not marketed or commercialized products and, although we have made a development path decision to develop AXA1665 as a drug product candidate under a planned IND submission, we have not done so for any of our other AXA Candidates, including whether to continue their development under food or dietary supplement regulations or to pursue their development as drugs. Our ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend on the successful development and eventual commercialization of our AXA Candidates, which may never occur. We currently generate no revenue from sales of any products, and we may never be able to develop or commercialize a marketable product. The success of our AXA Candidates will depend on several factors, including the following:

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          If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our AXA Candidates, which would materially harm our business. If we do not receive regulatory approvals or identify and execute on alternate regulatory pathways to market for our AXA Candidates, we may not be able to continue our operations.

Regulatory requirements for development of our AXA Candidates as drugs or as non-drug products are uncertain and evolving. Changes in these laws, including our ability to conduct Non-IND, IRB-Approved Clinical Studies, or the current interpretation or application of these laws, or conflicts between us and the FDA on the applicability or interpretation of applicable laws, would have a significant adverse impact on our ability to develop and commercialize our products.

          In the United States, under sections 201(s) and 409 of the Federal Food, Drug, and Cosmetic Act, or the FD&C Act, any substance that is reasonably expected to become a component of food is considered to be a food additive, and therefore subject to FDA premarket review and approval, unless the substance is generally recognized, among qualified experts, as having been adequately shown to be safe under the conditions of its intended use. Moreover, under federal law, dietary supplement products must only contain certain permissible dietary ingredients, and any ingredients considered to be an NDI under the FD&C Act will require pre-market notification to the FDA.

          Based on the large body of studies and scientific literature on the human exposure to and safety profiles of certain amino acids, the FDA's promulgation of regulations governing the use of certain amino acids under certain conditions as safe and permissible food additives when used as nutrients, our own data on amino acids used in AXA Candidates and the fact that we use amino acids in our AXA Candidates within amounts previously studied safely in humans, we believe we have designed our AXA Candidates to have favorable safety profiles, and we further have evaluated

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or will evaluate the safety and tolerability of these AXA Candidates in Non-IND, IRB-Approved Clinical Studies. Under the FDA's framework governing studies of non-drug products, we believe that use of our AXA Candidates containing amino acids may be studied for safety and tolerability without an IND. However, the FDA or comparable regulators may disagree with this approach and determine that our studies should be conducted under an IND, which may result in negative consequences. To date, we have only had a pre-IND meeting with the FDA regarding the potential development of AXA1665 as drug under IND but have not met with FDA in connection with our other programs or at all with other comparable foreign regulatory authorities to discuss our approach or plans for further development.

          In prior or future studies or trials of our AXA Candidates, we may have or will expressly or implicitly characterize or classify such candidates as encompassed within a specific regulatory scheme (e.g., as foods or dietary supplements). Regulators may not agree with the regulatory classification of the AXA Candidates used in our Non-IND, IRB-Approved Clinical Studies or any subsequent classification of such candidates prior to commercialization. To date, we have had one pre-IND meeting with FDA regarding our AXA1665 program and have not discussed the development of our other AXA Candidates evaluated in Non-IND, IRB-Approved Clinical Studies or our utilization of specific regulatory pathways for our other AXA Candidates with the FDA or comparable foreign regulatory authorities and any such regulator may not agree with our current activities or future approach or plans. The FDA may determine that our AXA Candidates are not safe or appropriate for use in Non-IND, IRB-Approved Clinical Studies or are not governed by food regulations and therefore may classify any of our AXA Candidates as being ineligible for investigation in clinical studies without an IND. The FDA or other regulatory authorities may also take enforcement action, or otherwise delay or prevent further development or commercialization of our AXA Candidates.

          The FDA may determine that our AXA Candidates cannot be marketed as or do not meet the regulatory requirements for marketing or testing as non-drug products. The FDA may take the position that we failed to satisfy the premarket requirements for ingredient compositions, including that the particular product is not generally recognized as safe, or GRAS, is an unapproved food additive, is a NDI requiring premarket review or that our products contain otherwise impermissible ingredients, in which case some or all of our products may be deemed adulterated or misbranded in violation of the FD&C Act. Moreover, if we choose to study a product under an IND before the product candidate has been marketed as a non-drug product, the FD&C Act could prevent us from marketing the product as a non-drug product if we are unable to secure FDA approval as a new drug. Any delay in the regulatory consultation process, or a warning, finding or determination that any of our operations or product candidates do not meet the regulatory requirements of the FDA, including but not limited to any applicable GRAS, food additive or NDI requirements, could subject the company to regulatory enforcement action, and/or cause a delay in or prevent the commercialization of one or more of our product candidates, which may lead to reduced acceptance by the public or others for any products we are able to commercialize and could materially adversely affect our business.

          The FDA may determine that the only pathway for conducting studies of our AXA Candidates is under an IND or that our Non-IND, IRB-Approved Clinical Studies already conducted should have been conducted under an IND. Any such determination could prevent our reliance on existing regulatory frameworks to conduct Non-IND, IRB-Approved Clinical Studies for other AXA Candidates or prevent us from relying on or including data from our Non-IND, IRB-Approved Clinical Studies in any regulatory submissions to support further clinical development or marketing approval, and could significantly increase the cost of and delay the development or commercialization of AXA Candidates. If the FDA disagrees with our determination that we may conduct Non-IND, IRB-Approved Clinical Studies without filing an IND, they could require that we halt any Non-IND,

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IRB-Approved Clinical Studies or Clinical Trials we have commenced, or we may be subject to enforcement action. Should we choose to commercialize our AXA Candidates as non-drug products and if the FDA determines our AXA Candidates fall outside the food regulations, we may be subject to regulatory enforcement action and we could be required to stop selling, withdraw, recall, re-label or re-package any products we have commercialized as non-drug products on the market. In addition, if new safety issues are raised by Non-IND, IRB-Approved Clinical Studies in advance of deciding whether to file an IND that suggest safety concerns for all of our AXA Candidates, then the FDA could ask us to modify approved labeling for or withdraw from the market any previously approved products for therapeutic uses or products being commercialized for other non-drug uses. A decision by the FDA that we cannot conduct Non-IND, IRB-Approved Clinical Studies without filing an IND would significantly impact our current business model and we may incur significant expense and operational difficulties.

Changes in the legal and regulatory environment could limit our future business activities, increase our operating or regulatory costs, reduce demand for our AXA Candidates or result in litigation.

          The conduct of our business, including, but not limited, to the development, testing, production, storage, distribution, sale, display, advertising, marketing, labeling, packaging, health and safety practices and regulatory classification and approval (where necessary) use of many of our AXA Candidates, is subject to various laws and regulations administered by federal, state and local governmental agencies in the United States, as well as to laws and regulations administered by government entities and agencies outside the United States in markets in which we conduct clinical studies or trials under foreign food or drug regulations or in which our AXA Candidates and components thereof (such as packaging) may be manufactured or sold.

          These laws and regulations and interpretations thereof may change, sometimes dramatically, as a result of a variety of factors, including political, economic or social events. Such changes may include changes in:

          New laws, regulations or governmental policy and their related interpretations, or changes in any of the foregoing, may alter the environment in which we do business and, therefore, may impact our operating results or increase our costs or liabilities.

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We may rely on academic and private non-academic institutions to conduct investigator-sponsored Non-IND, IRB-Approved Clinical Studies or Clinical Trials of our AXA Candidates. Any failure by the investigator-sponsor to meet its obligations with respect to the clinical development of our AXA Candidates may delay or impair our ability to obtain regulatory approval or otherwise commercialize the applicable AXA Candidates.

          We may rely on academic and private non-academic institutions to conduct and sponsor clinical studies or trials relating to our AXA Candidates. We will not control the design or conduct of the investigator-sponsored trials, and it is possible that the FDA or ex-U.S. regulatory authorities will not view these investigator-sponsored studies or trials as providing adequate support to allow for the initiation of future Clinical Trials for those AXA Candidates that we choose to develop as drug product candidates, whether controlled by us or independent investigators, for any one or more reasons, including elements of the design or execution of the trials or safety concerns or other trial results.

          Such arrangements will likely provide us certain information rights with respect to the investigator-sponsored studies or trials, including access to and the ability to use and reference the data, including for our own regulatory filings, resulting from the investigator-sponsored studies or trials. However, we would not have control over the timing and reporting of the data from investigator-sponsored trials, nor would we own the data from the investigator-sponsored studies or trials. If we are unable to confirm or replicate the results from the investigator-sponsored studies or trials or if negative results are obtained, we would likely be further delayed or prevented from advancing further clinical development of our AXA Candidates. Further, if investigators or institutions breach their obligations with respect to the clinical development of our AXA Candidates or if the data proves to be inadequate compared to the first-hand knowledge we might have gained had the investigator-sponsored studies or trials been sponsored and conducted by us, then our ability to design and conduct any future Clinical Trials ourselves may be adversely affected.

          Additionally, the FDA or ex-U.S. regulatory authorities may disagree with the sufficiency of our right of reference to the preclinical, manufacturing or clinical data generated by these investigator-sponsored studies or trials or our interpretation of preclinical, manufacturing or clinical data from these investigator-sponsored studies or trials. If so, the FDA or other ex-U.S. regulatory authorities may require us to obtain and submit additional preclinical, manufacturing or clinical data before we may initiate our planned Clinical Trials or may not accept such additional data as adequate to initiate our planned Clinical Trials. In addition, it could limit or prevent our ability to commercialize AXA Candidates for non-drug uses.

Obtaining and maintaining regulatory approval of our AXA Candidates that we decide to develop as drug product candidates for therapeutic indications or the ability to commercialize our AXA Candidates through a non-drug regulatory pathway in one jurisdiction does not mean that we will be successful in obtaining regulatory approval or identifying a similar alternate regulatory pathway for our AXA Candidates in other jurisdictions.

          Obtaining and maintaining regulatory approval for AXA Candidates that we decide to develop as drug product candidates or identifying or commercializing our AXA Candidates through non-drug pathways in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval or identify and maintain an alternate regulatory pathway in any other jurisdiction, while a failure or delay in obtaining regulatory approval or an alternate regulatory pathway in one jurisdiction may have a negative effect on the regulatory approval process or path to market in others. For example, even if the FDA grants marketing approval of an AXA Candidate for therapeutic indications, comparable regulatory authorities in foreign jurisdictions could take opposing positions and decline to approve the manufacturing, marketing and promotion of such AXA Candidate in those countries. Approval procedures vary among jurisdictions and can involve

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requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies, Non-IND, IRB-Approved Clinical Studies and Clinical Trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval and the approved price may not lead to profitability or acceptable margins.

          We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States may have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our AXA Candidates will be harmed.

Preclinical and clinical development is uncertain. Our preclinical programs, Non-IND, IRB-Approved Clinical Studies and Clinical Trials may experience delays or may never advance to the next stage of development, which would adversely affect our ability to obtain regulatory approvals, where necessary, or identify and execute on alternate regulatory pathways to commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.

          Our AXA Candidates are in both preclinical and clinical (non-IND) stages of development, and their risk of failure is high. To proceed with our development plans and ultimately commercialization, we may need to conduct and meet regulatory requirements for preclinical, Non-IND, IRB-Approved Clinical Studies or, for AXA Candidates that we decide to develop as drug product candidates, Clinical Trials. For therapeutic applications, the FDA may require additional extensive preclinical and other studies. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical programs, including our Non-IND, IRB-Approved Clinical Studies and future Clinical Trials, if any, including their design, dose level, and dose regimen, or if the outcome of our preclinical testing, Non-IND, IRB-Approved Clinical Studies or Clinical Trials, if any, will ultimately support the subsequent development of our clinical programs for therapeutic indications or non-drug applications. As a result, we cannot be sure that we will be able to submit INDs or similar applications in the case of AXA Candidates for which we pursue a drug pathway or comply with any other regulatory requirements where necessary for commercialization and marketing of drugs or non-drug products on the timelines we expect, if at all. We cannot be sure that submission of INDs or similar applications, where necessary, or other regulatory required submissions for our AXA Candidates will result in the FDA or other regulatory authorities allowing our studies or Clinical Trials to begin, be completed or have their data used to support commercialization and required regulatory approvals. We also cannot be certain if our testing and studies will provide support for the further development of AXA Candidates as non-drug products or support for any associated product claims made, and, as a result, we cannot be sure that we will be able to successfully pursue alternative regulatory pathways to commercialization as non-drug product for some or all of our AXA Candidates.

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If we are not able to meet certain regulatory requirements for our AXA Candidates or to obtain, or timely obtain, required regulatory approvals for our AXA Candidates that we choose to develop as drugs, we will not be able to commercialize or will be delayed in commercializing, our AXA Candidates, and our ability to generate revenue will be materially impaired.

          Our AXA Candidates and the activities associated with their development and commercialization as a drug or non-drug products, including but not limited to their design, testing, manufacture, safety, efficacy, recordkeeping, packaging, labeling, storage, holding, approval, advertising, promotion, sale, distribution, import and export are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Before we can commercialize any of our AXA Candidates as a drug, we must obtain marketing approval. Before we can commercialize any of our AXA Candidates as a non-drug product, we may be required to follow pre- or post-market notification and other applicable regulatory requirements for ingredients and claims. We have not received approval to market any of our AXA Candidates as drugs from regulatory authorities in any jurisdiction nor executed on requirements for commercialization of non-drug products under applicable regulations, and it is possible that none of our current AXA Candidates, or any AXA Candidates we may seek to develop in the future, will ever obtain regulatory approval, where applicable, or meet other applicable regulatory requirements to reach the market. We, as a company, have no experience in filing and supporting the applications necessary to gain regulatory approvals for drugs or in the submission of other petitions, notifications or registrations in the case of non-drug products, where applicable, and expect to work with or rely on third-party CROs or regulatory consultants to assist us in this process. For example, the FDA and Federal Trade Commission, or FTC, require substantiating data or evidence for marketing claims and may require other regulatory submissions, including, for example, NDI submissions for certain product ingredients in certain non-drug products before they can be sold. With respect to AXA Candidates that we decide to develop as drug product candidates, securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the drug candidate's safety and efficacy. If we fail to execute competently on these requirements, as applicable, our AXA Candidates may not make it to market.

          Securing regulatory approval for therapeutic indications also requires the submission of information about the drug manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our AXA Candidates that we decide to develop as drug product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or limit commercial use.

          The process of obtaining regulatory approvals for therapeutic indications, both in the United States and abroad, is expensive, may take many years if additional Clinical Trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the AXA Candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted IND, NDA or equivalent application types, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process of our AXA Candidates that we decide to commercialize as drugs and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. Our AXA Candidates that we decide to develop as drug product candidates could be

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delayed in receiving, or fail to receive, regulatory approval for many reasons, including the following:

          Of the large number of drugs in development, only a small percentage successfully complete the FDA or foreign regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future Clinical Trial results may result in our failing to obtain regulatory approval to market our AXA Candidates, which would significantly harm our business, results of operations and prospects.

          If we decide to develop an AXA Candidate as a drug product candidate and submit an NDA for such AXA Candidate, the FDA may also require a panel of experts, or an Advisory Committee, to deliberate on the adequacy of the safety and efficacy data to support approval for therapeutic indications. The opinion of the Advisory Committee, although not binding, may have a significant impact on our ability to obtain approval of any AXA Candidates that we decide to develop as drugs based on the completed Clinical Trials.

          In addition, even if we were to obtain approval for use of our AXA Candidates as drug product candidates, regulatory authorities may approve any of our AXA Candidates for fewer or more limited therapeutic indications than we request, may include limitations for use or contraindications that limit the suitable patient population, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing Clinical Trials or may approve an AXA Candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that drug product candidate. Similarly, regulatory authorities may limit or prohibit label claims that limit the market, price or other factors that are necessary or desirable for the successful commercialization of candidates developed as non-drug products. Any of the foregoing scenarios could materially harm the commercial prospects for our AXA Candidates.

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          If we experience delays or failures in obtaining regulatory approvals, where applicable, or otherwise experience delays or failures in complying with regulatory requirements for commercialization of our product candidates, the commercial prospects for our AXA Candidates may be harmed and our ability to generate revenues will be materially impaired.

The FDA and other regulatory authorities such as the EMA may implement additional regulations or restrictions on the development and commercialization of products that act on metabolic pathways, which may be difficult to predict.

          The FDA and foreign regulatory authorities such as the EMA have expressed interest in further regulating biotechnology products and product candidates, such as AXA Candidates. Agencies at both the federal and state level in the United States, as well as the U.S. Congressional committees and other governments or governing agencies, have also expressed interest in further regulating the biotechnology industry. Such action may delay or prevent commercialization of some or all of our AXA Candidates. Adverse developments in Non-IND, IRB-Approved Clinical Studies or Clinical Trials of AXA Candidates or similar products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of our AXA Candidates. The FDA or other regulatory authorities may impose unexpected, onerous requirements on our products because they are composed of multiple amino acids, requiring a clinical demonstration of the functionality and contribution of each component of our EMMs. Such requirements may include additional studies or analyses. Similarly, the EMA governs the development of AXA Candidates as drugs in the European Union and member state regulatory bodies govern the development of AXA Candidates under non-drug regulations and may issue new guidelines concerning the development and marketing authorization for AXA Candidates and require that we comply with these new guidelines. These regulatory review agencies and committees and the new requirements or guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies or trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our AXA Candidates or lead to significant limitations or restrictions. As we advance our AXA Candidates, we will be required to consult with these regulatory agencies and comply with applicable requirements and guidelines. If we fail to do so, we may be required to delay or discontinue development of such AXA Candidates. These additional processes may, for our AXA Candidates that we decide to develop as drug product candidates, result in a review and approval process that is longer than we otherwise would have expected and delays as a result of an increased or lengthier regulatory approval process or further restrictions on the development of our AXA Candidates can be costly and could negatively impact our ability to complete Clinical Trials and commercialize our current and future AXA Candidates in a timely manner, if at all.

We may fail to obtain and maintain orphan drug designations from the FDA or, if applicable, other foreign regulatory authorities such as the EMA for AXA Candidates that we decide to develop as drug product candidates.

          Our strategy includes filing for orphan drug designation where available for our AXA Candidates we decide to develop as drug product candidates. In the United States, under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug or biologic intended to treat a rare disease or condition, which is defined as one occurring in a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug or biologic will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financial incentives, such as opportunities for grant funding toward clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the

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product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including an NDA, to market the same drug or biologic for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the original manufacturer is unable to assure sufficient product quantity.

          In addition, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the orphan-designated disease or condition. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties may receive and be approved for the same condition, and only the first applicant to receive approval will receive the benefits of marketing exclusivity. Even after an orphan-designated product is approved, the FDA can subsequently approve a later drug with the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approval process. In addition, while we may seek orphan drug designation for our AXA Candidates that we decide to develop as drug product candidates, we may never receive such designations.

          In the European Union, the EMA's Committee for Orphan Medicinal Products grants orphan drug designation to the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biological product or where there is no satisfactory method of diagnosis, prevention or treatment, or, if such a method exists, the medicine must be of significant benefit to those affected by the condition.

          In the European Union, orphan drug designation entitles a party to financial incentives such as reductions of fees or fee waivers. In addition, ten years of market exclusivity is granted following drug product approval, meaning that another application for marketing authorization of a later similar medicinal product for the same indication will generally not be approved in the European Union. This period may be reduced to six years if the orphan designation criteria are no longer met, including where it is shown that the product is not sufficiently profitable to justify maintenance of market exclusivity.

Even if we receive regulatory approval of any AXA Candidates as drugs, or commercialize our AXA Candidates as non-drug products, we will be subject to ongoing regulatory compliance obligations or continued regulatory review, which may result in significant additional expense. Additionally, any of our AXA Candidates, if approved or commercialized, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our AXA Candidates.

          If any of our AXA Candidates are developed as drug product candidates and approved for therapeutic indications or are commercialized as non-drug products, they will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, distribution, quality, safety, sale, marketing, advertising, promotion, sampling, record-keeping, export, import, conduct of post-marketing studies and submission of safety, efficacy or other post-market information. Such

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requirements may be imposed as federal and state requirements in the United States or by comparable foreign regulatory authorities. In addition, we will be subject to continued compliance with cGMP requirements as applicable to drugs and non-drug products and GCP requirements for any Clinical Trials that we conduct post-approval, if applicable.

          Manufacturers and manufacturers' facilities are required to comply with extensive FDA, and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to the respective cGMP regulations. As such, we and our contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA, if applicable, or other marketing application or submission, and previous responses to inspection observations. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control.

          The FDA has significant post-marketing authority, including, for example, the authority to require labeling or packaging changes based on the use of improper product claims or new safety or other information and, where applicable, to require post-marketing studies or clinical trials to evaluate serious safety risks related to the use of a drug. With respect to products developed as drugs, any regulatory approvals that we receive for our AXA Candidates may be subject to limitations on the approved indicated uses for which a drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials and surveillance to monitor the safety and efficacy of the AXA Candidate. The FDA may also require a Risk Evaluation and Mitigation Strategy, or REMS, program as a condition of approval of our AXA Candidates that we decide to develop as drugs, which could entail requirements for long-term patient follow-up, 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 approves our AXA Candidates as a drug for therapeutic uses, we will have to comply with requirements including submissions of safety and other post-marketing information and reports and registration.

          The FDA or other regulatory authorities may take regulatory enforcement action or other legal action or, in the case of drugs, impose consent decrees or withdraw 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 our AXA 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 potential consequences, including, among other things:

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          The FDA and FTC strictly regulate marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses for drugs, and a company that is found to have improperly promoted off-label uses may be subject to significant liability. Non-drug products are prohibited from making any claims, whether express or implied, that the product is intended to "diagnose, mitigate, treat, cure or prevent disease," and doing so may subject a non-drug product to classification as a drug product and regulatory enforcement action. If the FDA or other regulatory agency determines that any of our AXA Candidates make impermissible claims, we may be subject to any of the aforementioned consequences or other legal challenges that may have an adverse effect on the company's business and operations.

          The policies of the FDA and of other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval, where applicable, and commercialization, and continued commercialization, of our AXA Candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained for any drugs, or may no longer be able to market or sell products we develop as non-drug products, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

          We also 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 current administration may impact our business and industry. Namely, the current 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 any executive orders, will be implemented, and the extent to which they will impact 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. In addition, 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, where applicable, our ability to continue to market and sell our products and we may not achieve or sustain profitability.

          Non-compliance by us or any future collaborator with regulatory requirements, including safety monitoring or pharmacovigilance requirements, where applicable, can also result in significant financial penalties.

Healthcare insurance coverage and reimbursement may be limited or unavailable in certain market segments for our AXA Candidates, if developed as a drug and approved, which could make it difficult for us to sell any product profitably.

          The success of our AXA Candidates, if approved for therapeutic indications, depends on the availability of adequate coverage and reimbursement from third-party payors, including governmental healthcare programs, such as Medicare and Medicaid, commercial payors and health maintenance organizations. In addition, because our AXA Candidates have the potential to

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represent a relatively new approach to the treatment of the diseases, we cannot be sure that coverage and reimbursement will be available for, or accurately estimate the potential revenue from, our AXA Candidates or assure that coverage and reimbursement will be available for any product that we may develop.

          Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs and commercial payors are critical to new product acceptance.

          Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor's determination that use of a product is:

          In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors. As a result, obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our products on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. Even if we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate for us to achieve or sustain profitability or may require co-payments that patients find unacceptably high. Additionally, third-party payors may not cover, or provide adequate reimbursement for, long-term follow-up evaluations required following the use of product candidates. Patients are unlikely to use our AXA Candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our AXA Candidates. Because our AXA Candidates may have a higher cost of goods than conventional therapies, and may require long-term follow-up evaluations, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater. There is significant uncertainty related to insurance coverage and reimbursement of newly approved products. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our AXA Candidates.

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

          Healthcare insurance often does not cover non-drug products administered outside of the hospital setting. This may impact our AXA Candidates if we decide to commercialize them as non-drug products.

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For those AXA Candidates that we decide to develop as drug product candidates, our relationships with healthcare providers, physicians and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

          Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of pharmaceutical products. Arrangements with third-party payors and customers can expose pharmaceutical manufacturers to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and the federal False Claims Act, or FCA, which may constrain the business or financial arrangements and relationships through which such companies sell, market and distribute pharmaceutical products. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for Clinical Trials. The applicable federal and state healthcare laws and regulations laws that may affect our ability to operate include, but are not limited to:

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

          The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of

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interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert a company's attention from the business.

          The failure to comply with any of these laws or regulatory requirements subjects entities to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in federal and state funded healthcare programs (such as Medicare and Medicaid), contractual damages and the curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. Any action for violation of these laws, even if successfully defended, could cause a pharmaceutical manufacturer to incur significant legal expenses and divert management's attention from the operation of the business. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, that person or entity may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Prohibitions or restrictions on sales or withdrawal of future marketed products could materially affect business in an adverse way.

          Effective upon the completion of this offering, we will adopt a code of business conduct and ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent inappropriate conduct 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. Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, 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. In addition, the approval and commercialization of any of our AXA Candidates outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

Failure to comply with health and data protection laws and regulations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation or adverse publicity and could negatively affect our operating results and business.

          We and any potential collaborators may be subject to federal, state and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and data security). In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our collaborators. In addition, we

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may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under HIPAA, as amended by HITECH. Depending on the facts and circumstances, we could be subject to civil, criminal and administrative penalties if we knowingly obtain, use or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.

          Compliance with U.S. and international data protection laws and regulations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data or, in some cases, impact our ability to operate in certain jurisdictions. Failure to comply with these laws and regulations could result in government enforcement actions (which could include civil, criminal and administrative penalties), private litigation or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects, employees and other individuals about whom we or our potential collaborators obtain personal information, as well as the providers who share this information with us, may limit our ability to collect, use and disclose the information. Claims that we have violated individuals' privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

European data collection is governed by restrictive regulations governing the use, processing and cross-border transfer of personal information.

          In the event we decide to conduct Clinical Trials in the European Union, we may be subject to additional privacy restrictions. The collection and use of personal health data in the European Union is governed by the provisions of the GDPR. This directive imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to the United States. Failure to comply with the requirements of the Data Protection Directive, the GDPR, and the related national data protection laws of the European Union Member States may result in fines and other administrative penalties. The GDPR introduces new data protection requirements in the European Union and substantial fines for breaches of the data protection rules. The GDPR regulations may impose additional responsibility and liability in relation to personal data that we process and we may be required to put in place additional mechanisms ensuring compliance with these or new data protection rules. This may be onerous and adversely affect our business, financial condition, prospects and results of operations.

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

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

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          In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the ACA was passed, which substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses 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, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% (as of 2019) point-of-sale discounts 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.

          Since January 2017, the Trump administration has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. One Executive Order directs federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers or manufacturers of pharmaceuticals or medical devices. The second Executive Order terminates the cost-sharing subsidies that reimburse insurers under the ACA. Several state Attorneys General filed suit to stop the administration from terminating the subsidies, but their request for a restraining order was denied by a federal judge in California on October 25, 2017. Further, on June 14, 2018, U.S. Court of Appeals for the Federal Circuit ruled that the federal government was not required to pay more than $12 billion in ACA risk corridor payments to third-party payors who argued were owed to them. The effects of this gap in reimbursement on third-party payors, the viability of the ACA marketplace, providers and potentially our business, are not yet known.

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

          In July 2018, the Centers for Medicare and Medicaid Services, or CMS, published a final rule permitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. In addition, CMS has recently published a final rule that would give states greater flexibility, starting in 2020, in setting benchmarks for insurers in the individual and small group marketplaces, which may

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have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or the Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act of 2017, the remaining provisions of the ACA are invalid as well. While the Trump Administration and CMS have both stated that the ruling will have no immediate effect, and on December 30, 2018 the Texas District Court Judge issued an order staying the judgment pending appeal, it is unclear how this decision, subsequent appeals and other efforts to repeal and replace the ACA Act will impact the ACA and our business.

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

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

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          We expect that the healthcare reform measures that have been adopted and may be adopted in the future may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private third-party payors.

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

European Union drug marketing and reimbursement regulations may materially affect our ability to market and receive coverage for any AXA Candidate that we decide to develop as a drug candidate in the European member states.

          We intend to seek approval to market our AXA Candidates in both the United States and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions for our AXA Candidates, we will be subject to rules and regulations in those jurisdictions. In some foreign countries, particularly those in the European Union, the pricing of pharmaceutical products is subject to governmental control and other market regulations which could put pressure on the pricing and usage of our AXA Candidates. In these countries, pricing negotiations with governmental authorities can take considerable time after obtaining marketing approval of an AXA Candidate. In addition, market acceptance and sales of our AXA Candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for our AXA Candidates and may be affected by existing and future healthcare reform measures.

          Much like the federal Anti-Kickback Statute prohibition in the United States, the provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited in the European Union. The provision of benefits or advantages to physicians is governed by the national anti-bribery laws of European Union Member States, such as the UK Bribery Act 2010. Infringement of these laws could result in substantial fines and imprisonment.

          Payments made to physicians in certain European Union Member States must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician's employer, his or her competent professional organization or the regulatory authorities of the individual European Union Member States. These requirements are provided in the national laws, industry codes or professional codes of conduct, applicable in the European Union Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.

          In addition, in most foreign countries, including the European Economic Area, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. Reference pricing used by various European Union Member States and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company

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placing the medicinal product on the market. In some countries, we may be required to conduct a Clinical Trial or other studies that compare the cost-effectiveness of any of our AXA Candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally prices tend to be significantly lower. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If pricing is set at unsatisfactory levels or if reimbursement of our products is unavailable or limited in scope or amount, our revenues from sales by us or our strategic partners and the potential profitability of any of our product candidates in those countries would be negatively affected.

Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain products outside of the United States and require us to develop and implement costly compliance programs.

          If we expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.

          Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

          Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain ex-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our development costs.

          The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The Securities and Exchange Commission, or SEC, also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA's accounting provisions.

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We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions and other trade laws and regulations. We can face serious consequences for violations.

          Among other matters, U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions and other trade laws and regulations, which are collectively referred to as Trade Laws, prohibit companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors and other partners from authorizing, promising, offering, providing, soliciting or receiving directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. We also expect our ex-U.S. activities to increase in time. We plan to engage third parties for Clinical Trials or to obtain necessary permits, licenses, patent registrations and other regulatory approvals and we can be held liable for the corrupt or other illegal activities of our personnel, agents or partners, even if we do not explicitly authorize or have prior knowledge of such activities.

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

          The ability of the FDA to review and approve new products or take action with respect to other regulatory matters can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept 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 the SEC and other government agencies on which our operations may rely, including those 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 or approved, or for other actions to be taken, by relevant government agencies, which would adversely affect our business. For example, over the last several years, including beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government 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. Similarly, a prolonged government shutdown could prevent the timely review of our patent applications by the United States Patent and Trademark Office, or USPTO, which could delay the issuance of any U.S. patents to which we might otherwise be entitled. Further, upon completion of this offering and in our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly

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Risks related to our intellectual property

If we are unable to obtain and maintain patent protection for any AXA Candidates we develop or for our AXA Development Platform, our competitors could develop and commercialize products or technology similar or identical to ours, and our ability to successfully commercialize any AXA Candidates we may develop, and our technology may be adversely affected.

          Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our AXA Candidates, AXA Development Platform and other technologies we may develop. We seek to protect our proprietary position by filing patent applications in the United States and abroad relating to our AXA Candidates and AXA Development Platform, as well as other technologies that are important to our business. Given that the development of our technology and AXA Candidates is at an early stage, our intellectual property portfolio with respect to certain aspects of our technology and AXA Candidates is also at an early stage. We have filed or intend to file patent applications on these aspects of our technology and our AXA Candidates; however, there can be no assurance that any such patent applications will issue as granted patents. Furthermore, in some cases, we have only filed provisional patent applications on certain aspects of our technology and AXA Candidates and each of these provisional patent applications is not eligible to become an issued patent until, among other things, we file a non-provisional patent application within 12 months of the filing date of the applicable provisional patent application. Any failure to file a non-provisional patent application within this timeline could cause us to lose the ability to obtain patent protection for the inventions disclosed in the associated provisional patent applications.

          Composition of matter patents for biological and pharmaceutical products are generally considered to be the strongest form of intellectual property protection for those types of products, as such patents provide protection without regard to any method of use. We cannot be certain, however, that the claims in our pending patent applications covering the composition of matter of our AXA Candidates will be considered patentable by the USPTO or by patent offices in foreign countries, or that the claims in any of our issued patents will be considered valid and enforceable by courts in the United States or foreign countries. Furthermore, in some cases, we may not be able to obtain issued claims covering compositions of matter relating to our AXA Candidates and proprietary product platform, as well as other technologies that are important to our business, and instead may need to rely on filing patent applications with claims covering a method of use or method of manufacture. Method of use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their products for our targeted indications, physicians may prescribe these products "off-label" for those uses that are covered by our method of use patents. Although off-label prescriptions may infringe or contribute to the infringement of method of use patents, the practice is common and such infringement is difficult to prevent or prosecute. There can be no assurance that any such patent applications will issue as granted patents, and even if they do issue, such patent claims may be insufficient to prevent third parties, such as our competitors, from utilizing our technology. Any failure to obtain or maintain patent protection with respect to our AXA Candidates and AXA Development Platform could have a material adverse effect on our business, financial condition, results of operations and prospects.

If any of our owned patent applications do not issue as patents in any jurisdiction, we may not be able to compete effectively.

          Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions, obtain, maintain and enforce our

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intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our owned patents. With respect to our patent portfolio, as of April 1, 2019, our AXA Candidate-related patent portfolio consists of 18 patent families, including two granted U.S. patents, 22 U.S. pending patent applications (including provisional applications) and 13 owned pending patent applications in jurisdictions outside of the United States (including Patent Cooperation Treaty applications) that, in many cases, are counterparts to the foregoing U.S. patents and patent applications, which include claims directed to compositions, methods of use, treatment of indications, dosing, formulations and methods of manufacturing. With respect to owned intellectual property, we cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or other third parties.

          The patent prosecution process is expensive, time-consuming and complex, and we may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patents and patent applications at a reasonable cost or in a timely manner. Disruptions at the USPTO or other government agencies may also slow the time necessary for patent applications to be reviewed by the USPTO, which could adversely affect our patent portfolio. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection. In addition, our ability to obtain and maintain valid and enforceable patents depends on whether the differences between our inventions and the prior art allow our inventions to be patentable over the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in any of our owned or pending patent applications, or that we were the first to file for patent protection of such inventions.

If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, our ability to prevent our competitors from commercializing similar or identical technology and AXA Candidates would be adversely affected.

          The patent position of healthcare companies generally is highly uncertain, involves complex legal and factual questions and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our AXA Candidates, AXA Development Platform or other technologies or which effectively prevent others from commercializing competitive technologies and AXA Candidates.

          No consistent policy regarding the scope of claims allowable in patents in the biotechnology field has emerged in the United States. The patent situation outside of the United States is similarly uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions and enforce our intellectual property rights, and more generally could affect the value of our intellectual property. In particular, our ability to stop third parties from making, using, selling, offering to sell or importing products that infringe our intellectual property will depend in part on our success in obtaining and enforcing patent claims that cover our technology, inventions and improvements. With respect to intellectual property that we own, we cannot be sure that patents will be granted with respect to any of our pending patent

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applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our products and the methods used to manufacture those products. Moreover, even our issued patents do not guarantee us the right to practice our technology in relation to the commercialization of our products. The area of patent and other intellectual property rights in biotechnology is an evolving one with many risks and uncertainties, and third parties may have blocking patents that could be used to prevent us from commercializing our patented AXA Candidates and practicing our proprietary technology. Our issued patents and those that may issue in the future may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing related products or limit the length of the term of patent protection that we may have for our AXA Candidates. In addition, the rights granted under any issued patents may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may independently develop similar technologies. For these reasons, we may have competition for our AXA Candidates. Moreover, because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any particular AXA Candidate can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.

          Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications we own issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. Any patents that we own may be challenged, narrowed, circumvented or invalidated by third parties. Consequently, we do not know whether our AXA Candidates or other technologies will be protectable or remain protected by valid and enforceable patents. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner which could materially adversely affect our business, financial condition, results of operations and prospects.

          The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and patents that we own may be challenged in the courts or patent offices in the United States and abroad. We may be subject to a third party preissuance submission of prior art to the USPTO or to foreign patent authorities or become involved in opposition, derivation, revocation, reexamination, post-grant and inter partes review or interference proceedings or other similar proceedings challenging our owned patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, our owned patent rights, allow third parties to commercialize our AXA Candidates, AXA Development Platform or other technologies and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. Moreover, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as inter partes reviews, post-grant reviews or derivation proceedings at the USPTO or oppositions in a foreign patent office, that challenge our priority of invention or other features of patentability with respect to our owned patents and patent applications. Such challenges may result in loss of patent rights, loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our AXA Candidates, AXA Development Platform and other technologies. Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual outcome is favorable to us.

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          In addition, given the amount of time required for the development, testing and regulatory review of new AXA Candidates, patents protecting such AXA Candidates might expire before or shortly after such AXA Candidates are commercialized. As a result, our intellectual property may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

          We may in the future co-own patent rights relating to future AXA Candidates and our AXA Development Platform with third parties. We may need the cooperation of any such co-owners of our patent rights in order to enforce such patent rights against third parties, and such cooperation may not be provided to us. Any of the foregoing could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.

Our rights to develop and commercialize our AXA Candidates and AXA Development Platform may be subject, in part, to the terms and conditions of future licenses granted to us by others.

          We may rely upon licenses to certain patent rights and proprietary technology from third parties that are important or necessary to the development of our AXA Candidates and AXA Development Platform. Patent rights that we in-license in the future may be subject to a reservation of rights by one or more third parties. As a result, any such third parties may have certain rights to such intellectual property.

          In addition, subject to the terms of any such license agreements, we may not have the right to control the preparation, filing, prosecution and maintenance, and we may not have the right to control the enforcement, and defense of patents and patent applications covering the technology that we license from third parties. We cannot be certain that any in-licensed patent applications (and any patents issuing therefrom) that are controlled by any potential licensors will be prepared, filed, prosecuted, maintained, enforced and defended in a manner consistent with the best interests of our business. If our licensors fail to prosecute, maintain, enforce and defend such patent rights, or lose rights to those patent applications (or any patents issuing therefrom), the rights we have licensed may be reduced or eliminated, our right to develop and commercialize any of our AXA Candidates and AXA Development Platform technologies that are subject of such licensed rights could be adversely affected and we may not be able to prevent competitors from making, using and selling competing products. Moreover, we cannot be certain that such activities by our potential future licensors will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. In addition, even where we may have the right to control patent prosecution of patents and patent applications that we may license to and from third parties, we may still be adversely affected or prejudiced by actions or inactions of our potential future licensees, licensors and their counsel that took place prior to the date of assumption of control over patent prosecution.

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

          Filing, prosecuting and defending patents on our AXA Candidates, AXA Development Platform technologies and other technologies in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as the laws of 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 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

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effective or sufficient to prevent them from competing. Furthermore, the amino acids that we expect to incorporate into our products are available for purchase separately from a variety of retail outlets, and our intellectual property rights will not prevent these sales from continuing in the future.

          Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our intellectual property and proprietary rights generally. Proceedings to enforce our intellectual property and proprietary 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, could put 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 and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

          Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we are forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.

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

          Periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned patents and applications. The USPTO and various ex-U.S. government agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market with similar or identical products or technology, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

          Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the America

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Invents Act, enacted in September 2011, the United States transitioned to a first-inventor-to-file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before we do could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we were the first to file any patent application related to our AXA Candidates, AXA Development Platform or other technologies.

          The America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our owned patent applications and the enforcement or defense of our owned issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

          In addition, the patent positions of companies in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property in the future.

          From time-to-time the U.S. Supreme Court, other federal courts, the U.S. Congress or the USPTO, may change the standards of patentability and any such changes could have a negative impact on our business. For instance, on June 13, 2013, in Association for Molecular Pathology v. Myriad Genetics , the Supreme Court held that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated. The Supreme Court did not address the patentability of any innovative method claims involving the manipulation of isolated genes. On January 7, 2019, the USPTO released guidance entitled "2019 Revised Subject Matter Eligibility Guidance." This memorandum provides guidelines for the USPTO's new examination procedure for subject matter eligibility under 35 U.S.C. §101 for claims embracing natural products or natural principles. Although the guidelines do not have the force of law, patent examiners have been instructed to follow them. Some aspects of our technology involve processes or molecules that may be subject to this evolving standard and we cannot guarantee that any of our pending process claims will be patent eligible, or issued claims will remain patent eligible, as a result of such evolving standards. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries could weaken our ability to obtain new patents or to enforce

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our existing patents and patents that we might obtain in the future. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. We may not develop additional proprietary products, methods and technologies that are patentable.

Issued patents covering our AXA Candidates and any patents that may issue covering our AXA Development Platform and other technologies, could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad.

          If we initiated legal proceedings against a third party to enforce a patent covering our AXA Candidates, AXA Development Platform or other technologies, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity 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 or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may raise claims challenging the validity or enforceability of our owned patents before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation of, cancellation of, or amendment to our patents in such a way that they no longer cover our AXA Candidates, AXA Development Platform or other technologies. 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 third party were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our AXA Candidates, AXA Development Platform or other technologies. Such a loss of patent protection would have a material adverse impact on our business, financial condition, results of operations and prospects.

If we do not obtain patent term extension and/or data exclusivity for any AXA Candidates we decide to develop as drug product candidates, our business may be materially harmed.

          Depending upon the timing, duration and specifics of any FDA marketing approval of any AXA Candidates we decide to develop as drug product candidates, one or more of our owned U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent term extension of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar extensions as compensation for patent term lost during regulatory review processes are also available in certain foreign countries and territories, such as in Europe under a Supplementary Protection Certificate. However, we may not be granted an extension in the United States and/or foreign countries and territories because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or the term of any such extension is shorter than what we request, our competitors may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations and prospects could be materially harmed.

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We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

          We may be subject to claims that former employees, collaborators or other third parties have an interest in our owned patent rights, trade secrets or other intellectual property as an inventor or co-inventor. For example, we may have disputes arise from conflicting obligations of employees, consultants or others who are involved in developing our AXA Candidates, AXA Development Platform or other technologies. Litigation may be necessary to defend against these and other claims challenging inventorship or our ownership of our owned patent rights, trade secrets or other intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our AXA Candidates, AXA Development Platform and other technologies. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

          In addition to seeking patents for our AXA Candidates, AXA Development Platform and other technologies, we also rely on trade secrets and confidentiality agreements to protect our unpatented know-how, technology and other proprietary information and to maintain our competitive position. Trade secrets and know-how can be difficult to protect. We expect our trade secrets and know-how to over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology and the movement of personnel from academic to industry scientific positions.

          We currently, and may in the future continue to, rely on third parties to assist us in developing and manufacturing our AXA Candidates. Accordingly, we must, at times, share know-how and trade secrets, including those related to our AXA Development Platform, with them. We may in the future also enter into research and development collaborations with third parties that may require us to share know-how and trade secrets under the terms of our research and development partnerships or similar agreements. We seek to protect our know-how, trade secrets and other proprietary technology, in part, by entering into non-disclosure and confidentiality agreements, and including in our vendor and service agreements terms protecting our confidential information, know-how and trade secrets, with parties who have access to such information, such as our employees, scientific collaborators, CROs, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants as well as train our employees not to bring or use proprietary information or technology from former employers to us or in their work, and we remind former employees when they leave their employment of their confidentiality obligations. However, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets 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.

          Despite our efforts, any of the aforementioned parties may breach the agreements and disclose our proprietary information, including our trade secrets, or there may be lapses or failures in our physical and electronic security systems that lead to our proprietary information being disclosed, and we may not be able to obtain adequate remedies in the event of any such breaches. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. If any of our scientific advisors,

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employees, contractors and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. Moreover, if confidential information that is licensed or disclosed to us by our partners, collaborators or others is inadvertently disclosed or subject to a breach or violation, we may be exposed to liability to the owner of that confidential information. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be materially and adversely harmed.

We rely on our AXA Development Platform to identify AXA Candidates. Our competitive position could be materially harmed if our competitors develop a similar platform and develop rival product candidates.

          We rely on know-how, inventions and other proprietary information to strengthen our competitive position. We consider know-how to be our primary intellectual property with respect to our AXA Development Platform. Our Non-IND, IRB-Approved Clinical Studies allow us to collect clinical data, which we use in a feedback loop to make improvements to our AXA Development Platform. In particular, we anticipate that, with respect to this platform, this data may over time be disseminated within the industry through independent development, the publication of journal articles describing the method and the movement of skilled personnel.

          We cannot rule out that our competitors may have or will obtain the knowledge necessary to analyze and characterize similar data to our known data for the purpose of identifying and developing products that could compete with any of our AXA Candidates. Our competitors may also have significantly greater financial, product development, technical and human resources and access to data. Further, our competitors may have significantly greater experience in using translational science methods to identify and develop product candidates.

          We may not be able to prohibit our competitors from using technology or methods that are the same as or similar to our AXA Development Platform to develop their own product candidates. If our competitors develop associated therapies, our ability to develop and market a promising product or product candidate may diminish substantially, which could have a material adverse effect on our business, financial condition, prospects and results of operations.

We may not be successful in obtaining, through acquisitions, in-licenses or otherwise, necessary rights to our AXA Candidates, AXA Development Platform technologies or other technologies.

          We may need to, or want to for strategic purposes, acquire rights to certain intellectual property, through licenses from third parties, to create new products or advancements to our AXA Development Platform or further develop our AXA Candidates and AXA Development Platform technologies. Some healthcare companies and academic institutions are competing with us in the field of EMMs and metabolic pathways and may have patents and have filed and are likely filing patent applications potentially relevant to our business. In order to avoid infringing these third-party patents, we may find it necessary or prudent to obtain licenses to such patents from such third party intellectual property holders. We may also require licenses from third parties for certain technologies that we may evaluate for use with our current or future AXA Candidates. However, we may be unable to secure such licenses or otherwise acquire or in-license any compositions,

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methods of use, processes or other intellectual property rights from third parties that we identify as necessary for our current or future AXA Candidates and our AXA Development Platform at a reasonable cost or on reasonable terms, if at all. The licensing or acquisition of third party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all.

          In the event that we try to obtain rights to required third party intellectual property rights, and are ultimately unsuccessful, we may be required to expend significant time and resources to redesign our technology, AXA Candidates or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If we are unable to do so, we may be unable to develop or commercialize the affected AXA Candidates or continue to utilize our existing AXA Development Platform technology, which could harm our business, financial condition, results of operations and prospects significantly.

We may be subject to claims that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.

          Many of our employees, consultants and advisors are currently or were previously employed at universities or other healthcare companies, including our competitors and potential competitors. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual's current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

          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. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations and prospects.

Third-party claims of intellectual property infringement, misappropriation or other violation against us or our collaborators may prevent or delay the development and commercialization of our AXA Candidates, AXA Development Platform and other technologies.

          The field of developing drug or non-drug products that target metabolic pathways is competitive and dynamic. Due to the focused research and development that is taking place by several companies, including us and our competitors, in this field, the intellectual property landscape is in flux, and it may remain uncertain in the future. As such, there may be significant intellectual property related litigation and proceedings relating to our owned, and other third party, intellectual property and proprietary rights in the future.

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          Our commercial success depends in part on our and our collaborators' ability to avoid infringing, misappropriating and otherwise violating the patents and other intellectual property rights of third parties. There is a substantial amount of complex litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. As discussed above, recently, due to changes in U.S. law referred to as patent reform, new procedures including inter partes review and post-grant review have been implemented. As stated above, this reform adds uncertainty to the possibility of challenge to our patents in the future.

          Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist relating to technologies and fields in which we are developing our AXA Candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our AXA Candidates, AXA Development Platform and other technologies may give rise to claims of infringement of the patent rights of others. We cannot assure you that our AXA Candidates, proprietary product platform technologies and other technologies that we have developed, are developing or may develop in the future will not infringe existing or future patents owned by third parties. We may not be aware of patents that have already been issued and that a third party, for example, a competitor in the fields in which we are developing our AXA Candidates, AXA Development Platform and other technologies might assert are infringed by our current or future AXA Candidates, AXA Development Platform or other technologies, including claims to compositions, formulations, methods of manufacture or methods of use or treatment that cover our AXA Candidates, AXA Development Platform or other technologies. It is also possible that patents owned by third parties of which we are aware, but which we do not believe are relevant to our AXA Candidates, AXA Development Platform or other technologies, could be found to be infringed by our AXA Candidates, AXA Development Platform or other technologies. In addition, because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our AXA Candidates, AXA Development Platform or other technologies may infringe. We cannot provide any assurances that third-party patents do not exist which might be enforced against our current technology, including our AXA Development Platform technologies, manufacturing methods, AXA Candidates or future methods or products resulting in either an injunction prohibiting our manufacture or future sales, or, with respect to our future sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties, which could be significant.

          Third parties may have patents or obtain patents in the future and claim that the manufacture, use or sale of our AXA Candidates, AXA Development Platform or other technologies infringes upon these patents. In the event that any third party claims that we infringe their patents or that we are otherwise employing their proprietary technology without authorization and initiates litigation against us, even if we believe such claims are without merit, a court of competent jurisdiction could hold that such patents are valid, enforceable and infringed by our AXA Candidates, AXA Development Platform or other technologies. In this case, the holders of such patents may be able to block our ability to commercialize the applicable AXA Candidate or technology unless we obtain a license under the applicable patents, or until such patents expire or are finally determined to be held invalid or unenforceable. Such a license may not be available on commercially reasonable terms or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be non-exclusive, which could result in our competitors gaining access to the same intellectual property. If we are unable to obtain a necessary license to a third-party patent on commercially reasonable terms, we may be unable to commercialize our AXA Candidates, AXA Development Platform or other technologies, or such

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commercialization efforts may be significantly delayed, which could in turn significantly harm our business.

          Defense of infringement claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from our business, and may impact our reputation. In the event of a successful claim of infringement against us, we may be enjoined from further developing or commercializing our infringing AXA Candidates, AXA Development Platform or other technologies. In addition, we may have to pay substantial damages, including treble damages and attorneys' fees for willful infringement, obtain one or more licenses from third parties, pay royalties and/or redesign our infringing AXA Candidates or technologies, which may be impossible or require substantial time and monetary expenditure. In that event, we would be unable to further develop and commercialize our AXA Candidates, AXA Development Platform or other technologies, which could harm our business significantly.

          Engaging in litigation to defend against third parties alleging that we have infringed, misappropriated or otherwise violated their patents or other intellectual property rights is very expensive, particularly for a company of our size, and time-consuming. Some of our competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than we can because of greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings against us could impair our ability to compete in the marketplace. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition or results of operations.

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

          Competitors may infringe our patents, or we may be required to defend against claims of infringement. In addition, our patents also may become involved in inventorship, priority or validity disputes. To counter or defend against such claims can be expensive and time-consuming. In an infringement proceeding, a court may decide that a patent owned by us is invalid or unenforceable, the other party's use of our patented technology falls under the safe harbor to patent infringement under 35 U.S.C. §27(I)(1) or may refuse to stop the other party from using the technology at issue on the grounds that our owned patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our owned patents at risk of being invalidated or interpreted narrowly. Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

          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 personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties

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resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

If 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 or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. If we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations and prospects.

Intellectual property rights do not necessarily address all potential threats.

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

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          Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks related to our reliance on third parties

Third-party relationships are important to our business. If we are unable to enter into and maintain strategic collaborations or if these relationships are not successful, our business could be adversely affected.

          We have limited capabilities for product development and do not yet have any capability for sales, marketing or distribution. Accordingly, we may need to enter into relationships with other companies to provide us with important technologies, and we may receive additional technologies and funding under these and other collaborations in the future. Relationships we enter into may pose a number of risks, including the following:

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          If our relationships do not result in the successful discovery, development and commercialization of products or if a third party terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under any third party agreements we enter into, our development of our technology and AXA Candidates could be delayed and we may need additional resources to develop AXA Candidates and our technology. All of the risks relating to product development, regulatory compliance and/or approval and commercialization described in this prospectus also apply to the activities of any drug and non-drug collaborators we enter into relationships or agreements with in the future. Additionally, if any third party terminates its agreement with us, we may find it more difficult to attract new collaborators and our perception in the business and financial communities could be adversely affected.

          Relationships are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. If we are unable to reach agreements with suitable third parties on a timely basis, on acceptable terms, or at all, we may have to curtail the development of an AXA Candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms, or at all. If we fail to enter into relationships or do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our AXA Candidates, bring them to market and generate revenue from sales of drugs or continue to develop our technology, and our business may be materially and adversely affected.

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We will rely on third parties to conduct our clinical trials for any AXA Candidate that we decide to develop as a drug product candidate and to assist us in meeting the regulatory requirements applicable to development and marketing of non-drug products. If these third parties do not successfully carry out their contractual duties or meet expected deadlines or comply with regulatory requirements, we may not be able to obtain regulatory approval of or commercialize any potential AXA Candidates.

          We will depend upon third parties, including independent investigators, to conduct preclinical studies, Non-IND, IRB-Approved Clinical Studies and/or Clinical Trials under agreements with universities, medical institutions, CROs, strategic partners and others. We expect to have to negotiate budgets and contracts with CROs and study or trial sites, which may result in delays to our development timelines and increased costs.

          We have, and will have to, rely heavily on third parties over the course of our Non-IND, IRB-Approved Clinical Studies and Clinical Trials and, as a result, will have limited control over the clinical investigators and limited visibility into their day-to-day activities, including with respect to their compliance with the approved clinical protocol. Nevertheless, we are responsible for ensuring that each of our Non-IND, IRB-Approved Clinical Studies and Clinical Trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of study or trial sponsors, clinical investigators and trial sites. If we or any of these third parties fail to comply with applicable GCP requirements, the clinical data generated in our Non-IND, IRB-Approved Clinical Studies or Clinical Trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to suspend or terminate these Non-IND, IRB-Approved Clinical Studies or Clinical Trials or perform additional Non-IND, IRB-Approved Clinical Studies or Clinical Trials before approving our marketing applications. We cannot be certain that, upon inspection, such regulatory authorities will determine that any of our Non-IND, IRB-Approved Clinical Studies or Clinical Trials comply with the GCP or other applicable requirements. In addition, our Clinical Trials for therapeutic indications must be conducted with drug product produced under cGMP requirements and may require a large number of patients.

          Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of subjects or patients may require us to repeat Non-IND, IRB-Approved Clinical Studies or Clinical Trials, which would delay the regulatory approval or commercialization process. Moreover, our business may be implicated if any of these third parties violates federal or state laws or regulations including fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.

          Any parties conducting our future Non-IND, IRB-Approved Clinical Studies or Clinical Trials, if any, generally will not be our employees and, except for remedies that may be available to us under our agreements with the third parties conducting such Non-IND, IRB-Approved Clinical Studies or Clinical Trials, if any, we cannot control whether or not they devote sufficient time and resources to our ongoing preclinical and clinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting Non-IND, IRB-Approved Clinical Studies or Clinical Trials or other product development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our Non-IND, IRB-Approved Clinical Studies and Clinical Trials may be extended, delayed or

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terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our AXA Candidates. As a result, our financial results and the commercial prospects for our AXA Candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.

          If any of our relationships with these third-party CROs or others terminate, we may not be able to enter into contractual and other arrangements with alternative CROs or other third parties in a timely manner to meet projected clinical development deadlines or to do so on commercially reasonable terms. Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO begins work. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

          Further, we expect to work with and/or rely upon third-party CROs and/or regulatory consultants to assist us with meeting regulatory requirements applicable to non-drug products. If we experience delays in meeting or fail to meet the regulatory requirements for commercialization of our AXA Candidates, the commercial prospects for our AXA Candidates may be harmed and our ability to generate revenues will be materially impaired.

We expect to rely on third parties to manufacture our supply of AXA Candidates, and we intend to rely on third parties to produce and process our products, if approved or commercialized.

          We currently rely on outside vendors to supply raw materials and other important components, such as the amino acids and excipients that make up our AXA Candidates. We have not yet caused any AXA Candidates to be manufactured or processed on a large clinical or commercial scale and may not be able to do so for any of our AXA Candidates. We will make changes as we work to optimize the manufacturing process for our AXA Candidates, and we cannot be sure that even minor changes in the process will result in products that are safe and, where applicable, effective.

          The facilities used to manufacture our AXA Candidates that we develop as drug product candidates must be approved by the FDA or other foreign regulatory agencies pursuant to inspections that will be conducted after we submit a marketing application to the FDA or other foreign regulatory agencies. Additionally, any facilities used for the manufacture of AXA Candidates commercialized for non-drug uses will be subject to registration and inspection by the FDA and foreign regulatory authorities. We do not currently control all aspects of the manufacturing process of, and are currently largely dependent on, our contract manufacturing partners for compliance with regulatory requirements, known as cGMP requirements, for manufacture of our AXA Candidates. If we ever decide to open a manufacturing facility, we will be responsible for compliance with cGMP requirements. If we or our contract manufacturers cannot successfully manufacture in conformance with our specifications and the strict regulatory requirements of the FDA or other regulatory authorities, we and they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities with respect to the manufacture of our AXA Candidates. In addition, we have no 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 does not approve these facilities for the manufacture of our AXA Candidates, where applicable, or if it withdraws any such approval in the future, or if it otherwise finds that a manufacturing facility is out of regulatory compliance, we may need to find alternative manufacturing facilities, which would significantly impact our ability to research, develop, obtain regulatory approval, where necessary, for and/or market our AXA Candidates.

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          For more information, see "Risk Factors — Risks related to manufacturing and supply" below.

Risks related to manufacturing and supply

Our AXA Candidates rely on the availability of specialty raw materials, including significant quantities of amino acids, which may not be available to us on acceptable terms or at all.

          Our AXA Candidates require certain specialty raw materials, including significant quantities of amino acids, some of which we may obtain from small companies with limited resources and experience to support a commercial product. The suppliers may be ill-equipped to support our needs, especially in non-routine circumstances like an FDA or foreign regulatory inspection or medical crisis, such as widespread contamination. Additionally, our suppliers may fail inspections or have other compliance issues with regulatory authorities that, even if unrelated to our supply chain and materials, may impact or cause delays in their ability to deliver agreed upon supplies in a timely manner which can have negative impacts on our business plans, including delays in initiating or continuing Non-IND, IRB-Approved Clinical Studies or Clinical Trials. We do not currently have supply contracts in place with all of the suppliers that we may need at any point in time in the future, and if needed, may not be able to contract with them on acceptable terms or at all, in particular for large quantities of pharmaceutical grade raw materials, including amino acids. Accordingly, we may experience delays in receiving key raw materials to support clinical or commercial manufacturing.

Our AXA Candidates require precise, high-quality manufacturing capabilities. If any of our third-party manufacturers encounter difficulties in manufacturing our AXA Candidates, our ability to provide supply of our AXA Candidates for Non-IND, IRB-Approved Clinical Studies or Clinical Trials or future commercial supply of products we bring to market under applicable regulatory requirements and approvals, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.

          We do not currently operate manufacturing facilities and rely on third parties under our existing contracts to produce our AXA Candidates. The manufacturing process used to produce our AXA Candidates has not been validated for clinical and commercial production. We combine multiple EMMs in novel combinations and ratios in our manufacturing process for AXA Candidates. These combinations may result in unanticipated manufacturing and product quality issues that we may not be able to resolve without incurring significant expense or delays in our Non-IND Clinical Studies or Clinical Trials, or at all. Furthermore, our cGMP manufacturing process development and scale-up is at an early stage. The actual cost to manufacture and process our AXA Candidates could be greater than we expect and could materially and adversely affect the commercial viability of our AXA Candidates.

          Our manufacturing process may be susceptible to manufacturing issues associated with interruptions in the manufacturing process, contamination, equipment or reagent failure, improper installation or operation of equipment, vendor or operator error and variability in product characteristics. Even minor deviations from normal manufacturing processes could result in reduced production yields, lot failures, product defects, product recalls, product liability claims and other supply disruptions. If microbial, viral or other contaminations are discovered in our AXA Candidates or in the manufacturing facilities in which our AXA Candidates are made, production at such manufacturing facilities may be interrupted for an extended period of time to investigate and remedy the contamination. Further, as AXA Candidates are developed through preclinical, Non-IND, IRB-Approved Clinical Studies and, if we decide to develop any AXA Candidates as a drug product candidate, like we have done with AXA1665, Clinical Trials toward approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered along the way in an effort to scale-up and optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause our AXA Candidates to perform differently and affect the results of planned Clinical Trials or other future Clinical Trials.

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          Although we continue to optimize our manufacturing process for our AXA Candidates, doing so is a difficult and uncertain task, and there are risks associated with scaling to the level required for advanced Non-IND, IRB-Approved Clinical Studies and Clinical Trials or commercialization, including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, lot consistency, supplier manufacturing capacity and timely availability of reagents and/or raw materials. We ultimately may not be successful in transferring our production system from our contract manufacturers to any manufacturing facilities we may establish ourselves or other contract manufacturers who can provide cost and process efficiencies, or our contract manufacturer may not have the necessary capabilities to complete the implementation and development process. If we are unable to adequately validate or scale-up the manufacturing process for our AXA Candidates with each of our current manufacturers, we will need to transfer to other manufacturers and complete the manufacturing validation and scale-up processes, which can be lengthy. If we are able to adequately validate and scale-up the manufacturing process for our AXA Candidates with a contract manufacturer, we will still need to negotiate with such contract manufacturer an agreement for commercial supply and it is not certain we will be able to come to agreement on terms acceptable to us. As a result, we may ultimately be unable to reduce the cost of goods for our AXA Candidates to levels that will allow for an attractive return on investment if and when those AXA Candidates are commercialized.

          The manufacturing process for any AXA Candidates that we decide to develop as drug product candidates is subject to the FDA and foreign regulatory authority approval process, and extensive oversight of manufacturing facilities and changes to manufacturing processes. Non-drug products that we may develop will also be subject to extensive legal and regulatory requirements, including those with respect to the manufacturing, packaging, labeling, holding, processing and distribution of such products under appropriate cGMPs, as indicated in other risk factor sections herein. As such, we will need to contract with manufacturers who can meet all applicable FDA, foreign or other regulatory authority requirements on an ongoing basis, including with respect to quality systems and standards. If we or our CMOs are unable to reliably produce products under conditions and to specifications acceptable to the company and/or the FDA or other regulatory authorities, we may not obtain or maintain the ability or, in the case of drugs, the requisite approvals to commercialize such products. There is no assurance that our CMOs will be able to manufacture the approved product to specifications acceptable to us, the FDA, foreign or other regulatory authorities, even if we obtain regulatory approval for any of our AXA Candidates for therapeutic indications, to produce product in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. In the case of AXA Candidates for which a therapeutic pathway is pursued, any of these challenges could delay completion of Clinical Trials, require bridging Clinical Trials or the repetition of one or more Clinical Trials, increase Clinical Trial costs and delay approval of our AXA Candidates. In the case of all AXA Candidates that we choose to commercialize, any of these challenges could delay and/or impair commercialization efforts, increase our cost of goods, and have an adverse effect on our business, financial condition, results of operations and growth prospects. Our future success depends on our ability to manufacture our AXA Candidates on a timely basis with acceptable manufacturing costs, while at the same time maintaining good quality control and complying with applicable regulatory requirements, and an inability to do so could have a material adverse effect on our business, financial condition and results of operations. In addition, we could incur higher manufacturing costs if manufacturing processes or standards change, and we could need to replace, modify, design or build and install equipment, all of which would require additional capital expenditures. Specifically, because our AXA Candidates may have a higher cost of goods than other drugs and/or non-drug products, the risk that coverage and reimbursement rates may be inadequate for us to achieve profitability may be greater.

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In addition to raw materials and CMOs, we depend on third parties for clinical product supplies (e.g., clinical labeling and secondary packaging materials) and will likely need to do the same for any future commercial supply, including, in some instances, a single supplier.

          In addition to raw materials and CMOs, we depend on third-party suppliers for labeling secondary packaging and other materials needed to produce Non-IND, IRB-Approved Clinical Study ready supplies of our AXA Candidates and will likely need to do the same for any future supplies for Clinical Trials or commercial supplies. These supplies may not always be available to us at the standards we require or on terms acceptable to us, or at all, and we may not be able to locate alternative suppliers in a timely manner, or at all. If we are unable to obtain necessary clinical or commercial supplies, our manufacturing operations and Non-IND, IRB-Approved Clinical Studies and Clinical Trials and the clinical studies and trials of our collaborators may be delayed or disrupted and our business and prospects may be materially and adversely affected as a result.

          We may rely on a sole supplier for certain of our supplies. If this sole suppliers is unable to supply to us in the quantities we require, or at all, or otherwise defaults on its supply obligations to us, we may not be able to obtain alternative supplies from other suppliers on acceptable terms, in a timely manner, or at all.

We have limited experience manufacturing our AXA Candidates for purposes of Non-IND, IRB-Approved Clinical Studies, and have no experience manufacturing our AXA Candidates for the purposes of Clinical Trials, or at commercial scale, and if we decide to establish our own manufacturing facility for our AXA Candidates, we cannot assure you that we can manufacture our AXA Candidates in compliance with regulations at a cost or in quantities necessary to make them commercially viable.

          We may establish a manufacturing facility for our AXA Candidates for use in Non-IND, IRB-Approved Clinical Studies, Clinical Trials, if any, or commercial sale. We have limited experience in cGMP compliant manufacturing of our AXA Candidates for purposes of Non-IND, IRB-Approved Clinical Studies and no experience manufacturing for Clinical Trials. We similarly have limited experience with the manufacturing requirements for non-drug products at a commercial scale. In the future, we may develop internal manufacturing capacity in part by expanding our own facilities or building additional facilities. This activity will require substantial additional funds and we would need to invest such funds in creating the proper manufacturing infrastructure and to hire and train a significant number of qualified employees to staff these facilities. We may not be able to develop cGMP-compliant manufacturing facilities that are adequate to produce materials for additional later-stage Non-IND, IRB-Approved Clinical Studies, Clinical Trials or commercialization.

          The equipment and facilities employed in the manufacture of pharmaceuticals and non-drug products are subject to stringent qualification requirements by regulatory agencies, including validation of facility, equipment, systems, processes and analytics. We may be subject to lengthy delays and expense in conducting validation studies, if we can meet the requirements at all.

Risks related to our common stock and this offering

We do not know whether an active, liquid and orderly trading market will develop for our common stock or what the market price of our common stock will be and, as a result, it may be difficult for you to sell your shares of our common stock.

          Prior to this offering there has been no public market for shares of our common stock. Although we have applied to list our common stock on The Nasdaq Global Market, an active trading market for our shares may never develop or be sustained following this offering. You may not be able to sell your shares quickly or at the market price if trading in shares of our common stock is not active. The initial public offering price for our common stock will be determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market

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price of the common stock after the offering. As a result of these and other factors, you may be unable to resell your shares of our common stock at or above the initial public offering price. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration.

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

          The trading price of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this "Risk Factors" section and elsewhere in this prospectus, these factors include:

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          In addition, the stock market in general, and the market for healthcare companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company's securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which would harm our business, operating results or financial condition.

We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.

          We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends is currently restricted by the terms of our loan and security agreement with Solar, and future debt or other financing arrangements may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Any return to stockholders will therefore be limited in the foreseeable future to the appreciation of their stock.

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.

          Immediately following the completion of this offering, our executive officers, directors and their affiliates and 5% stockholders will beneficially hold, in the aggregate, approximately         % of our outstanding voting stock (assuming no exercise of the underwriters' option to purchase additional shares). Therefore, even after this offering, 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 unsolicited acquisition

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proposals or offers for our common stock that stockholders may feel are otherwise in their best interests.

If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the net tangible book value of your shares.

          The initial public offering price will be substantially higher than the pro forma as adjusted net tangible book value per share of our common stock after this offering. Investors purchasing common stock in this offering will pay a price per share that substantially exceeds the pro forma as adjusted net tangible book value per share after this offering. As a result, investors purchasing common stock in this offering will incur immediate dilution of $             per share, based on an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to this offering and the assumed initial public offering price. Further, investors purchasing common stock in this offering will contribute approximately          % of the total amount invested by stockholders since our inception, but will own only approximately         % of the shares of common stock outstanding after this offering.

          This dilution is due to our investors who purchased shares prior to this offering having paid substantially less when they purchased their shares than the price offered to the public in this offering. To the extent outstanding stock options or warrants are exercised, new stock options or warrants are issued or we issue additional shares of common stock in the future, there will be further dilution to new investors. As a result of the dilution to investors purchasing common stock in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation. For a further description of the dilution that you will experience immediately after this offering, see "Dilution."

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

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

          Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have

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elected not to "opt out" of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we may adopt the new or revised standard at the time private companies adopt the new or revised standard and may do so until such time that we either (i) irrevocably elect to "opt out" of such extended transition period or (ii) no longer qualify as an emerging growth company. This may make comparison of our financial statements with the financial statements of another public company that is not an emerging growth company, or an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.

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

          As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, which will require, among other things, that we file with the SEC, annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and The Nasdaq Global Market to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas, such as "say on pay" and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from the pricing of this offering. We intend to take advantage of this new legislation but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.

          We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

Sales of a substantial number of shares of our common stock by our existing stockholders 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 after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based on

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shares of common stock outstanding as of                          , 2019, upon the closing of this offering we will have outstanding a total of             shares of common stock. Of these shares, only the shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriters' option to purchase additional shares, will be freely tradable without restriction in the public market immediately following this offering.

          The lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus, subject to earlier release of all or a portion of the shares subject to such agreements by the representatives of the underwriters in their sole discretion. After the lock-up agreements expire, based upon the number of shares of common stock, on an as-converted basis, outstanding as of                          , 2019, up to an additional             shares of common stock will be eligible for sale in the public market. Approximately         % of these additional shares are held by directors, executive officers and other affiliates and will be subject to certain limitations of Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. If these additional shares of common stock are sold upon the expiration of the lockup and market stand-off agreements, or if it is perceived that they will be sold, or the early release therefrom, the trading price of our common stock could decline and it may be more difficult for you to sell your common stock at a time and price that you deem appropriate.

          In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our existing equity compensation plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements 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. Additionally, the number of shares of our common stock reserved for issuance under our 2019 Stock Option and Incentive Plan will automatically increase on January 1, 2020 and each January 1 thereafter by % of the number of shares of common stock outstanding on the immediately preceding December 31 or such lesser number of shares determined by our compensation committee. Unless our board of directors elects not to increase the number of shares available for future grant each year, our stockholders may experience additional dilution.

          After this offering, the holders of             shares of our common stock as of                          , 2019 will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the 180-day lock-up agreements described above. See "Description of capital stock — Registration rights." 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 held by affiliates, as defined in Rule 144 under the Securities Act, where offers and sales by affiliates are not registered. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

We have broad discretion in the use of our existing cash, cash equivalents and the net proceeds from this offering and may not use them effectively.

          Our management will have broad discretion in the application of our existing cash, cash equivalents and the net proceeds from this offering, including for any of the purposes described in the section entitled "Use of Proceeds," and you will not have the right or opportunity as part of your investment decision to assess whether such proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of our existing cash, cash equivalents and the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our existing cash, cash equivalents and the net proceeds from this offering in ways that ultimately increase the value of your investment. The failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term,

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investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.

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

          Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. From time to time, we may enter into license or collaboration agreements with other companies that include development funding and significant upfront and milestone payments and/or royalties, which may become an important source of our revenue. Accordingly, our revenue may depend on development funding and the achievement of development and clinical milestones under current and any potential future license and collaboration agreements and sales of our products, if approved. These upfront and milestone payments may vary significantly from period to period and any such variance could cause a significant fluctuation in our operating results from one period to the next.

          In addition, we measure compensation cost for stock-based awards made to employees, directors and non-employee consultants based on the fair value of the award on either the grant date or service completion date, and we recognize the cost as an expense over the recipient's service period. Because the variables that we use as a basis for valuing stock-based awards change over time, including our underlying stock price and stock price volatility, the magnitude of the expense that we must recognize may vary significantly.

          Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following:

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

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control, which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.

          Our restated certificate of incorporation and amended and restated bylaws, which are to become effective at or prior to the closing of this offering, contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

          In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business

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combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

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

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

If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired, investors may lose confidence in our financial reporting and the trading price of our common stock may decline.

          Pursuant to Section 404 of Sarbanes-Oxley, our management will be required to report upon the effectiveness of our internal control over financial reporting beginning with the annual report for our fiscal year ending December 31, 2020. When we lose our status as an "emerging growth company," our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. To comply with the requirements of being a reporting company under the Exchange Act, we may need to implement additional financial and management controls, reporting systems and procedures and may need to hire additional accounting and finance staff.

          We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by The Nasdaq Global Market, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

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If we engage in future acquisitions or strategic partnerships, this may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities and subject us to other risks.

          We may evaluate various acquisition opportunities and strategic partnerships, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:

          In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities, and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business.

Our amended and restated bylaws will designate specific courts as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us.

          Pursuant to our amended and restated bylaws, as will be in effect upon the completion of this offering, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) will be the sole and exclusive forum for state law claims for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders; (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws; (iv) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; or (v) any action asserting a claim governed by the internal affairs doctrine. This exclusive forum provision will not apply to any cases of action arising under the Securities Act or the Exchange Act. The forum selection clauses in our amended and restated bylaws may limit our stockholders' ability to obtain a favorable judicial forum for disputes with us.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus contains forward-looking statements that are based on management's beliefs and assumptions and on information currently available to management. Some of the statements in the section captioned "Prospectus summary," "Risk factors," "Management's discussion and analysis of financial condition and results of operations," "Business" and elsewhere in this prospectus contain forward-looking statements. In some cases, you can identify forward-looking statements by the following words: "may," "will," "could," "would," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "project," "potential," "continue," "ongoing" or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.

          These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in this prospectus include, but are not limited to, statements about:

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          In addition, you should refer to the "Risk Factors" section of this prospectus for a discussion of other important factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. The forward-looking statements in this prospectus represent our views as of the date of this prospectus. 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 prospectus.

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INDUSTRY AND MARKET DATA

          The market data and certain other statistical information used throughout this prospectus are based on independent industry publications, governmental publications, reports by market research firms or other independent sources that we believe to be reliable sources. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We are responsible for all of the disclosure contained in this prospectus, and we believe these industry publications and third-party research, surveys and studies are reliable. While we are not aware of any misstatements regarding any third-party information presented in this prospectus, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section entitled "Risk Factors" and elsewhere in this prospectus. Some data are also based on our good faith estimates.

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USE OF PROCEEDS

          We estimate that the net proceeds to us from the sale of the shares of our common stock in this offering will be approximately $              million, or approximately $              million if the underwriters exercise their option to purchase additional shares in full, based upon an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

          A $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $              million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly, an increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) the net proceeds to us from this offering by approximately $              million, assuming that the assumed initial public offering price remains the same. We do not expect that a change in the initial public offering price or the number of shares by these amounts would have a material effect on our uses of the proceeds from this offering, although it may accelerate the time at which we will need to seek additional capital.

          We currently expect to use the net proceeds from this offering, together with our cash and cash equivalents, as follows:

          Based on our current plans, we believe our existing cash, cash equivalents, together with the net proceeds from this offering, will be sufficient to fund our operating expenses and capital expenditure requirements through             .

          We cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. Due to uncertainties inherent in the development process, it is difficult to estimate the exact amounts of the net proceeds that will be used for any particular purpose. We may use our existing cash, cash equivalents and the future payments, if any, generated from any future collaboration agreements to fund our operations, either of which may alter the amount of net proceeds used for a particular purpose. In addition, the amount, allocation and timing of our actual expenditures will depend upon numerous factors, including the results of our research and development efforts, the timing and success of our Non-IND, IRB-Approved Clinical Studies and Clinical Trials and the timing of regulatory submissions. Accordingly, we will have broad discretion in using these proceeds.

          Pending their uses, we plan to invest the net proceeds of this offering in short-term, interest-bearing, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

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DIVIDEND POLICY

          We have never declared or paid any cash dividends on our common stock or any other securities. We anticipate that we will retain all available funds and any future earnings, if any, for use in the operation of our business and do not anticipate paying cash dividends in the foreseeable future. In addition, our ability to pay cash dividends is currently restricted by the terms of our loan and security agreement with Solar, and future debt or other financing arrangements may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock.

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CAPITALIZATION

          The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2018:

          You should read the information in this table together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the "Selected

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Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this prospectus.

    As of December 31, 2018
 

    Actual     Pro Forma     Pro Forma
As Adjusted
 

    (in thousands, except share and
per share data)
 

Cash and cash equivalents

  $ 79,466   $ 79,466   $                         

Long term debt, net of discount

    24,521     24,521        

Other liabilities  (1)

    1,898     1,898        

Warrant liability

    425            

Redeemable convertible preferred stock (Series A, B, B-1, C, D and E), $0.001 par value; 27,928,825 shares authorized, 26,831,246 issued and outstanding, actual; no shares authorized, no issued or outstanding, pro forma and
pro forma as adjusted

    197,842            

Stockholders' equity (deficit):

                   

Preferred stock, $0.001 par value; no shares authorized, issued or outstanding, actual; 10,000,000 shares authorized; no shares issued or outstanding, pro forma and pro forma as adjusted

               

Common stock, $0.001 par value; 47,000,000 shares authorized, 9,567,239 shares issued and 8,795,475 shares outstanding, actual; 47,000,000 shares authorized, 36,537,837 shares issued and 35,766,073 shares outstanding, pro forma;             shares authorized, shares issued and             shares outstanding, pro forma as adjusted

    10     37        

Additional paid-in capital

    7,286     205,526        

Treasury stock, 771,764 shares at cost

               

Accumulated deficit

    (157,049 )   (157,049 )      

Total stockholders' equity (deficit)

    (149,753 )   48,514        

Total capitalization

  $ 74,933   $ 74,933   $                         

(1)
Includes a $1.2 million success fee relating to our loan and security agreement with Solar, which is payable upon the consummation of this offering.

          A $1.00 increase (decrease) in the assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders' equity and total capitalization by $              million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents, additional paid-in capital, total stockholders' equity and total capitalization by $              million, assuming no change in the assumed initial public offering price per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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          The table above does not include:

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DILUTION

          If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.

          Our historical net tangible book value (deficit) as of December 31, 2018 was $(149.8) million, or $(17.03) per share of our common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities and the carrying values of our preferred stock, which is not included within stockholders' equity (deficit). Historical net tangible book value (deficit) per share represents historical net tangible book value (deficit) divided by the 8,795,475 shares of our common stock outstanding as December 31, 2018.

          Our pro forma net tangible book value as of December 31, 2018 was $48.5 million, or $1.35 per share of our common stock. Pro forma net tangible book value (deficit) represents the amount of our total tangible assets less our total liabilities, after giving effect to (i) the conversion of all outstanding shares of our preferred stock into an aggregate of 26,970,598 shares of common stock upon the closing of this offering and (ii) all outstanding warrants to purchase shares of Series A preferred stock becoming warrants to purchase shares of common stock upon the closing of this offering. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the total number of shares outstanding as of December 31, 2018, after giving effect to the pro forma adjustments described above.

          After giving further effect to our issuance and sale of             shares of our common stock in this offering at the initial public offering price of $             per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2018 would have been $              million, or $             per share. This represents an immediate increase in pro forma as adjusted net tangible book value per share of $             to existing stockholders and immediate dilution of $             in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share

        $    

Historical net tangible book value (deficit) per share as of December 31, 2018

  $ (17.03 )      

Increase per share attributable to the pro forma adjustments described above

    18.38        

Pro forma net tangible book value per share as of December 31, 2018

    1.35        

Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing common stock in this offering

             

Pro forma as adjusted net tangible book value per share after this offering

             

Dilution per share to new investors purchasing common stock in this offering

        $    

          If the underwriters exercise their option to purchase additional shares in full, our pro forma as adjusted net tangible book value per share after this offering would be $             , representing an immediate increase in pro forma as adjusted net tangible book value per share of $             to existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share of $             to new investors purchasing common stock in this offering, based on the initial public offering price of $             per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

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          The following table summarizes, as of December 31, 2018, on the pro forma as adjusted basis described above, the total number of shares of common stock purchased from us on an as converted to common stock basis, the total consideration paid or to be paid, and the average price per share paid or to be paid by existing stockholders and by new investors in this offering at an assumed initial public offering price of $             per share, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing common stock in this offering will pay an average price per share substantially higher than our existing stockholders paid.

    Shares Purchased     Total Consideration     Average Price
 

    Number     Percentage     Amount     Percentage     Per Share
 

Existing shareholders

    36,537,837       % $ 197,797,910       % $ 5.41  

New investors

                          $    

Total

          100.0 % $       100.0 %      

          The table above assumes no exercise of the underwriters' option to purchase additional shares in this offering. If the underwriters' option to purchase additional shares is exercised in full, the number of shares of our common stock held by existing stockholders would be reduced to         % of the total number of shares of our common stock outstanding after this offering, and the number of shares of common stock held by new investors purchasing common stock in this offering would be increased to         % of the total number of shares of our common stock outstanding after this offering.

          The tables and discussion above are based on the number of shares of our common stock outstanding as of December 31, 2018, and exclude:

          To the extent that outstanding stock options or warrants are exercised, new stock options or warrants are issued or we issue additional shares of common stock in the future, there will be further dilution to new investors. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

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SELECTED CONSOLIDATED FINANCIAL DATA

           You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes appearing at the end of this prospectus and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus. We have derived the consolidated statements of operations data for the years ended December 31, 2017 and 2018 and the consolidated balance sheet data as of December 31, 2018 from our audited consolidated financial statements appearing at the end of this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future.

    December 31,
 

    2017     2018
 

    (in thousands,
except share and
per share data)
 

Consolidated Statements of Operations Data:

             

Operating expenses:

             

Research and development

  $ 22,916   $ 25,486  

General and administrative

    6,005     8,410  

Total operating expenses

    28,921     33,896  

Loss from operations

    (28,921 )   (33,896 )

Other income (expense):

             

Change in fair value of preferred stock warrant liability

    81     (14 )

Interest income (expense), net

    (2,100 )   (2,159 )

Total other income (expense), net

    (2,019 )   (2,173 )

Net loss

  $ (30,940 ) $ (36,069 )

Net loss per share, basic and diluted  (1)

  $ (4.00 ) $ (4.33 )

Weighted average common shares outstanding, basic and diluted  (1)

    7,758,355     8,374,425  

Pro forma net loss per share, basic and diluted (unaudited)  (1)

        $ (1.19 )

Pro forma weighted average common shares outstanding, basic and diluted (unaudited)  (1)

          30,372,277  

(1)
See Note 11 to our consolidated financial statements appearing at the end of this prospectus for details on the calculation of basic and diluted net loss per share and the calculation of basic and diluted pro forma net loss per share.

    December 31,
 

    2017     2018
 

    (in thousands)  

Consolidated Balance Sheet Data:

             

Cash and cash equivalents

  $ 46,817   $ 79,466  

Working capital  (1)

    41,977     73,390  

Total assets

    48,813     81,844  

Long term debt, net of discount

    19,557     24,521  

Other liabilities  (2)

    1,276     1,898  

Preferred stock warrant liability

    411     425  

Redeemable convertible preferred stock

    138,828     197,842  

Total stockholders' equity (deficit)

    (116,354 )   (149,753 )

(1)
We define working capital as current assets less current liabilities.

(2)
Includes a $1.2 million success fee relating to our loan and security agreement with Solar, which is payable upon the consummation of this offering.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

           You should read the following discussion and analysis of our financial condition and results of operations together with the "Selected Consolidated Financial Data" section of this prospectus and our consolidated financial statements and related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

          We are a biotechnology company pioneering the research and development of novel multifactorial interventions to support health and address dysregulated metabolism across a broad spectrum of consumers and patients who have limited options. Our AXA Candidates are generated from our proprietary, human-focused AXA Development Platform and harness the power of EMMs, a broad family of molecules that fundamentally impact and regulate human metabolism.

          Using our AXA Development Platform, we have rapidly generated a pipeline of AXA Candidates that are novel compositions of EMMs engineered in distinct ratios and designed to target and maximize the fundamental role that EMMs play in regulating multiple metabolic functions. Our AXA Candidates are administered orally and anchored by amino acids, which have a history of safe use as food. As such, we expect our AXA Candidates may also be combinable with other modalities. We believe our current dataset supports the potential of our AXA Candidates to support and modulate the metabolic pathways they target with favorable safety profiles. These features may make them an attractive development opportunity with significant commercial potential.

          To date, we have funded our operations with proceeds from the sale of preferred stock and borrowing of debt. Through December 31, 2018, we had received gross proceeds of $197.8 million from sales of our preferred stock and $26.0 million from borrowings under a loan and security agreement. Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability or even any product revenue will depend on the successful development and eventual commercialization of one or more of our AXA Candidates. We reported net losses of $30.9 million and $36.1 million for the years ended December 31, 2017 and 2018, respectively. We expect to continue to incur significant expenses and increasing operating losses and capital requirements for at least the next several years in connection with our ongoing activities, particularly if and as we conduct clinical trials for our AXA Candidates as we:

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          Regulatory agencies, including the FDA, regulate many aspects of a product candidate's life cycle, including research and development and clinical testing. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our AXA Candidates or choose to market an AXA Candidate as a non-drug product. If we obtain regulatory approval for any of our AXA Candidates, we expect to incur significant expenses related to developing our commercialization capabilities to support product sales, marketing and distribution. Further, following the closing of this offering, we expect to incur additional costs associated with operating as a public company.

          As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, strategic alliances and marketing, distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our AXA Candidates.

          Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

          We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses, capital expenditure requirements, and debt service payments through           . See "—Liquidity and capital resources."

Components of our results of operations

Revenue

          To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our AXA Candidates are successful and result in regulatory approval or we execute license or collaboration agreements with third parties, we may generate revenue in the future from product sales, payments from collaborations or license agreements that we may enter into with third parties, or any combination thereof.

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Operating expenses

Research and development expenses

          Our research and development expenses consist primarily of costs incurred in connection with our research activities, including our drug discovery efforts, and the development of our AXA Candidates, which include:

          We expense research and development expenses as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.

          Our direct external research and development expenses are tracked on a program-by-program basis and consist of costs that include fees, reimbursed materials and other costs paid to consultants, contractors, CMOs and CROs in connection with our preclinical and clinical development and manufacturing activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs, as well as our platform technology and, as such, are not separately classified.

          AXA Candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size, scope and duration of later-stage Clinical Trials. We expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities both in the near-term and beyond. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our AXA Candidates, as the successful development and commercialization of our AXA Candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

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          A change in the outcome of any of these variables with respect to the development of any of our AXA Candidates could significantly change the costs and timing associated with the development of that AXA Candidate. We may never succeed in obtaining regulatory approval for any of our AXA Candidates.

General and administrative expenses

          General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs including information technology, as well as professional fees for legal, consulting, investor and public relations, accounting and audit services. We anticipate that our general and administrative expenses will increase in the future as we expand our organization to support the continued research and development activities of our AXA Candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.

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Other income (expense)

Interest expense, net

          Interest expense consists of interest expense on outstanding borrowings under our loan and security agreement as well as amortization of debt discount and debt issuance costs. Interest income has historically been insignificant and consists of interest earned on our invested cash balances. We expect our interest income to increase compared to the year ended December 31, 2018 as we invest the cash received from the sale of Series E Preferred Stock in November 2018 and the net proceeds from this offering.

Change in fair value of preferred stock warrant liability

          In connection with the issuance of debt in 2012, we issued warrants to purchase Series A preferred stock. We classify these warrants as a liability on our consolidated balance sheet that we remeasure to fair value as of each reporting date, and we recognize changes in the fair value of the warrant liability as a component of other income (expense) in our consolidated statements of operations. We will continue to recognize changes in the fair value of the warrant liability until the warrants are exercised, expire or qualify for equity classification.

          Upon the closing of this offering, the preferred stock warrants will become exercisable for common stock instead of preferred stock, and the fair value of the warrant liability at that time will be reclassified to additional paid-in capital. As a result, subsequent to the closing of this offering, we will no longer remeasure the fair value of the warrant liability at each reporting date.

Income taxes

          Since our inception, we have not recorded any income tax benefits for the net losses we have incurred in each year or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credits will not be realized. As of December 31, 2018, we had U.S. federal and state net operating loss carryforwards of $140.6 million and $139.4 million, respectively, which may be available to offset future taxable income and begin to expire in 2030. As of December 31, 2018, we also had U.S. federal and state research and development tax credit carryforwards of $4.2 million and $1.6 million, respectively, which may be available to offset future tax liabilities and will expire at various dates through 2038. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

          On December 22, 2017, the Tax Cuts and Jobs Act, or the TCJA, was signed into United States law. The TCJA includes a number of changes to existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from a top marginal tax rate of 35% to a flat rate of 21%, effective as of January 1, 2018, as well as limitation of the deduction for net operating losses to 80% of annual taxable income and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31, 2017, although any such net operating losses may be carried forward indefinitely.

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Results of operations

Comparison of the years ended December 31, 2017 and 2018

          The following table summarizes our results of operations for the years ended December 31, 2017 and 2018:

    2017     2018     Change
 

    (in thousands)  

Revenue

  $   $   $  

Operating expenses:

                   

Research and development

    22,916     25,486     2,570  

General and administrative

    6,005     8,410     2,405  

Total operating expenses

    28,921     33,896     4,975  

Loss from operations

    (28,921 )   (33,896 )   (4,975 )

Other income (expense):

                   

Change in fair value of preferred stock warrant liability

    81     (14 )   (95 )

Interest income (expense), net

    (2,100 )   (2,159 )   (59 )

Total other expense, net

    (2,019 )   (2,173 )   (154 )

Net loss

  $ (30,940 ) $ (36,069 ) $ (5,129 )

Research and development expenses

    Year ended
December 31,
       

    2017     2018     Change
 

    (in thousands)  

Direct research and development expenses by program:

                   

AXA1665

  $   $ 2,012   $ 2,012  

AXA1125/1957

    1,747     3,689     1,942  

AXA2678

    657     356     (301 )

Platform development, early-stage research and unallocated expenses:

                   

Personnel related

    9,375     9,265     (110 )

Stock-based compensation expense

    604     1,091     487  

External manufacturing and research

    4,919     3,018     (1,901 )

Laboratory supplies and research materials

    825     1,031     206  

Facility related and other

    4,789     5,024     235  

Total research and development expenses

  $ 22,916   $ 25,486   $ 2,570  

          Research and development expenses were $22.9 million for the year ended December 31, 2017, compared to $25.5 million for the year ended December 31, 2018. The increase in direct costs related to our AXA1665 program of $2.0 million was primarily due to costs incurred with external CROs and CMOs for the Non-IND, IRB-Approved Clinical Studies conducted in 2018. The increase in direct costs related to our AXA1125 and AXA1957 program was due to the Non-IND, IRB-Approved Clinical Study achieving full enrollment and completing during 2018. The increase in stock-based compensation expense of $0.5 million was primarily due to an increase in the number of awards granted and the per share fair value of such awards. The decrease in external manufacturing and research costs of $1.9 million was a result of lower use of material to support our Non-IND, IRB-Approved Clinical Studies. The increase in laboratory supplies and research materials of $0.2 million was primarily due to expansion of our in vitro capabilities. The increase in

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facility-related and other expenses of $0.2 million was primarily due to increased rent and expanded operations.

General and administrative expenses

    Year ended
December 31,
       

    2017     2018     Change
 

    (in thousands)  

Personnel related

  $ 3,792   $ 4,462   $ 670  

Stock-based compensation expense

    642     1,690     1,048  

Professional and consultant fees

    1,105     1,848     743  

Facility related and other

    466     410     (56 )

Total general and administrative expenses

  $ 6,005   $ 8,410   $ 2,405  

          General and administrative expenses for the year ended December 31, 2017 were $6.0 million, compared to $8.4 million for the year ended December 31, 2018. The increase in general and administrative expenses of $2.4 million was primarily due to growth of operations and clinical programs and required personnel and professional services to support that growth. The increase in stock-based compensation expense of $1.0 million was primarily due to an increase in the number of awards granted and the per share fair value of such awards. Personnel-related costs increased by $0.7 million primarily due to the hiring of key executives in 2018, including our Chief Executive Officer and Chief Business Officer, as well as additional personnel in our general and administrative functions as we continued to expand our operations to support the organization. Professional and consultant fees increased by $0.7 million primarily due to expanded operations.

Liquidity and capital resources

          Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our AXA Candidates, and we do not expect to generate revenue from sales of any AXA Candidates for several years, if at all. To date, we have funded our operations with proceeds from the sales of preferred stock and borrowings under our loan and security agreement. Through December 31, 2018, we had received gross proceeds of $197.8 million from sales of our preferred stock and $26.0 million from borrowings under a loan and security agreement. As of December 31, 2018, we had cash and cash equivalents of $79.5 million.

Cash flows

          The following table summarizes our sources and uses of cash for each of the periods presented:

    Year ended
December 31,
 

    2017     2018
 

Cash used in operating activities

  $ (26,861 ) $ (30,712 )

Cash used in investing activities

    (915 )   (586 )

Cash provided by financing activities

    25,697     63,947  

Net increase (decrease) in cash and cash equivalents

  $ (2,079 ) $ 32,649  

Operating activities

          During the year ended December 31, 2018, operating activities used $30.7 million of cash, primarily resulting from our net loss of $36.9 million, partially offset by net non-cash charges of $4.4 million, primarily consisting of stock-based compensation expense, and net cash provided by

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changes in our operating assets and liabilities of $1.0 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2018 consisted primarily of a $1.6 million increase in accounts payable and accrued expenses, partially offset by a $0.6 million increase in prepaid expenses and other current assets.

          During the year ended December 31, 2017, operating activities used $26.9 million of cash, primarily resulting from our net loss of $30.9 million, partially offset by net non-cash charges of $3.1 million and net cash provided by changes in our operating assets and liabilities of $1.2 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2017 consisted primarily of a $1.0 million increase in accounts payable and accrued expenses.

Investing activities

          During the years ended December 31, 2017 and 2018, net cash used in investing activities was $0.9 million and $0.6 million, respectively, due to purchases of property and equipment. The purchases of property and equipment during the year ended December 31, 2018 related to equipment purchases associated with the expansion of our AXA Development Platform and other research and development capabilities.

Financing activities

          During the year ended December 31, 2018, net cash provided by financing activities was $63.9 million, consisting primarily of proceeds from the issuance of preferred stock of $58.9 million and borrowings of $6.0 million under our current loan and security agreement.

          During the year ended December 31, 2017, net cash provided by financing activities was $25.7 million, consisting primarily of proceeds from the issuance of Series C Preferred Stock.

Loan and security agreement

          At December 31, 2018, we had $26.0 million in outstanding long term debt. In October 2018, we amended the 2018 Facility, which we refer to, as the Amended 2018 Facility, to extend the interest only period through July 2020 or January 2021 and the Maturity Date to July 2022 or January 2023 if certain conditions are met. The Amended 2018 Facility provides additional funding in the amounts of $5.0 million, in the Term B Loan, and $4.0 million, in the Term C Loan, if certain conditions are met. The Term B Loan of $5.0 million was drawn in December 2018. Monthly principal payments of $1.2 million will commence August 2020 for 24 months. The terminal interest fee was amended to 5.35% ($1.4 million) and is due with the final principal payment of the loan. We granted the lender a first security interest in all of our assets, excluding intellectual property and granted a negative pledge on such intellectual property. The interest rate and success fee were not changed through the amendment.

Funding requirements

          We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities, Non-IND, IRB-Approved Clinical Studies and Clinical Trials for our AXA Candidates in development. In addition, upon the closing of this offering, we expect to incur additional costs associated with becoming and operating as a public company. The timing and amount of our operating and capital expenditures will depend largely on:

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          We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operating expenses, capital expenditure requirements, and debt service payments through             . We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

          Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

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Contractual obligations and commitments

          The following table summarizes our contractual obligations as of December 31, 2018 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:

    Payments due by period
 

    Total     Less than
1 year
    1 to
3 years
    4 to
5 years
    More than
5 years
 

    (in thousands)  

Operating lease commitments  (1)

  $ 2,828   $ 1,187   $ 1,641   $   $  

Debt obligations  (2)

    31,594     2,740     21,005     7,849      

Total

  $ 34,422   $ 3,927   $ 22,646   $ 7,849   $  

(1)
Amounts in table reflect payments due for our leases of office and laboratory space in Cambridge, Massachusetts under one operating lease agreement that expires in April 2021.

(2)
Amounts in table reflect the contractually required principal and interest payments payable under our credit facility. For purposes of this table, the interest due under the 2018 Credit Facility was calculated using an assumed interest rate of 10.54% (LIBOR plus 8.50%) per annum, which was the interest rate in effect as of December 31, 2018.

          We enter into contracts in the normal course of business with CROs, CMOs and other third parties for preclinical research studies, Non-IND, IRB-Approved Clinical Studies, Clinical Trials and testing and manufacturing services. These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation. These payments are not included in the table above as the amount and timing of such payments are not known.

Critical accounting policies and significant judgments and estimates

          Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

          While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing at the end of this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Research and development costs

          As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed,

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on a pre-determined schedule or when contractual milestones are met; however, some service providers require advance payments. Examples of estimated accrued research and development expenses include fees paid to:

          We base our expenses related to Non-IND, IRB-Approved Clinical Studies on our estimates of the services received and efforts expended pursuant to contracts with CROs that conduct and manage Non-IND, IRB-Approved Clinical Studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical study milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period and adjust accordingly.

          We make estimates of our research and development accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We recognize costs for certain development activities based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites, such as number of sites activated, number of patient enrollments and visits and patient duration. We determine accrual estimates through financial models that take into account discussion with applicable personnel and service providers as to the progress or state of completion of trials. We periodically confirm the accuracy of these estimates with the service providers and make adjustments, if necessary. Upon settlement, these costs may differ materially from the amounts accrued in our consolidated financial statements. Our historical accrual estimates have not been materially different from our actual costs. However, due to the nature of estimates, we cannot provide assurance that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our Non-IND, IRB-Approved Clinical Studies and other research activities.

Stock-based compensation

          We issue stock-based awards to employees and non-employees, generally in the form of stock options and unvested stock. We measure and recognize compensation expense for our stock-based awards granted to our employees and non-employee directors based on the estimated grant date fair value in accordance with FASB ASC Topic 718, Compensation — Stock Compensation , or ASC 718. We account for stock-based awards to non-employees in accordance with FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees , which requires the fair value of the unvested portion of the equity awards granted to non-employees to be re-measured as of each reporting date.

          Our stock-based awards are subject to either service or performance-based vesting conditions. We recognize compensation expense related to awards to employees and directors with service-based vesting on a straight-line basis based on the grant date fair value over the requisite service

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period, which is generally the vesting period. Compensation expense related to awards to employees with performance-based vesting conditions is recognized based on the grant date fair value over the requisite service period using an accelerated attribution method to the extent the achievement of the performance condition is probable. Compensation expense related to awards to non-employees with service-based vesting conditions is recognized on the then-current fair value at each reporting date prior to the measurement date over the requisite service period, which is generally the vesting period. We recognize forfeitures as they occur.

          We classify stock-based compensation expense in our consolidated statements of operations in the same manner in which the award recipient's salary and related costs are classified or in which the award recipient's service payments are classified. In future periods, we expect stock-based compensation expense to increase, due in part to our existing unrecognized stock-based compensation expense and as we grant additional stock-based awards to continue to attract and retain our employees.

Fair value of stock-based awards

          We estimate the fair value of our stock options using the Black-Scholes option pricing model, which requires inputs of subjective assumptions, including: (i) the expected volatility of our stock; (ii) the expected term of the award; (iii) the risk-free interest rate; (iv) expected dividends; and (v) the fair value of common stock. Due to the lack of company specific historical and implied volatility data, we based our estimate of expected volatility on the estimate and expected volatilities of a guideline group of publicly traded companies. For these analyses, we select companies with comparable characteristics to ours including enterprise value, risk profiles, and with historical share price information sufficient to meet the expected life of the stock-based awards. We compute the historical volatility data using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of our stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available. We estimate the expected term of our stock options granted to employees and non-employee directors using the simplified method, whereby, the expected term equals the midpoint of the vesting term and the original contractual term of the option. We utilize this method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. For the determination of the risk-free interest rates we utilize the U.S. Treasury yield curve for instruments in effect at the time of measurement with a term commensurate with the expected term assumption. The expected dividend yield is assumed to be zero as we have never paid dividends and do not have current plans to pay any dividends on our common stock. Historically, for periods prior to this initial public offering, the fair value of our common stock underlying our stock-based awards were determined on each grant date by our board of directors based on valuation estimates from management considering our most recently available independent third-party valuation of our equity instruments.

          We determine the fair value of unvested stock based on the fair value of our common stock. In addition, for unvested stock awards under which unvested common stock is purchased by the holder with a promissory note treated as a nonrecourse note for accounting purposes, we measure the fair value of the award using the Black-Scholes option-pricing model.

Determination of fair value of common stock

          As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuations of common stock, and our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent

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valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants' Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Our common stock valuations were prepared using either an option pricing method, or OPM, or a hybrid method, both of which used market approaches to estimate our enterprise value. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. The hybrid method is a probability-weighted expected return method, PWERM, where the equity value in one or more scenarios is calculated using an OPM. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. These third-party valuations were performed at various dates, which resulted in valuations of our common stock of $3.54 per share as of February 10, 2017, $3.37 per share as of February 10, 2018, $4.64 per share as of November 30, 2018, and $7.51 per share as of January 31, 2019. In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, including:

          The assumptions underlying these valuations represented management's best estimate, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

          Once a public trading market for our common stock has been established in connection with the closing of this offering, it will no longer be necessary for our board of directors to estimate the

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fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock will be determined based on the quoted market price of our common stock.

          The following table summarizes by grant date the number of shares subject to option awards granted between January 1, 2017 and March 22, 2019, the per share exercise price of the options, the fair value of common stock on each grant date, and the per share estimated fair value of the awards:

Grant date

    Number of
shares
subject to
award
    Per share
exercise price of
options
($)
    Per share
fair value
of common
stock on
grant date
($) (1)
    Per share
estimated
fair value of
award on
grant date
($)
 

June 13, 2017

    1,473,488     3.54     3.54     2.42  

August 10, 2017

    483,128     3.54     3.54     2.42  

October 13, 2017

    20,500     3.54     3.54     2.43  

December 19, 2017

    10,000     3.54     3.54     2.42  

December 21, 2017

    1,441,635     3.54     3.54     2.03  

February 7, 2018

    124,000     3.54     3.54     2.05  

April 26, 2018

    492,327     3.37     3.37     2.09  

June 21, 2018

    128,000     3.37     3.37     2.09  

June 22, 2018

    1,940,691     3.37     3.37     2.09  

August 29, 2018

    231,508     3.37     3.37     2.09  

October 2, 2018

    413,530     3.37     3.37     2.09  

March 11, 2019

    888,200     7.51     7.51     5.02  

March 22, 2019

    112,000     7.51     7.51     5.00  

(1)
Independent third-party valuations of our equity instruments were performed annually in February or when material changes in the business occurred and these were considered by the board of directors in determining the exercise price for stock-based awards. We granted options with an exercise price equal to or above the fair value of the common stock based on the most recent independent third-party valuation, at discretion of the board of directors.

Off-balance sheet arrangements

          We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recently adopted and issued accounting pronouncements

          A description of recently adopted and issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our consolidated financial statements appearing at the end of this prospectus.

Quantitative and qualitative disclosures about market risks

          As of December 31, 2018, we had cash, cash equivalents of $79.5 million, which consisted of cash, and money market funds. Interest income is sensitive to changes in the general level of interest rates; however, due to the nature of these investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio.

          As of December 31, 2018 we had $26.0 million of borrowings outstanding under the Amended 2018 Debt Facility. An immediate 10% change in the LIBOR rate would not have had a material impact on our debt-related obligations, financial position or results of operations.

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          We are not currently exposed to significant market risk related to changes in foreign currency exchange rates; however, we have contracted with and may continue to contract with foreign vendors that are located in Europe and Australia. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.

          Inflation generally affects us by increasing our cost of labor. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the years ended December 31, 2017 and 2018.

Emerging growth company status

          The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to "opt out" of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to "opt out" of such extended transition period or (ii) no longer qualify as an emerging growth company.

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BUSINESS

Overview

          We are a biotechnology company pioneering the research and development of novel multifactorial interventions to support health and address dysregulated metabolism across a broad spectrum of consumers and patients who have limited options. Our AXA Candidates are generated from our proprietary, human-focused AXA Development Platform and harness the power of endogenous metabolic modulators, or EMMs, a broad family of molecules that fundamentally impact and regulate human metabolism.

          Using our AXA Development Platform, we have rapidly generated a pipeline of AXA Candidates that are novel compositions of EMMs engineered in distinct ratios and designed to target and maximize the fundamental role that EMMs play in regulating multiple metabolic functions. Our AXA Candidates are administered orally and anchored by amino acids, which have a history of safe use as food. As such, we expect our AXA Candidates may also be combinable with other modalities. We believe our current dataset supports the potential of our AXA Candidates to support and modulate the metabolic pathways they target with favorable safety profiles. These features may make them an attractive development opportunity with significant commercial potential.

          In 2018, we completed three Non-IND, IRB-Approved Clinical Studies. In all three studies, our AXA Candidates were generally found to be well tolerated, and we generated positive normal structure and function data indicating potential metabolic modulation. We believe generating this rich human dataset at this early stage of development (i) eliminates the translational uncertainty associated with transitioning from animal studies to human studies (ii) enables us to make high-insight, capital-efficient development decisions and (iii) potentially increases the probability of success for these AXA Candidates. For AXA Candidates we decide to develop under an Investigational New Drug application, or IND, we will discuss with the U.S. Food and Drug Administration, or FDA our ability to use data generated from our Non-IND, IRB-Approved Clinical Studies to begin Phase II or potential registrational (pivotal) Clinical Trials.

          On March 6, 2019, we had a face-to-face pre-IND meeting with the FDA for AXA1665, our lead AXA Candidate, during which we discussed clinical endpoints, assessment tools and other matters relating to a potential IND-opening Clinical Trial for AXA1665 in hepatic encephalopathy, or HE. After meeting with the FDA, we made a decision to pursue a drug development path for AXA1665. Under the planned IND, the initial indication would be for the treatment of HE, with time to breakthrough episode of overt HE event as the primary endpoint and key secondary muscle-related endpoints. We anticipate interacting with the FDA again prior to a formal IND submission for AXA1665. We anticipate initiating a Clinical Trial in the second half of 2020 for AXA1665 that we believe could potentially serve as a registrational (pivotal) trial to support the submission of a New Drug Application, or NDA.

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          Our wholly-owned pipeline currently comprises five programs focused on the metabolic functions of the liver, muscle and blood. An overview of our AXA Candidate and their status is illustrated below.

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(1)
In the above pipeline chart, "Development Path Decision" reflects the point in a program at which we decide whether to develop an AXA Candidate as a drug product candidate under an IND, develop it as a non-drug product candidate or terminate development. We have made a decision to develop AXA1665 as a drug product candidate and anticipate interacting with the FDA again prior to submitting an IND. We have not made a development path decision for any of our other AXA Candidates.

(2)
We believe that this Clinical Trial has the potential to serve as a registrational (pivotal) Clinical Trial, subject to continuing IND discussions and allowance by the FDA.

Definitions: NAFLD = non-alcoholic fatty liver disease; NASH = nonalcoholic steatohepatitis; OHE = overt hepatic encephalopathy.

AXA1665 in Hepatic Encephalopathy

          In study AXA1665-001, in subjects with mild and moderate hepatic insufficiency (Child-Pugh Class A and B), receiving the higher dose of AXA1665, we observed a cumulative increase of 40% in the Fischer's ratio, or FR, the molar ratio of branched-chain amino acids, or BCAAs, to aromatic amino acids, or AAAs. These subjects also demonstrated a lower plasma ammonia area under the curve when sampled over five hours (AUC 0-5h ), and tended to maintain a leaner phenotype (i.e., increase in dry lean mass and decrease in fat mass as assessed by bioimpedance measurements) and muscle function (as assessed using a liver frailty index score) compared to those on a control regimen. Each of these markers appear to have prognostic significance in assessing liver health, including in cirrhosis.

AXA1125 in Subjects with Non-alcoholic Fatty Liver Disease, or NAFLD

          In study AXA1125-002, administration of AXA1125 24g three times a day was associated with a trend of decreased liver fat, improved insulin sensitivity (i.e., lower Homeostatic Model Assessment of Insulin Resistance, or HOMA-IR) and induction of fat oxidation (i.e., increased beta-hydroxybutyrate, or BHB). In subjects who received AXA1125, mean blood levels of key

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fibroinflammatory biomarkers reflective of normal function tended to decrease compared to the mean pre-administration baseline levels. We believe these data suggest AXA1125 has the potential to impact three critical drivers associated with NAFLD-metabolism, inflammation and fibrosis.

AXA2678 in Healthy Subjects with Immobilization-Induced Acute Muscle Atrophy

          In study AXA2678-001, in subjects receiving AXA2678 24g three times a day, we observed attenuated muscle atrophy during the one week immobilization period compared to placebo, reflected by a 76% relative difference in average muscle cross sectional area, or CSA, assessed by magnetic resonance imaging, or MRI. Subjects receiving AXA2678 tended to have muscle fiber architecture preserved during immobilization and also tended to recover muscle strength to pre-immobilization baseline levels as compared to placebo within a short two-week recovery period.

          Once we have generated sufficient data for an AXA Candidate, we will decide whether to develop such candidate as a drug or non-drug product candidate. This development path decision will be based on the (i) strength of data from our Non-IND, IRB-Approved Clinical Studies, (ii) the unmet need, (iii) market opportunity and (iv) availability of accelerated paths to market under applicable regulations. To date, we have not submitted any INDs to conduct Clinical Trials with our AXA Candidates to evaluate their therapeutic potential, and while we plan to pursue the development of AXA1665 as a drug product candidate under IND, we have not yet filed such IND nor made decisions to pursue future development of any of our other AXA Candidates as drug product candidates. For AXA Candidates developed under an IND, we will discuss with the FDA our ability to use data generated from our Non-IND, IRB-Approved Clinical Studies to begin Phase II or potential registrational Clinical Trials.

          We believe that the consistency and nature of the data from our three completed Non-IND, IRB-Approved Clinical Studies indicate that this approach has significant promise. We are focused on actively expanding our pipeline and currently reviewing additional development opportunities in hematology, central nervous system, or CNS, kidney and pulmonary function. Many diseases are driven by multifactorial dysregulated systemic metabolism, and we have already characterized over 50 diseases for prioritization.

          We have attracted a world-class leadership team that has significant experience in the successful development and commercialization of collectively more than 50 drugs across numerous therapeutic areas. We are supported by an industry-leading board of directors and scientific advisory board. Since inception, we have raised approximately $200 million in capital from leading life sciences investors, including Flagship Pioneering, our founder, Fidelity Management & Research Company, Nestlé Health Science US Holdings and Gurnet Point Capital Limited.

Our Strengths

          We believe we are well-positioned to execute on our corporate strategy based on the following competitive strengths:

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Our Strategy

          Our goal is to become the preeminent biotechnology company reprogramming metabolism to address a diverse set of complex diseases and support health. To achieve our goal, we are executing a strategy that includes the following core elements:

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Our Approach to the Development of AXA Candidates

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Schematic representation of the numerous organs and systems effected by EMMs.

          Our approach to the development of our AXA Candidates is based on the fundamental thesis of translating complex human biology into potential drug and non-drug product candidates that modulate metabolism. Metabolic dysregulation results from a disruption in human homeostasis that is core to optimal functioning and consequently, health. Maintenance of this dynamic state of equilibrium requires an orchestration of multiple metabolic pathways and inter-organ signaling, evolved over billions of years, and is carried out by signaling intermediates and endogenous mediators. EMMs are a critical subset of such endogenous elements that regulate metabolic function.

          EMMs encompass a broad set of molecular families, including amino acids, bile acids other intermediary substrates and hormones. Together, these molecules drive a myriad of biological pathways to elicit multifactorial effects that integrate basic cellular functioning to impact fundamental biologies. Such biologies include cellular bioenergetics (e.g., tricarboxylic acid cycle and electron transport chain), nutrient handling (e.g.,  de novo lipogenesis, or metabolic formation of fat,

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gluconeogenesis, or the generation of glucose from certain non-carbohydrate carbon substrates, and proteogenesis, or protein formation), nutrient sensing via master regulators (e.g., mammalian target of rapamycin, or mTOR, 5' AMP-activated protein kinase, or AMPK, fibroblast growth factor 21, or FGF21, and peroxisome proliferator-activated receptors, or PPARs), immune response and inflammation, reactive oxygen response, vascular function, neurotransmitter signaling, tissue repair, autophagy, or recycling of damaged and defective parts into basic elements thereby allowing the cells to remodel itself, and detoxification.

          Dysregulation in the endogenous modulators, their signaling pathways or the metabolic processes they control can all lead to the loss of homeostasis, which can be manifested within specific organs and their sequelae, such as Type 2 diabetes, or T2D, NAFLD and muscle atrophy. As an example, dysregulation in the metabolic processes and pathways controlled by the liver such as de novo lipogenesis or gluconeogenesis can lead to an inability to adequately handle fuel substrates such as fats or carbohydrates. This ultimately results in fatty liver, insulin resistance and buildup of toxic waste products, such as ammonia, as the liver loses its detoxification capabilities. Similarly, a complex cascade of fuel dysregulation within skeletal muscles, a key organ involved in glucose disposal and utilization of amino acids as substrates for protein synthesis, can result in insulin resistance, intramuscular fat infiltration and muscle mass loss, thus decreasing muscle function. Muscle mass loss, or sarcopenia, is being increasingly recognized as a critical determinant of end organ function, and is linked to clinical outcomes and overall survival, such as in end-stage liver disease (cirrhotic sarcopenia) or in end-stage renal disease (uremic sarcopenia).

          Complex diseases impact multiple biological pathways. Loss of health can be the direct result of metabolic pathways and functions that are not being maintained or supported. Consequently, restoring homeostasis and maintaining health requires multifactorial approaches. We believe that EMMs, anchored by amino acids, have the potential to serve as interventional candidates to address the systems-wide impact of dysregulated metabolism to support and maintain homeostasis, which helps support normal structures and functions of the body. Amino acids have decades of data supporting their role as fundamental building blocks of life. More recently, their roles in cellular signaling have become elucidated not only with individual amino acids, such as a leucine sensor on mTOR, but also in combinations, with a long history of general safe use in foods and other dietary supplements. We believe our approach with the use of EMMs has the potential to bring about a transformation in health and medicine by harnessing the body's own molecules and intrinsic chemistry to maintain or restore health.

Our Human-Focused AXA Development Platform

          Our AXA Development Platform allows us to efficiently design and test AXA Candidates that simultaneously target multiple biologies and metabolic pathways by integrating advanced analytics of metabolism regulation and dysregulation with correlative-reasoning algorithms to interrogate data in our proprietary databases, which we refer to as AxcellaDB and AxcellaKB. Our proprietary human primary cell systems then directly test the multiple biologies that drive particular disease-related or metabolic dysregulation. We leverage predictive combinatorial drug metabolism and pharmacokinetics, or DMPK, analytics to inform dose-exposure relationships. All of this is supported by what we believe to be the world's leading EMM safety database. The data and learnings generated from our AXA Candidate design process further inform the design pathway, increasing the AXA Development Platform's efficiency.

Dysregulated Metabolism Data and Analytics: AxcellaDB and AxcellaKB

          AxcellaDB, our proprietary database, synthesizes a combination of data from published literature and data from our proprietary models and human studies. AxcellaDB also includes key

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data and analytics that are integral to our AXA Candidate design and development process, including:

          We leverage AxcellaDB to apply internal modeling of EMM and metabolic pathways to generate hypotheses around the biological drivers of regulation and dysregulation in the human body. In the AXA Candidate design process, we use AxcellaDB's EMM safety database to determine the ranges within which individual or combinations of EMMs have been found to be tolerable with no significant safety concerns. We synthesize this information to determine the specific EMM components and proprietary composition ratios for an AXA Candidate and then test them in our studies, including in proprietary in vitro models and in Non-IND, IRB-Approved Clinical Studies.

          We are currently building our internal machine learning capabilities, which we refer to as Axcella Knowledge Base, or AxcellaKB, to further probe novel, causal connections contained within the information and data contained in AxcellaDB. This will allow us to take a systems biology approach to AXA Candidate discovery and development. We plan to use a number of advanced approaches for network and pathway analysis of big data. Ultimately, AxcellaKB uses could include identifying AXA Candidate combinations, predicting effects of our AXA Candidates, use of causal reasoning to identify new target areas for our technology and novel biology.

Human Primary Cell Systems

          We test hypothesized EMM mechanisms, synergies and dis-synergies in normal and disease-specific human primary cell models. We conduct our model systems in environments that aim to simulate physiological levels of biofluids and nutrients. These models include multiple cell types that we use to deconstruct dysregulated metabolism or disease conditions to isolate effects of AXA Candidates and EMMs on subsets of metabolic pathways. The high throughput of these models enables us to test AXA Candidates as well as combinations of the individual constituents to identify, better understand and incorporate their synergistic and dis-synergistic interactions.

Predictive Combinatorial DMPK

          The designed AXA Candidate components, amounts and ratios are subsequently refined using pharmacokinetic, or PK, and pharmacodynamic modeling that evaluates EMM plasma exposure, supra-physiological exposures, windows of exposure administration amounts, the characterization of critical PK behaviors across molecule classes and the implications of physiological compartmental distribution. We believe these data allow us to highly refine AXA Candidates based on the variability among each AXA Candidate's individual constituents.

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Axcella Health and Flagship Pioneering

          We were founded in 2008 by Flagship Labs, the institutional innovation foundry of Flagship Pioneering. A team comprising innovators and entrepreneurs Dr. David Berry, Dr. Geoffrey von Maltzahn and Dr. Noubar Afeyan started exploring the potential medical applications of diverse, orally-consumed proteins. The work of this team led to the understanding that specific amino acid combinations at different ratios have the potential to drive profound biological effects in both health and disease by impacting dysregulated metabolic pathways and multi-compartmental biology. With this transformational new approach, we are harnessing the potential for orally-administered EMM compositions to drive cellular biology in a specific and reproducible manner, with the goal of delivering safe interventions for patients or consumers.

Regulatory Landscape and Our AXA Candidate Development Framework

Regulatory Status of Our AXA Candidates

          Under the FDA's September 2013 Guidance for Clinical Investigators, Sponsors, and IRBs entitled " Investigational New Drug Applications (INDs) — Determining Whether Human Research Studies Can Be Conducted Without an IND ," we believe Non-IND, IRB-Approved Clinical Studies of food products may be conducted to study the safety, tolerability, effect on normal structure or function in humans. We believe such Non-IND, IRB-Approved Clinical Studies may also be conducted to characterize the mechanism by which such product acts to maintain such structure or function, including in individuals with disease conditions, as long as the assessment is not intended to evaluate the non-drug product candidate's ability to diagnose, cure, mitigate, treat or prevent a disease. Studies specifically intended to assess the potential therapeutic use of a product candidate, such as its ability to diagnose, cure, mitigate, treat or prevent disease, including effects on an abnormal and uncommon or serious condition, must be done under an IND. Initially, we are generally studying our AXA Candidates as non-drug product candidates, and in particular, as food for humans in Non-IND, IRB-Approved Clinical Studies. The EMM constituents of our AXA Candidates generally fall under the food category. They are based on combinations of amino acids and their natural derivatives, which are all naturally occurring in the body and generally in the foods we eat. Based on our large database of studies and scientific literature on human exposure to and safety profiles of amino acids, the FDA's food additive regulations authorizing the use of specific amino acids under certain conditions as safe and permissible food additives when used as nutrients, our own data on amino acids used in AXA Candidates, and the fact that we use amino acids in our AXA Candidates within amounts previously studied in humans in doses found to be tolerable with no significant safety concerns, we believe we can and have studied our AXA Candidates in Non-IND, IRB-Approved Clinical Studies as foods and not as drug product candidates under an IND.

Our Non-IND, IRB-Approved Clinical Studies for AXA Candidates

          In our Non-IND, IRB-Approved Clinical Studies for our AXA Candidates, we evaluate their safety and tolerability, effect on the normal structures or functions of the human body, and characterize the mechanism by which AXA Candidates act to maintain such structure or function. Such a study may be performed in individuals with disease for purposes of evaluating safety and tolerability. For example, in AXA1125-002, in addition to the primary endpoint of safety and tolerability, we included as secondary assessments normal liver structure assessments (e.g., liver fat) and normal liver functional assessments (e.g., alanine aminotransferase, or ALT, monocyte chemoattractant protein-1, or MCP-1 and N-terminal type III collagen propeptide, or Pro-C3, which are markers of changes in inflammation and fibrosis). The protocols for Non-IND, IRB-Approved Clinical Studies, which include detailed rationale and descriptions of the composition of amino acids in our AXA Candidates, are approved by IRBs at the various sites and conducted consistent

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with Good Clinical Practices, or GCP. To date, our Non-IND, IRB-Approved Clinical Studies have been exploratory in nature and conducted in small numbers of subjects. We conduct Non-IND, IRB-Approved Clinical Studies for our AXA Candidates in both healthy subjects and subjects with specific disease conditions to maximize interpretability and accuracy of data on safety, tolerability and physiological impact on normal structures and functions of the body given that some of these changes may not be in healthy populations. The learnings from these studies inform the evolution of the AXA Candidate design and our AXA Development Platform. Armed with the deep scientific knowledge and understandings from all of our studies for each AXA Candidate, we believe that we will be able to make a highly informed development path decision for each AXA Candidate. For example, we made our first drug development path decision for AXA1665 after assessing AXA1665 Non-IND, IRB-Approved Clinical Study data and having a pre-IND meeting with the FDA on March 6, 2019 on a potential IND development path for AXA1665.

Development Path Decisions for AXA Candidates

          The development path decision for an AXA Candidate, based on data from our Non-IND, IRB-Approved Clinical Studies and other data and market analyses, includes (i) exploring the AXA Candidate's therapeutic potential for a disease or disorder in Clinical Trials, (ii) developing the AXA Candidate as a non-drug product or (iii) terminating development efforts for such AXA Candidate. The development path decision we make for an AXA Candidate will also determine the appropriate market channel. For AXA Candidates we decide to develop under an IND, as we have done with AXA1665, we will discuss with the FDA our ability to use data generated from our Non-IND, IRB-Approved Clinical Studies to begin Phase II or potential registrational Clinical Trials.

          In the context of further developing an AXA Candidate as a non-drug product, we anticipate that we would look to partner with third parties. Once a formulation for commercialization is finalized, we would expect that either we or our partner would comply with all applicable regulatory requirements applicable to the chosen commercialization path and market (e.g., submitting a notification to the FDA that the product is generally recognized as safe and effective, or GRAS, or, in the case of a dietary supplement, confirmation that it contains permissible dietary ingredients or file a new dietary ingredient filing, if necessary).

Our AXA Candidates

Key Characteristics of Our AXA Candidates

          Our AXA Candidates are novel compositions of EMMs engineered in distinct ratios, with the objective of maximizing the fundamental role that EMMs play in regulating metabolic function. Our AXA Candidates have the following characteristics:

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AXA Candidates that Target Liver Metabolism

          The liver has many critical functions relating to metabolism, including detoxification of a variety of substances, synthesis of key proteins and other intermediary substrates impacting nutrient homeostasis to coagulation, lipid metabolism and amino acid regulation. Hepatic insufficiency can lead to the loss of health and consequently to disease. We are investigating our AXA Candidates for safety, tolerability and physiological effects across a spectrum of normal liver structures and functions in our Non-IND, IRB-Approved Clinical Studies. Our AXA Candidates may have potential for development under an IND as drug product candidates with applications in conditions from non-alcoholic steatohepatitis, or NASH, to certain complications of cirrhosis. While the pathologies of NAFLD, NASH and cirrhosis may manifest primarily in the liver, these are heterogeneous and systemic diseases that affect multiple biological pathways impacting nearly every important organ system within the body, namely skeletal muscle, the heart, kidney, brain and gut.

AXA1665 Program in Hepatic Encephalopathy

Overview

          On March 6, 2019, we had a face-to-face pre-IND meeting with the FDA for AXA1665, our lead AXA Candidate, during which we discussed clinical endpoints, assessment tools and other matters relating to a potential IND-opening Clinical Trial for AXA1665. Among other feedback received, the FDA indicated that (i) our proposal to proceed with the proposed IND-opening Clinical Trial without conducting additional toxicology studies appears to be acceptable, (ii) our drug product development approach with respect to chemistry, manufacturing and controls, or CMC, including analytical methods, microbial tests and specification to control the quality of AXA1665 appear reasonable for this stage of the product development, and (iii) the FDA requested we provide the relevant CMC and other information with the initial IND submission package in a Drug Master File, or DMF. After meeting with the FDA, we made a decision to pursue a drug development path for AXA1665 for HE. Under the planned IND, the initial indication would be for the treatment of HE, with time to breakthrough episode of overt HE event as the primary endpoint and key secondary muscle-related endpoints. We anticipate interacting with the FDA again prior to a formal IND submission for AXA1665. We anticipate initiating a Clinical Trial in the second half of 2020 for AXA1665 that we believe could potentially serve as a registrational (pivotal) trial to support the submission of a New Drug Application, or NDA.

          To date, we have completed one Non-IND, IRB-Approved Clinical Study, AXA1665-001, in subjects with mild and moderate hepatic insufficiency to assess AXA1665's safety, tolerability and physiological effects on normal structures and functions. We did not observe any significant safety issues with AXA1665, and it was generally well-tolerated in this population over 15 days across two periods. Secondary assessments suggest that subjects administered AXA1665 tended to maintain a leaner phenotype as observed by changes in body composition and clinically relevant functional parameters.

          In 2019, prior to making a drug development path decision for AXA1665, we initiated a 12-week (with a four-week follow-up), randomized, placebo-controlled, Non-IND, IRB-Approved Clinical Study, AXA1665-002, in approximately 60 mild and moderate hepatic insufficiency (Child-Pugh Class A and B) subjects to extend the initial observations from AXA1665-001 and further characterize the safety, tolerability and physiological effects on normal structure and function over this longer duration.

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AXA1665 Design Rationale

          AXA1665 has been designed to target multiple metabolic pathways intersecting key organ systems (liver, muscle and gut) to maintain liver health.


 


 


Underlying Biology


 


 


Design Objectives



 

       


 


 


Plasma amino acid imbalance



 



 


Maximize proteogenesis and reduce systemic AAAs




 


       


 


 


Ammonia handling


 



 


Stimulate urea cycle function, intestinal and renal nitrogen metabolism, and induce intramuscular ammonia detoxification




 


       


 


 


Muscle wasting


 



 


Increase muscle protein synthesis by addressing metabolic demand and stimulating mTORC1




 


       

Completed AXA1665-001 Non-IND, IRB-Approved Clinical Study

          AXA1665-001 was a two-part, 15-day controlled crossover Non-IND, IRB-Approved Clinical Study to assess the safety, tolerability and physiological impact on the normal structures and functions of the liver in subjects with mild and moderate hepatic insufficiency. The purpose of Part 1 was to evaluate the response (i.e., tolerability, changes in endogenous amino acid levels and plasma ammonia) to a standard 35-gram protein shake. A total of 23 subjects participated in Part 1. Part 2 utilized a crossover design comprising two 15-day periods separated by a 14-day washout. Subjects were domiciled in the Clinical Research Unit during each period, but not during the washout. Sixteen subjects participated in Part 2. All subjects in Part 2 were provided with well-balanced protein rich meals, a daily exercise regimen of 30 minutes of walking at their usual pace per day (other than on Days 1, 8, and 15), and a daily mandatory late-evening snack, or LES. LES alone has been shown in previous studies to reverse anabolic resistance and sarcopenia of cirrhosis with improved quality of life parameters in cirrhotic patients. The 16 subjects in Part 2 were split into two groups: Group 1 (n=7) received only LES in Period 1 and, after a 14-day washout, received AXA1665 4.9g three times a day, or TID (14.7g/day) and LES in Period 2; Group 2

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(n=9) received AXA1665 14.7g TID (44.1g/day) and LES in Period 1 and, after a 14-day washout, received only LES in Period 2.

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Study design for AXA1665-001, a two-part, 15-day controlled crossover Non-IND, IRB-Approved Clinical Study to assess the safety, tolerability and physiological impact of AXA1665 on the normal structures and functions of the liver in subjects with mild and moderate hepatic insufficiency (Child-Pugh Class A and B). AA=amino acid; D=day; W/O=washout.

    Study Assessments in AXA1665-001


 


 


Primary
Safety & tolerability



 


 


Clinical adverse events, or AEs, vital signs, electrocardiograms, or ECGs, clinical laboratory parameters, including standard chemistry and hematology panels, plasma ammonia, albumin, total protein and other liver function tests




 

       

 

 

Secondary

 

 

FR*

 

 

 

PK of AXA1665 constituents and endogenous amino acid levels

   

Valine-to-phenylalanine ratio, or VPR*

 

 

 

Physiological assessments

 

 

Normal Structure

 

 

 

   

Body composition via bioimpedance to assess lean and fat mass compartments

 

 

 

 

 

Normal Function

 

 

 

   

Handgrip strength, timed chair stands and balance to derive a composite score called the liver frailty index, or the LFI*



 
       

*
FR, VPR and LFI are believed to have prognostic significance in subjects with cirrhosis and end-stage liver disease based on emerging scientific literature.

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          Daily consumption of AXA1665 at both the 14.7g/day and 44.1g/day amounts for 15 days was well-tolerated. There were no study product-related AEs observed in Part 1. There were five AEs, specifically neck pain, posterior shoulder pain, gastroesophageal reflux disease, or GERD, rib pain and headache, observed in four subjects in Part 2, all of which were considered unlikely to be related to the study food product. Three of these AEs were observed while subjects were consuming the LES and two, GERD and headache, were observed when subjects were consuming AXA1665. Four of the AEs were mild, and GERD was of moderate intensity. None were serious or led to discontinuation from the study. All the AEs resolved spontaneously, including GERD, which self-resolved within a day. There were no clinically significant changes in vital signs, ECGs or standard clinical laboratory parameters, including plasma ammonia, albumin, total protein, creatinine or blood urea nitrogen.

          Consumption of AXA1665 resulted in supra-physiological plasma concentrations of the constituent amino acids within AXA1665. These changes in amino acids resulted in a 40% increase in the basal (fasted) FR as early as Day 8 and maintained to Day 15, as compared to Day 1 baseline. These changes were markedly diminished once the 44.1g/day amount of AXA1665 in Period 1 was washed out over 14 days. The same subjects were then re-baselined and placed on the control regimen for 15 additional days in Period 2. A similar pattern of change was also seen in VPR.

          We observed a statistically significant inverse correlation between basal (fasted) plasma ammonia and basal (fasted) FR with AXA1665 administration, but not in the control group, suggesting a potential ammonia dampening effect of AXA1665. Despite the provision of additional nitrogen via amino acids within AXA1665, the mean plasma ammonia area under the curve (AUC 0-5h ) decreased by an average of approximately 10-25% on Day 15 compared to Day 1 in both

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the 44.1g/day and 14.7g/day AXA1665 groups. We believe these findings are notable given that prior studies showed protein meals or BCAA mixtures by themselves increased plasma ammonia.

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(A) Change in the basal (fasted) FR over time in both Periods 1 and 2 of Part 2 of the Non-IND, IRB-Approved Clinical Study of AXA1665. Data represent mean +/- standard error of the mean, or SEM; control, or CTRL à AXA 14.7g/d (n=7); AXA 44.1g/d  à CTRL (n=9); (B) Inverse correlation between basal plasma ammonia and corresponding FR; p-value determined using Pearson correlation of basal plasma ammonia and basal plasma FR values from the D1, D8 and D15 fasted samples from the control and AXA1665 treated groups. In these figures g/day means grams per day and D means study Day. p-value is a statistical calculation that relates to the probability that the difference between groups happened by chance, with a p-value of less than 0.05 (i.e., less than 5% probability that the difference happened by chance) generally being used as the threshold to indicate statistical significance.

          Clinical observations indicated that subjects consuming the higher amounts of AXA1665 (44.1g/day), but not the lower amount (14.7g/day), generally tended to maintain or increase their lean body compartments (dry lean mass, lean body mass and skeletal muscle mass), with a concomitant decrease in fat mass from baseline levels, with no overall change in body

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weight. These structure-related findings suggest alteration of the body composition toward a leaner phenotype, a key indicator of potential healthy muscle gain. Functional assessments included measurements of handgrip strength, timed chair stands and balance, from which the LFI composite score was derived. The average LFI score directionally moved toward less frailty in those consuming AXA1665 44.1g/day, but not in those consuming 14.7g/day AXA1665, nor in LES alone. A relative difference of 80% between the control and 44.1g/day AXA1665 groups was observed at the end of the 15-day administration period. We believe this finding is notable because LES alone appears to favorably impact sarcopenia in subjects with cirrhosis. Therefore, we believe an observed relative difference of this magnitude, even within this relatively short duration, warrants continued investigation of these effects in a longer duration study. Both the structural and functional changes were diminished once the 44.1g/day amount of AXA1665 in Period 1 was washed out over 14 days. The same subjects were then re-baselined and placed on the control regimen for 15 additional days in Period 2.

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Percentage change in Day 15 compared to Day 1 values of (A) Dry lean mass and (B) LFI from Period 1 of Part 2 of the Non-IND, IRB-Approved Clinical Study of AXA1665. Values represent mean +/- SEM; Control (n=7) and AXA1665 44.1g/day (n=9). In these figures g/d means grams per day.

On-Going AXA1665-002 Non-IND, IRB-Approved Clinical Study

          In 2019, prior to making a drug development path decision for AXA1665 we initiated AXA1665-002, a 12-week (with a four week follow-up), randomized placebo-controlled, Non-IND, IRB-Approved Clinical Study to assess AXA1665's safety, tolerability and physiological impact on normal liver and muscle structures and functions in approximately 60 subjects with mild and moderate hepatic insufficiency (Child-Pugh Class A and B) to further extend the findings from AXA1665-001. We anticipate the data readout from this study in the first half of 2020.

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GRAPHIC

Study design of AXA1665-002, a 12-week (with a four-week follow-up), randomized placebo-controlled, Non-IND, IRB-Approved Clinical Study to assess the safety, tolerability and physiological impact on normal liver and muscle structures and functions of AXA1665 in subjects with mild and moderate hepatic insufficiency (Child-Pugh Class A and B). W=week; g/d=grams per day; BMx=biomarkers.

    Study Assessments in AXA1665-002


 


 


Primary
Safety & tolerability





 


 


Clinical AEs, vital signs, ECGs, clinical laboratory parameters, including standard chemistry and hematology panels, plasma ammonia, albumin, total protein and other liver function tests




 

       

 

 

Secondary
PK of AXA1665 constituents and endogenous amino acid levels


 

 

FR* and VPR*

 

 

 

Physiological assessments

 

 

Normal Structure

 

 

 

   

Body composition via MRI to assess lean and fat mass compartments, including thigh muscle volumes, intramuscular fat

 

 

 

 

 

Normal Function

 

 

 

   

Physical (LFI*; gait speed)

 

 

 

   

Cognitive (Stroop test; PHES; CFF)

 

 

 

   

Health-related questionnaires


 
       

*
FR, VPR and LFI are believed to have prognostic significance in subjects with cirrhosis and end-stage liver disease based on emerging scientific literature. PHES = psychometric hepatic encephalopathy score; CFF = critical flicker frequency.

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AXA1665 Market Opportunities

          Under our planned IND for AXA1665, the initial indication would be for the treatment of HE, with time to breakthrough episode of overt HE as the primary endpoint and key secondary muscle-related endpoints. HE has multiple precipitating factors, such as amino acid imbalance, ammonia handling, muscle wasting, infections and constipation. Emerging data suggest that muscle mass and function are key independent factors associated with progression to and severity of HE.

          Long-term damage to the liver from various causes, such as alcohol, hepatitis B or C viral infections, NASH or autoimmune hepatitis, can lead to permanent scarring, a condition called cirrhosis. Prevalence of cirrhosis in the United States is approximately 0.27%, corresponding to approximately 633,000 adults, of which 69% reported that they were unaware of having liver disease. Transition from compensated cirrhosis to decompensated cirrhosis occurs at a rate of approximately 5% to 7% per year.

          Decompensated cirrhosis is a serious systemic disease with multi-organ dysfunction, resulting in a variety of significant complications, including HE, bacterial infections, gastrointestinal bleeding, renal impairment and ascites, which is the build-up of excess fluid in the abdomen. Presence of sarcopenia, which affects approximately 40% of patients with cirrhosis being evaluated for liver transplant, independently worsens many of these complications, results in more hospital stays and is becoming increasingly recognized as a complication of cirrhosis. The presence of complications decreases median survival to approximately two years versus approximately 12 years without complications.

          HE is a common complication of cirrhosis, with an estimated prevalence of overt HE of 10% to 14% in the general cirrhotic population and 16% to 21% in those with decompensated cirrhosis. Overt HE refers to the evidence of neurological abnormalities without specialized psychometric testing. By contrast, minimal or covert HE requires specialized testing for its diagnosis, including psychometric tests. HE is a type of metabolic encephalopathy with a multifactorial etiopathogenesis, and including dysregulated amino acid metabolism and neurotransmitter signaling, inability of the failing liver to clear toxins such as ammonia and microbiome changes, all of which ultimately result in diminished brain function. Consequently, HE is well-established as a significant cause of morbidity and mortality in the cirrhotic population and represents a significant unmet medical need.

          Muscle depletion and muscle fat infiltration independently increase the risk of both overt and minimal HE with increased mortality. Decline in muscle mass can also hamper the alternative pathway of ammonia detoxification, and hyperammonemia may further worsen sarcopenia, generating a vicious cycle. The highly interdependent complications of cirrhosis, sarcopenia and HE, constitute a significant disease burden and can have an impact on irreversible morbidity and mortality in cirrhotic patients. We estimate that approximately 63,000 to 130,000 individuals may be affected at any given time with both cirrhotic sarcopenia and overt HE in the United States.

          We believe that therapeutic strategies that simultaneously address both sarcopenia and ammonia detoxification will clinically improve outcomes, such as maintaining remission of HE in those with prior overt HE and/or reduce rates of other cirrhosis complications, and ultimately mortality. Thus, under an IND, we propose to develop AXA1665 to treat either or both complications of cirrhosis, specifically HE and sarcopenia.

          There are currently no treatment options that directly address the multifactorial drivers of HE in an integrated manner. There is a significant unmet need for approved medications to reverse and

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resolve the hepatic as well as systemic effects (e.g., muscle and gut) of HE. There are currently three main approved therapies for the treatment of HE: lactulose, rifaximin and HepatAmine.

          Despite these treatment options for HE, none are adequate to directly address the multifactorial etiology, complexity, severity and sequelae of HE. This is either because the existing treatment options do not sufficiently and comprehensively address the underlying pathophysiologic drivers such as amino acid dysregulation, ammonia detoxification and sarcopenia, or they fail to pre-empt the cascading series of events leading to HE, such as altered metabolic signaling, or combinations thereof. Based on the evidence to date, sarcopenia is not only an effect-modifier of HE but also an independent complication of cirrhosis itself, impacting overall morbidity and mortality of cirrhotic patients. Consequently, new approaches are warranted that can adequately and directly address sarcopenia, a critical driver of the multifactorial pathogenesis of HE and other complications in cirrhotic patients. Based on our data to date, we believe that AXA1665 may have the potential to address the aforementioned multiple drivers of HE.

AXA1125 Program

Overview

          AXA1125 is an AXA Candidate that is also being evaluated in liver health. To date, we have conducted Non-IND, IRB-Approved Clinical Studies of AXA1125 in healthy subjects in AXA1125-001 and in T2D subjects with NAFLD in AXA1125-002. In both studies, the safety, tolerability and physiological effects on normal structures and functions were assessed. We did not observe any significant safety issues with AXA1125, and it was generally well tolerated in these studies. In AXA1125-002, we observed that administration of AXA1125 tended to impact normal liver structure (as measured by average fat content) and function (e.g., plasma ALT, other markers of inflammation and fibrosis and mediators of glucose and lipid homeostasis). In 2019, we initiated a 16-week Non-IND, IRB-Approved Clinical Study, AXA1125-003, to extend the initial observations from AXA1125-002 and further characterize the safety, tolerability and physiological effects on normal structure and function over this longer period and in approximately 105 adult NAFLD subjects.

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AXA1125 Design Rationale

          AXA1125 has been designed to target multiple pathways (metabolism, inflammation and fibrosis) intersecting key organ systems (liver, muscle, adipose and gut) to maintain liver health.

 

 

Underlying Biology



 

 

Design Objectives



 

       


 


 


Metabolism



 



 


Lower lipotoxicity, improve insulin sensitivity and maximize mitochondrial function by enhancing fatty acid beta-oxidation




 


       


 


 


Inflammation




 



 


Modulate macrophage function, reduce hepatic inflammatory mediators and improve gut epithelial integrity




 


       


 


 


Fibrosis




 



 


Reduce hepatic stellate cell activation and proliferation to decrease hepatic fibrogenesis




 


       

Completed AXA1125-001 Non-IND, IRB-Approved Clinical Study

          AXA1125-001 was a two-part study in normal healthy subjects. Part 1 included ten subjects administered a single 24g amount of AXA1125 either 30 minutes before meal (fasted), 30 minutes after meal (fed) or two hours after meal (fed) to assess the effect of meal timing on plasma concentration and exposure of AXA1125 amino acid constituents. Part 2 included ten subjects administered 24g TID (72g/day) for six weeks to assess the safety and tolerability at these amounts over this duration in healthy subjects.

          In Part 1, the PK data suggested well-behaved PK of the complex amino acid mixture with all of the constituents achieving supra-physiologic concentrations as well as no meaningful impact of meal timing on the amino acid profiles. Average peak amino acid plasma concentrations, or Cmax, and total exposure, or AUC, values were generally similar (within 20% to 30%) and sequentially increased with each AXA1125 consumption regardless of meal timing, with the exception of glutamine. Consumption of AXA1125 in the fed state, either 30 minutes or two hours after a meal, resulted in a 1.1 to 2.5-fold increased AUC of glutamine relative to when AXA1125 was consumed in the fasted state.

          In both Parts 1 and 2, we did not observe any significant safety issues with AXA1125 and it was generally well tolerated with no clinically significant changes in clinical laboratory values, vital signs or ECGs. There were no product-related AEs in Part 1. In Part 2, mild gastrointestinal symptoms of abdominal pain, distention and diarrhea were noted in three of ten subjects, considered by the study investigator to be study product-related. All AEs were transient, self-limited and resolved with no intervention, and none were serious or led to discontinuation.

Completed AXA1125-002 Non-IND, IRB-Approved Clinical Study

          AXA1125-002 was a pilot, single-arm, open-label, 12-week (with a two-week follow-up) multicenter, Non-IND, IRB-Approved Clinical Study to assess the safety, tolerability and physiological impact of AXA1125 24g TID (72g/day) on the normal liver structures and functions in subjects with T2D and NAFLD.

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GRAPHIC

Study design of AXA1125-002, a single-arm, pilot, open-label, 12-week (with a two-week follow-up), multicenter, Non-IND, IRB-Approved Clinical Study of AXA1125 in subjects with T2D and NAFLD. W=week; D=day; BMx=biomarkers; oGTT=oral glucose tolerance test.

          A total of 32 subjects were enrolled, of which 50% were males and 50% were females. Subjects were an average age of 51 years, weight of 105.3 kg, body mass index of 38.6 kg/m 2 and hemoglobin A1c, or HbA1c, of 8%. Subjects with stable chronic disease (i.e., T2D, hypertension and hyperlipidemia) were maintained on their usual standard of care therapies on a stable regimen for the duration of treatment. Of these 32 subjects, 23 received AXA1125 24g TID and had baseline MRI proton density fat fraction, or PDFF, greater than 10%, five received AXA1125 24g TID with baseline MRI PDFF less than 10% (i.e., a total of 28 subjects received AXA1125 24g TID) and four received AXA1125 6g TID (an error in study product administration at one study site). In the subgroup that received AXA1125 24g TID with baseline MRI PDFF greater than 10% (n=23), there were a total of nine early terminations: four between Day 1 and Week 6, and five between Week 6 and Week 12. Discontinuations were due to a combination of withdrawal of consent (n=2), lost to follow up (n=1) and AEs (n=6). Of the six AE-related reasons for early termination, only one AE (diarrhea, prior to Week 6 visit) was considered as possibly related to study product. One subject was removed from the analysis of the physiological assessments because the subject missed several study product administrations and was noncompliant during the study. In addition, one subject had no Week 6 MRI due to poor image quality. Consequently, sample sizes vary at the indicated time points due to subject attrition, discontinuation and availability of the corresponding data at those time points.

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    Study Assessments in AXA1125-002

 

 

Primary
Safety & tolerability




 

 

Clinical AEs, vital signs, ECGs, clinical laboratory parameters, including standard chemistry and hematology panels, other liver function tests (e.g., ALT, AST)



 

       

 

 

Secondary
Basal levels of endogenous amino acids and amino acids within AXA1125


 

 

Amino acid levels

 

 

 

Physiological assessments

 

 

Normal Structure

 

 

 

   

MRI-PDFF assessment of liver fat

 

 

 

 

 

Normal Function

 

 

 

   

Metabolism — glucose (FPG, HbA1c, oGTT, insulin and HOMA-IR) and lipid (BHB, FAO markers, lipid panel) homeostasis assessments

 

 

 

   

Inflammation — apoptosis (e.g., CK-18) and macrophage (e.g., MCP-1) markers

 

 

 

   

Fibrosis — fibrogenic (e.g., Pro-C3) markers


 
       

FPG: fasting plasma glucose; oGTT: oral glucose tolerance test; FAO: fatty acid oxidation; HOMA-IR: Homeostatic Model Assessment of Insulin Resistance; BHB: beta-hydroxybutyrate; CK: cytokeratin; MCP: monocyte chemoattractant protein; Pro-C3: N-terminal type III collagen propeptide.

           Primary

          We did not observe any significant safety issues with AXA1125 and it was generally well tolerated. The rates and patterns of the observed AEs in this study appear to be consistent with the typical rates and patterns observed generally in clinical studies with T2D and NAFLD subjects. The most common AEs were diarrhea (in seven subjects) and headache (in six subjects). There were two serious AEs reported, acute cholecystitis and right toe infection, which were deemed not reasonably associated with the study product, and more likely due to subject's preexisting conditions as these complications are quite common with underlying obesity and T2D. A total of six subjects discontinued from the study due to an AE. These were diarrhea (n=2), cholecystitis (n=1), stomach flu (n=1), hyperglycemia (n=1) and right toe infection (n=1). Of these six AEs leading to discontinuation, only one (diarrhea, prior to the Week 6 study visit) was considered as possibly related to the study product. All AEs, except the two serious AEs, generally resolved without intervention. There were no clinically significant abnormalities in physical examination, body weight, vital signs, ECG and standard clinical safety laboratory (chemistry and hematology) parameters over the 12-week duration.

          Only basal (fasted) levels of amino acids were measured in this study. The average plasma concentration of the individual amino acid constituents within AXA1125 in all subjects receiving 24g

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TID AXA1125 in the basal state (i.e., before ingestion of AXA1125) were not meaningfully changed over the course of the 12-week study, as compared to baseline (Day 1) levels.

          Lipotoxicity and insulin resistance are generally regarded as metabolic drivers of NAFLD. AXA1125 24g TID administration for 12 weeks tended to decrease the mean liver fat content, and the average directional change over this period tended to be 26% lower compared to subjects' corresponding Day 1 baseline values in those with a baseline PDFF greater than 10%. Measures of glucose homeostasis revealed no changes in FPG, HbA1c or in glucose AUC during oGTT with AXA1125 administration. However, after 12 weeks of AXA1125 24g TID administration, HOMA-IR (–46%) and plasma insulin in both the fasted (–38%) and prandial states (i.e., after a glucose bolus in the setting of an oGTT, –19%), tended to decrease as compared to the corresponding mean pre-administration baseline levels in those with a baseline PDFF greater than 10%. We believe these results suggest a potential insulin sensitizing effect of AXA1125 as lower amounts of insulin are needed to maintain the same glucose level and/or an enhanced insulin clearance effect.

          Effects on both liver fat and HOMA-IR were observed without any accompanying body weight changes despite the provision of approximately 496 kcal/day via AXA1125 daily administrations. Subjects did not drastically alter their usual dietary or physical activity patterns during the 12-week study period. Thus, the observation of body weight neutrality under these circumstances suggests a likely change in nutrient utilization, implicating increased fat oxidation. Assessment of the fasting lipid profile revealed no changes in mean serum levels of total cholesterol, HDL-C, and nonesterified fatty acids, with trends toward slight decreases in LDL-C and triglyceride, or TG, levels. However, beta hydroxybutyrate, or BHB, tended to directionally increase by 77% as compared to the corresponding mean pre-administration baseline levels in those with a baseline PDFF greater than 10% suggestive of a mild-to-moderate ketotic state. A systematic plasma lipidomic profiling indicated a tendency to upregulate acylcarnitines, a marker of mitochondrial fatty acid oxidation, and downregulate toxic lipid species such as ceramides, sphingomyelins and long-chain TGs. Taken together, we believe these results suggest that AXA1125 over 12 weeks tended to impact lipid handling (lowered liver fat and raised BHB), and insulin sensitivity (lowered HOMA-IR and plasma insulin).

GRAPHIC

(A) Liver fat content (n=22, day 1; n=17, week 6; n=13, week 12); (B) Plasma HOMA-IR (n=22, day 1; n=19, week 6; n=13, week 12); (C) Plasma beta-hydroxybutyrate (n=22, day 1; n=20, week 6; n=13, week 12) levels at baseline (day 1), week 6, and week 12 in the Non-IND, IRB-Approved Clinical Study of AXA1125. * denotes the relative directional percentage change trend over the 12-week administration period. Values represent mean ± SEM from subjects administered AXA1125 24g TID with Day 1 PDFF greater than 10%. Wk=week.

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          The clinical observations of a decreasing trend in liver fat in subjects with T2D and NAFLD were followed up with cell-based experiments in primary human hepatocytes. In these in vitro experiments, AXA1125 attenuated the saturated fatty acid and tumor necrosis factor alpha mediated increase in lipid droplet accumulation, as well as induced a microsteatotic phenotype.

          After 12 weeks of AXA1125 24g TID administration, mean blood levels of key inflammation biomarkers (ALT, CK-18 M65 and MCP-1) were directionally decreased by –38%, –48%, and –28%, respectively, as compared to their corresponding mean pre-administration baseline levels in those with a baseline PDFF greater than 10%. Changes in AST were also directionally consistent with that seen in ALT.

          In previous studies, decreases in CK-18 have been associated with improvements in ballooning on liver histology, and decreases in MCP-1 have also been observed with thiazolidinediones, statins and angiotensin-converting-enzyme inhibitor treatments.

GRAPHIC

(A) Plasma ALT (n=22, Day 1; n=20, week 6; n=13, week 12); (B) Plasma CK-18 M65 (n=22, Day 1; n=14, week 6; n=13, week 12); (C) Plasma MCP-1 (n=22, Day 1; n=19 , week 6; n=13, week 12) levels at baseline (Day 1), week 6, and week 12 in the Non-IND, IRB-Approved Clinical Study of AXA1125. * denotes the relative directional percentage change trend over the 12-week administration period. Values represent mean ± SEM from subjects administered AXA1125 24g TID with Day 1 PDFF greater than 10%. Some of the CK-18 M65 and MCP-1 values were below the limit of detection for these assays; hence, the lower limit of the detection values were used for the analysis. Wk means week.

          The clinical observations of a decreasing trend in plasma MCP-1 in subjects with T2D and NAFLD were followed up with cell-based experiments in primary human macrophages. In these in vitro experiments, AXA1125 suppressed lipopolysaccharide, or LPS-induced tumor necrosis factor alpha, or TNF a , production from M1 macrophages, and simultaneously increased the anti-inflammatory cytokine, CCL18, in interleukin-4 treated M2 macrophages, both in a dose-dependent manner. Based on additional experiments interrogating cellular energetics, we believe one way in which AXA1125 exerts its potential anti-inflammatory effects is by reducing glycolytic adenosine triphosphate, or Glyco-ATP, while maintaining mitochondrial and total ATP levels within the macrophage.

          Changes in a key hepatic fibrogenic marker, Pro-C3, were assessed after 12 weeks of AXA1125 24g TID administration. Levels of Pro-C3 in the blood correlate with the NAFLD Activity Score on histology as well as to liver-related clinical outcomes. There was a directional trend to

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decrease Pro-C3 by –32% as compared to its corresponding mean pre-administration baseline levels in those with a baseline PDFF greater than 10%. Baseline values of Pro-C3 in three subjects were greater than three standard deviations above the mean, i.e., greater than 60 ng/mL to as high as 78 ng/mL and are considered as outliers. One subject had a baseline Pro-C3 of 9.9 ng/mL, experienced a serious AE of acute cholecystitis, stopped taking AXA1125 at the end of Week 1 and then discontinued from the study on Week 5. The subject's end-of-study Pro-C3 level was 31.9 ng/mL, reflecting both the acute inflammatory state (i.e., acute cholecystitis) and also likely a washout effect of AXA1125. In light of this clinical circumstance, Pro-C3 data from this subject were excluded. We believe changes in the pro-collagen markers were specific to those that indicate a change in hepatic fibrogenesis (i.e., Pro-C3) versus a more generalized change because total procollagen type 1 N-terminal propeptide, or P1NP, considered to be a sensitive marker of bone turnover was not affected (+3%) by AXA1125. We believe these observations suggest that AXA1125 may selectively impact hepatic fibrogenesis.

GRAPHIC

(A) Plasma Pro-C3 (n=19, Day 1; n=13, week 6; n=16, week 12); (B) Plasma P1NP (n=22, Day 1; n=14, week 6; n=19, week 12) levels at baseline (Day 1), week 6, and week 12 in the Non-IND, IRB-Approved Clinical Study of AXA1125. * denotes the relative directional percentage change trend over the 12 week administration period. Values represent mean ± SEM from subjects administered AXA1125 24g TID with Day 1 PDFF greater than 10%. Wk means week.

          We followed up the clinical observation of a decreasing trend in plasma Pro-C3 in subjects with T2D and NAFLD with cell-based experiments in primary human stellate cells. These in vitro experiments revealed that AXA1125 suppressed Pro-C3 protein secretion in the transforming growth factor beta, or TGF b -activated stellate cells, and also reduced gene expression of heat-shock protein 47, a molecular chaperone required for collagen maturation, in a dose-dependent manner. Effect of AXA1125 was specific to stellate cell activation and proliferation as indicated by both a dose-dependent suppression of alpha-smooth muscle actin (a marker of stellate cell activation) and a concomitant decrease in EdU (a marker of cell proliferation).

          Acknowledging the limitation of a small sample size, we believe this pilot food study also suggests a dose response effect of AXA1125, as the lower amount (6g TID; n=4) of AXA1125 yielded little to no change in the above physiological liver structure and function parameters.

          Overall, we believe the weight of evidence from these results support the directional consistency of changes across both the structural and functional markers associated with liver health.

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Ongoing Non-IND, IRB-Approved Clinical Study — AXA1125-003

          In January 2019, we initiated AXA1125-003, a 16-week (with a two-week follow-up), randomized, single-blind, placebo-controlled, dose-ranging, Non-IND, IRB-Approved Clinical Study to assess safety, tolerability and physiological impact on the normal structures and functions of the body in approximately 105 adult subjects with NAFLD. A few key features of this study design include administration of two different AXA Candidates, AXA1125 and AXA1957, a calorie-matched placebo control, two different amounts of AXA1957 and twice a day, or BID, regimen. We anticipate data readout from this study in the second half of 2020.

GRAPHIC

Study design for AXA1125-003, a 16-week (with a two-week follow-up), randomized, single-blind, placebo-controlled,
dose-ranging, Non-IND, IRB-Approved Clinical Study. W=week; BMx=biomarkers; MRI: magnetic resonance imaging; oGTT=oral glucose tolerance test.

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    Study Assessments in AXA1125-003

 

 

Primary
Safety & tolerability




 

 

Clinical AEs, vital signs, ECGs, clinical laboratory parameters, including standard chemistry and hematology panels, and other liver function tests



 

       


 


 


Secondary
PK of AXA1125 constituents and endogenous amino acid levels



 


 


Amino acid levels


 


 


 


Physiological assessments


 


 


Normal Structure


 

 

   

MRI-PDFF and corrected T1, or cT1 assessment of liver fat and fibroinflammation

   

 

 

 

Normal Function

 

 

 

 

   

Metabolism — glucose (FPG, HbA1c, oGTT, insulin, HOMA-IR) and lipid (BHB, FAO markers, lipid panel) homeostasis assessments

 

 

 

   

Inflammation — apoptosis (e.g., CK-18) and macrophage (e.g., MCP-1) markers

 

 

 

   

Fibrosis — fibrogenic (e.g., Pro-C3) markers


 
       

FPG: fasting plasma glucose; oGTT: oral glucose tolerance test; FAO: fatty acid oxidation; HOMA-IR: Homeostatic Model Assessment of Insulin Resistance; BHB: beta-hydroxybutyrate; CK: cytokeratin; MCP: monocyte chemoattractant protein; Pro-C3: N-terminal type III collagen propeptide.

AXA1125 Potential Product Development Paths and Market Opportunities

          The treatment of NASH is a potential indication if we elect to further develop either AXA1125 or AXA1957 or both under an IND. While the pathologies of NAFLD and NASH manifest primarily in the liver, they are systemic diseases driven by multifactorial systemic dysregulation of pathways associated with metabolism, inflammation and fibrosis. Dysfunctional lipid metabolism associated with insulin resistance and hepatocyte lipotoxicity increases liver cell death. Systemic and chronic inflammation at the cellular and cytokine level drives tissue damage and activates fibrogenic pathways. Activation of stellate cells then causes accumulation of collagen in the liver and leads to progressive fibrosis.

          NAFLD is one of the most common causes of liver disease in the United States. NAFLD is characterized by excess fat accumulation in the liver, typically resulting from obesity, insulin resistance and diabetes. NAFLD in children is often more severe than in adults.

          NAFLD can progress to NASH, which is characterized by necroinflammation and fibrosis, and may ultimately lead to life threatening conditions such as cirrhosis or liver cancer requiring liver transplant. With a U.S. prevalence of over 15 million people, and similar prevalence in the EU5 (France, Germany, Italy, Spain and the United Kingdom), NASH represents a substantial public health issue and thus burden on the overall healthcare system. Incidence is expected to continue increasing in parallel with the obesity and T2D epidemics.

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          Currently, there is no drug therapy approved to treat NAFLD or NASH. A combination of dietary modifications and increased physical activity remains the standard of care for management of NAFLD and NASH. Weight loss decreases diabetes risk and can also improve liver health. Additionally, a cornerstone of treatment of NASH is management of comorbidities. Off-label use of certain medications is outlined in most leading clinical practice guidelines.

          The complex pathophysiology of NASH and the events that contribute to the advancement of the disease towards cirrhosis and liver cancer has led to a consensus that efficacious pharmacological therapies will likely require simultaneous modulation of metabolic dysfunction, inflammation and fibrosis. The current pipeline of third-party products under development includes product candidates across multiple mechanisms of action. These candidates are mostly designed against specific targets, rather than a systemic, multifactorial approach that can target the central nodes of the disease in a highly coordinated manner. Clinicians and biopharmaceutical companies are increasingly evaluating combination approaches to address the broad spectrum of the disease, improve response rates and expand the size of the treatable population. However, significant challenges to this approach include the potential compounding of overlapping side effect profiles and high development and treatment costs. Additionally, there are limited programs in development for pediatric patients.

          We believe that an effective interventional approach to NASH should be intrinsically combinable, multifactorial and safe. Based on our data to date and the focus of other approaches outlined above, we believe there are important differentiated product development opportunities for both AXA1125 and AXA1957.

          If we decide to develop AXA1125 and/or AXA1957 as a non-drug product, the target market would be defined by, or with input from, a strategic partner and supporting data from our current or additional studies. We believe a non-drug pathway could also represent a significant market opportunity given the potential benefits to generally healthy people that could result from supporting normal liver structures and functions, including when the liver may come under stress from common activities such as exposure to alcohol, heavy metals, and high caloric loads. Under a non-drug development path, we or a strategic partner may decide to develop AXA1125 and/or AXA1957 as a dietary supplement to maintain liver health.

AXA1957 Program

          Based on recent scientific publications in the NAFLD field, as well as our own learnings and insights from AXA1125-002 and our AXA Development Platform, we designed and developed AXA1957 with the potential to address additional biologies and populations, including pediatrics. There are no approved pharmacologic treatments and few pipeline programs targeting pediatric NASH. Recommended treatment guidelines currently center around lifestyle interventions.

          In the second half of 2019, we plan to initiate AXA1957-002, a placebo-controlled, single-blind, randomized (2:1) controlled study to assess safety and tolerability and the physiological impact of

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AXA1957 on the normal structures and functions of the liver in approximately 30 adolescent (12-17 year old) subjects with NAFLD.

GRAPHIC

Study design for the planned AXA1957-002, a placebo-controlled, single-blind, randomized (2:1) controlled Non-IND, IRB-Approved Clinical Study with up to 25 weeks of administration in 12-17 year old adolescent subjects with NAFLD.

AXA2678 Muscle Program

Overview

          AXA2678 is our AXA Candidate being evaluated in muscle health. To date, we have conducted two Non-IND, IRB-Approved Clinical studies of AXA2678 in healthy subjects. AXA2678-001 was a 28-day study in healthy subjects with immobilization-induced acute muscle atrophy to assess safety, tolerability and physiological effects on normal muscle structures and functions. AXA2678-002 was a one-day study in healthy subjects to assess the plasma PK of a 24g amount of AXA2678 when administered two hours after standardized breakfast, lunch and dinner.

          In both studies, we did not observe any significant safety issues with AXA2678 and it was generally well tolerated. In AXA2678-002, the average plasma concentrations of the constituent amino acids within AXA2678 increased above endogenous baseline levels in response to AXA2678 administration in all three meal periods with similar area under the curve, or AUC, and maximum serum concentration, or Cmax, and had a median time after administration of approximately two hours, suggesting a consistent PK profile of the constituent amino acids after administration. Additional observations in AXA2678-001 revealed a 76% relative difference in the average muscle cross-sectional area between placebo and AXA2678 groups during the seven-day period of unilateral limb immobilization. We are continuing to evaluate next steps for this program. One potential study design being considered is a placebo-controlled, dose-ranging randomized control trial in subjects undergoing hip arthroplasty. Subjects would receive approximately one week of treatment prior to their elective surgery and up to 12 weeks afterwards in a controlled rehabilitation setting. The potential study endpoints would assess safety, tolerability, muscle mass and function.

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AXA2678 Design Rationale

          AXA2678 has been designed to target multiple biological pathways with the goal of maintaining normal muscle structure and function, especially in states of disuse atrophy.

 

 

Underlying Biology


 

 

Design Objectives



 

       

 

 

Proteostasis and anabolic resistance

 

 

Optimize the balance between muscle anabolism via increased muscle protein synthesis and catabolism via decreased muscle protein breakdown

Improve muscle insulin resistance

Stimulate mitochondrial function and provide anaplerotic substrates for the TCA cycle





 

       

 

 

Inflammation and vasodilation


 

 

Decrease inflammation cascades and reactive oxygen species



 

       

 

 

Defective myogenesis, the process of forming skeletal muscle fibers, and regeneration



 

 

Activate stem cells for muscle growth and differentiation



 

       

Completed AXA2678-001 Non-IND, IRB-Approved Clinical Study

          AXA2678-001 was a four-week, randomized, placebo-controlled, double-blind, Non-IND, IRB-Approved Clinical Study to assess the safety, tolerability and physiological impact on the normal muscle structure and functions in 20 healthy subjects undergoing one week of unilateral limb immobilization. The 28-day study consisted of a screening visit, a seven-day pre-immobilization period, a seven-day immobilization period and a 14-day recovery period. Subjects had their dominant leg immobilized by means of a knee brace. Ten subjects received AXA2678 and the other ten received a non-proteinaceous placebo, or maltodextrin, which was color- and excipient-matched, with a similar caloric content to AXA2678. Administration amounts were 24g TID or 72g/day for 28 days to be taken between meals. Subjects' daily meals were standardized with a set protein content of 1g/kg per day for the full 28-day duration of the study.

GRAPHIC

Study design of AXA2678-001, a four-week, randomized, placebo-controlled, double-blind Non-IND, IRB-Approved Clinical Study evaluating the safety, tolerability and physiological effects of AXA2678 on muscle structure and function. D=day; musc Bx=muscle biopsy; BMx=biomarkers.

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Study Assessments in AXA2678-001


 


 


Primary
Safety & tolerability




 


 

Clinical AEs, vital signs, ECGs, clinical laboratory parameters, including standard chemistry and hematology panels




 

     


 


 


Secondary
Physiological assessments



 


 

Normal Structure

Muscle MRI for CSA, Mvol, IMF

Muscle biopsy for fiber type assessments
Normal Function

Strength, activity, electrical impedance myography and biomarkers of muscle biology, inflammation and myokine signaling





 

     

CSA: cross sectional area; MVol: muscle volume; IMF: intramuscular fat fraction

          Twenty subjects were enrolled in the study (n=10 per group). All 20 subjects were male, with an average age of 21.8 years and an average weight of 82.7 kg. Subjects in the two groups had similar age and similar mean weight. However, one subject in the placebo group had a body weight of 135kg, resulting in an inadequate bracing of his knee, and consequently, removed from the secondary analyses. Therefore, the analysis set for secondary muscle structure and function assessments are nine subjects in the placebo group and ten subjects in the AXA2678 group.

          Daily consumption of AXA2678 at 24g TID (72 g/day) was well-tolerated and no significant safety issues were observed over the 28-day administration period. Two AEs of sore throat were reported in one subject on two separate occasions (on Day 6, and then again on Day 22) taking AXA2678. Another two AEs of stomach gas and nausea were reported simultaneously in one subject taking AXA2678 on Day 12. These AEs were also mild, self-resolving within one day and noted as possibly related to AXA2678 administration. No other AEs were reported with AXA2678 or with placebo. There were no clinically meaningful changes noted in routine safety labs (chemistry, hematology), vital signs or ECG.

          In the placebo group, average quadriceps peak CSA declined significantly during immobilization (Day 15 versus Day 8 CSA: –3.1% (p<0.05)). By > contrast, CSA was preserved with AXA2678 (Day 15 versus Day 8 CSA: –0.75% (p>0.3)), a relative difference of 76% between the two groups during this one-week immobilization period. We believe these findings indicate that AXA2678 administration prevented the loss of muscle mass during disuse. The magnitude of quadriceps CSA loss seen in the placebo group over the seven-day period is consistent with that observed in published studies (3% to 5% loss, typically 0.5% per day). A similar pattern was also observed in the quadriceps muscle volume (Day 15 versus Day 8 Mvol: –2.4% (p<0.05) in the placebo group versus Mvol: –0.67% (p>0.3) in the AXA2678 group) indicating the attenuation of Mvol loss during disuse with AXA2678 administration. MRI images were subjected to a third-party unbiased and independent analysis to confirm the MRI findings. The independent analysis

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confirmed the muscle CSA and Mvol changes and also revealed attenuation of intramuscular fat fraction during immobilization in the AXA2678 group compared to placebo. The relative percentage change in quadriceps muscle fat fraction after one-week of immobilization (Day 15 versus Day 8) was 103% in the immobilized leg (p=0.04). We believe these findings imply a likely impact of AXA2678 on insulin sensitization as insulin resistance has been closely associated with increased muscle fat infiltration. The aforementioned analyses are not materially affected even when including data from the excluded outlier subject.

GRAPHIC

(A) Percentage change in quadriceps cross sectional area in the immobilized leg over 28 days compared to Day 1 in AXA2678 (n=10) and placebo (n=9) administered groups. Values represent mean ± SEM. * denotes a statistically significant reduction in muscle CSA in the placebo group during immobilization and recovery relative to Day 1 by repeated measures Analysis of Variance (p<0.05). By contrast, muscle CSA did not significantly change in the AXA2678 group during the study. (B) Percentage change in intramuscular fat fraction within the immobilized quadriceps during one week of immobilization (Day 15 vs. Day 8) in AXA2678 (n=9) and placebo (n=8) administered groups. Values represent mean ± SEM.; p-value obtained using an unpaired t-test with Welch's correction.

          Immunohistochemical analysis of muscle fibers within the vastus lateralis did not reveal baseline (pre-immobilization) differences in fiber CSA or fiber type distribution between placebo and AXA2678 treated groups. Immobilization did not result in a statistically significant reduction of fiber CSA in either type I or type II fibers; however, there was a trend toward the preservation of type I fibers with AXA2678 treatment as reflected by a decreasing trend in the percentage of type I fibers in the placebo, but not the AXA2678 group.

          At baseline, no differences in muscle strength were observed between groups in peak knee extensor isometric torque or time to peak torque. Immobilization (Day 15 vs. Day 8) resulted in equivalent relative declines in peak torque in both groups (placebo: –7.5 ± 17.5%; AXA2678: –6.7 ± 15.1%); however, at Day 28, the peak isometric torque tended to be higher in the AXA2678 administered group as compared to the placebo group, suggesting recovery of strength to pre-immobilization baseline levels even within a relatively short two week period. Time to peak torque tended to be faster with AXA2678 administration as compared to placebo during both immobilization and recovery periods. We believe the faster average time to peak torque observed in the AXA2678 group may reflect preservation of muscle fibers and potentially an enhancement in muscle perfusion.

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          As expected, activity (steps per day) substantially decreased with limb immobilization in both groups. Between Day 8 and Day 15 there was no statistically significant correlation between the percentage change in mean CSA and the percentage change in mean activity in either group. At the end of the recovery period, as expected, activity in both groups had returned toward their respective pre-immobilization levels with no significant differences between the two groups.

          Normally, immobilization-induced atrophy results in a decrease in key electrical impedance myographic parameters such as phase, maximum reactance and reactance slope, all of which were decreased as expected in the atrophied limb of the placebo group. These parameters, considered to be reflective of muscle health, tended to increase and were preserved with AXA2678 administration during immobilization, with relative differences versus placebo ranging from +115% to +155%. We believe these findings are consistent with the anti-atrophic effect of AXA2678, thereby reflecting a potentially healthier muscle even during an acute insult of limb disuse.

          A preliminary analysis of various biomarkers associated with muscle biology, myokine signaling, and inflammation revealed several important patterns of change. Myoglobin levels, suggestive of muscle breakdown and shown to be increased in blood during immobilization, tended to increase as expected in the placebo group. By contrast, AXA2678 administration tended to attenuate this increase consistent with its anti-atrophic effect and suggests a possible attenuation of muscle breakdown during disuse. AXA2678 administration tended to increase the plasma levels of both IL-6 (myokine associated with myogenic differentiation, insulin-mediated glucose disposal, fatty acid oxidation), and IGF-1 (anabolic hormone that stimulates muscle hypertrophy and insulin sensitivity). Taken together, we believe these preliminary findings suggest AXA2678 may coordinately improve anabolism and insulin sensitivity during the immobilized period.

          Subjects administered AXA2678 tended to maintain plasma levels of IL1R2, a soluble receptor that acts as an IL-1 decoy, reducing IL-1-mediated inflammation, during immobilization, and concomitantly tended to maintain plasma IL-10, an anti-inflammatory cytokine expressed during muscle regeneration, during both the immobilization and recovery periods. Thus, we believe that AXA2678 has the potential to impact inflammation associated with muscle disuse and atrophy.

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GRAPHIC

Day 15 versus Day 8 relative percentage changes in plasma myoglobin (A), IL-6 (B), IGF-1 (C), IL1R2 (D), and IL-10 (E) levels during the immobilization period. Values represent mean ± SEM in placebo (n=9) and AXA2678 (n=10) groups.

          Subjects receiving AXA2678 also had a decreased loss in muscle mass and strength even in the non-immobilized leg, although these effects were smaller than those observed in the immobilized leg. The milder effects observed in the non-immobilized leg show that AXA2678 affected all muscles whether immobilized or not, albeit with a larger effect on immobilized muscles. These findings are consistent with the coordinated systemic effects observed with AXA2678 on the anabolic, inflammatory and metabolic blood markers described above.

          The above clinical observations prompted additional cell-based experiments in cultured C2C12 muscle cells to gain further mechanistic insights into AXA2678's effect on muscle mass and function. These experiments sought to study myogenesis, which is important for recovery from muscle injury and to induce muscle growth. During muscle injury, satellite cells, or skeletal muscle stem cells, are activated, differentiate and fuse with damaged myofibers to induce expression of the

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cytoskeletal complexes required for muscle contraction and contribute myonuclei supporting muscle repair. The results of the experiments in C2C12 cultured muscle cells revealed that AXA2678 directly increased myoblast differentiation into myotubes, i.e., enhanced myogenesis, as compared to untreated control cells.

AXA2678 Potential Product Development Paths and Market Opportunities

          Beyond its role in generating contractile force for movement, skeletal muscle is the primary site of glucose disposal, is a large contributor to circulating lipid oxidation, accounts for a large portion of resting metabolic rate, which is highly predictive of independent living with advancing age, and is an independent predictor of morbidity and mortality in several chronic diseases of the liver, kidney and heart. As a result, atrophy, or a decrease in muscle mass in an area of the body, leads to impaired functional capacity, the onset of insulin resistance and a heightened risk for morbidity and mortality. When a muscle remains unused, even for a period of several days, it begins to waste away and lose functionality, the pathophysiology of which is complex and multifactorial. A hallmark of muscle wasting is the inability to maintain proteostasis, the balance between protein synthesis and breakdown. Atrophy is then driven by an inability to maintain muscle protein synthesis. Defective myogenesis, or differentiation of muscle stem cells into myofibers, limits muscle cell growth. Chronic inflammation and related cytokines (tumor necrosis factor alpha) promote muscle wasting by decreasing protein synthesis and increasing protein breakdown. Muscle fat infiltration increases with age and impacts outcomes for certain immobilization atrophy conditions, including the outcomes in liver-related conditions.

          Disuse related muscle wasting is most common in people suffering temporary disablement, such as hospitalization or an immobilized limb following injury. Limb immobilization-induced acute atrophy leads to weakness, which further complicates recovery, because movement, especially load-bearing activity, is one of the ways to induce muscle growth. Elective surgeries, including hip replacement, hip fractures, rotator cuff repair or injury, and surgical intervention addresses only the primary injury and has no effect on muscle mass or function that might have occurred prior to surgery. The preexisting presence of atrophy impacts the prognosis after surgery.

          The increased recovery burden resulting from limb immobilization-induced acute muscle atrophy leads to longer patient recovery times, impaired functional capacity for independent living and time away from work and activities of daily living. With significant unmet global need, no commercialized products and few assets in development, disuse-related muscle atrophy is an attractive market opportunity. If we pursue development of AXA2678 under an IND, we believe it could potentially be investigated for multiple indications characterized by such disuse-related muscle atrophy, including total knee arthroplasty, or TKA, total hip arthroplasty, or THA, hip fracture related myopenia, or HFRM, rotator cuff repairs or injury, and other musculoskeletal atrophy or injuries, including osteoarthritis induced myopenia. In the United States, the market for these conditions each year is upwards of 140,000 patients undergoing TKA, 50,000 undergoing THA, 133,000 recovering from HFRM and 195,000 recovering from RCI annually.

Limitations of Current Therapies and Available Products

          It has been challenging to effectively demonstrate the functional impact of interventions following a change in muscle mass, because mass and function are often decoupled from each other. Study design limitations have also posed a hurdle for fully assessing the efficacy of a treatment. Clinical studies frequently end shortly after immobilization and there is often limited information on recovery post-immobilization, despite recovery having a significant clinical and health

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economic relevance. Thus, the clinical utility of any intervention needs to be characterized during the recovery period following injury. Because pre-operative lean body mass and nutrition state are significantly associated with surgical outcomes and hospital stay, pre-immobilization treatment could drive more significant improvements in muscle mass and strength versus post-immobilization treatment alone. For instance, it is now well known that peri-operative exercise improves post-surgery outcomes in elderly patients undergoing major surgery. We believe that a treatment for muscle disuse atrophy should be applied before, during and after immobilization (peri-immobilization) for optimal effects.

          Based on emerging research in this area and our insights generated using the AXA Development Platform, we believe a multifactorial pathway-based approach is required to modulate proteostasis, overcome anabolic resistance and induce myogenesis and anti-inflammation simultaneously and in a highly coordinated manner to re-couple mass and function. We believe such an approach may hold significant promise to meaningfully impact clinical outcomes.

Potential Non-Drug Development Path

          If we decide to develop AXA2678 as a non-drug product, the target market would be defined by, or with input from, a strategic partner and supporting data from our current or additional studies. We believe a non-drug pathway could also represent a significant market opportunity given the potential benefits to overall health by supporting the body's ability to maintain normal muscle mass and strength. Under a non-drug development path, we or a strategic partner may decide to develop AXA2678 as a dietary supplement to support healthy muscle structure and function.

AXA4010 Program

Overview

          We believe that EMMs have the potential to support and maintain blood health, which is critical to a multitude of metabolic functions throughout the body. Using insights from our Non-IND, IRB-Approved Clinical Studies and preclinical studies of EMM compositions, published clinical studies of amino acid interventions, published and in-house metabolic profiling data, and a mechanistic understanding of blood health, we identified key metabolic paths where we believe amino acid biologies drive key aspects of normal blood health.

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AXA4010 Design Rationale

          AXA4010 has been designed to target multiple biological pathways with the goal of supporting normal structures and functions of the blood.

 

 

Underlying Biology


 

 

Design Objective



 

       

 

 

Blood Production & Integrity

 

 

Promote proliferation and maturation of blood cells during hematopoietic demand

Maintain red blood cell, or RBC, form and function against dehydration, rigidity and support oxygen transport

 

       

 

  Plasma and RBC amino acid imbalance    

Restore amino acid balance to support RBC metabolism, including substrates for glutathione and nitric oxide synthesis, improve reactive oxygen species and delivery of amino acids to peripheral tissue

 
       

 

 

Vascular health & Inflammation

 

 

Improve defense against vascular adhesion, inflammation and stasis

 

       

Preclinical Research and Analysis on Sickled Cells To Date

          To investigate the effect of certain amino acids on normal blood biology, we performed preclinical experiments on sickle cell blood from subjects. In order to study the effects of reactive oxygen species, or ROS, we challenged the blood cells with a ROS-inducing agent and attempted to rescue the phenotype with various concentrations of amino acids. The data from these preclinical cell experiments demonstrate the impact on ROS in sickled blood when exposed to certain individual amino acids and across various concentrations. We were able to observe positive effects of cysteine and N-acetylcysteine, or NAC, while also noting a negative impact from tryptophan. This observation highlighted the importance of combining only those amino acids that support the targeted biologies, while being cautious of including others that can be detrimental to the biology of interest.

          In studies on macrophages and hepatocytes, we explored the relationship between both individual and combinations of amino acids on inflammation. Across both cell model systems, we observed that combinations of certain amino acids had greater anti-inflammatory activity than each amino acid alone. We also observed that combinations and certain individual amino acids had anti-inflammatory activity above baseline. This was demonstrated by both an increase in CCL18, an anti-inflammatory cytokine, in M2 macrophages as well as a decrease in MCP-1, a pro-inflammatory cytokine, in hepatocytes. We incorporated this knowledge about anti-inflammatory combinations of amino acids into the design of AXA4010.

          Additionally, we incorporated insights from our pharmacokinetic and pharmacodynamic studies to determine the appropriate relative levels of AXA4010's individual constituents. We then leveraged insights related to the first-pass metabolism of amino acids to ensure sufficient exposure of amino acids to the blood.

          Published amino acid profiles in blood disorders, such as sickle cell disease, typically show reductions in essential amino acids such as leucine, histidine, valine, and lysine, and sometimes also non-essential amino acids. To enhance our understanding of metabolic profiles in blood

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disorders, we analyzed the concentration of amino acids in plasma and red blood cells of pediatric sickle cell patients versus healthy age-matched controls. Our results in the RBCs and plasma of patients corroborate key findings from the literature such as depleted arginine, while also generating new insights in cysteine biology and other essential amino acids.

Planned Non-IND, IRB Approved Clinical Study

          We plan to initiate a Non-IND, IRB-Approved Clinical Study of AXA4010 in the second half of 2019 and anticipate the data readout(s) from this study in the second half of 2020. Based on our findings, we will make the appropriate development path decision to develop AXA4010 as a drug or as a non-drug product candidate.

AXA4010 Potential Product Development Paths and Market Opportunities

          In addition to supporting normal structures and functions of blood in the body, we believe EMMs may have the potential to target and address diseases of the blood such as sickle cell disease, or SCD. Single amino acid based approaches have been tested and approved for SCD. Glutamine was approved by the FDA in 2017 for the treatment of SCD.

          SCD is an inherited disorder of hemoglobin affecting approximately 100,000 individuals in the United States and 4.4 million worldwide. For many patients, SCD is defined by chronic organ failure punctuated by acute complications and early mortality. Care for sickle cell patients is limited, with only two FDA-approved drugs that seek to reduce the probability of vaso-occlusion events leading to "sickle cell crises," ischemic injury and severe pain. We believe AXA4010 could be studied under an IND for its potential impact on the management of the complex and multifactorial pathology of SCD.

          If we decide to develop AXA4010 as a non-drug product candidate, the target market would be defined by, or with input from, a strategic partner. We believe a non-drug pathway could also represent a significant market opportunity given the potential benefits to overall health by supporting blood health and modulating inflammation. Under a non-drug development path, we or a strategic partner may decide to develop AXA4010 as a dietary supplement to support blood-related structure and function.

Preclinical Program

          Many diseases are driven by multifactorial dysregulated systemic metabolism, and we have already characterized over 50 diseases for prioritization. We believe that there are also additional potential applications of our AXA Development Platform and have expanded our pool of potential disease areas by importing additional public databases, such as the Human Metabolome Database. We intend to continue to target diseases driven by dysregulated metabolic pathways and in which we can potentially leverage the vital role that EMMs play in regulating metabolic function.

Additional Potential Opportunities

Central Nervous System

          Amino acids are intimately involved in the proper functioning of the CNS, which is composed of the brain and spinal cord. Many neurotransmitters, both excitatory and inhibitory, are either amino acids themselves or close metabolites thereof. The transport and metabolism of these

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compounds can extend across multiple neuronal cell types, adding to the specialization and complexity of CNS function.

          As a result, dysregulation of amino acid biology in the CNS contributes to conditions such as mild traumatic brain injury and highlights how an acute head injury can lead to multi-modal neurological dysfunction through energy crisis, oxidative stress, inflammation and a temporary disruption of the blood-brain barrier. Thus, the complexity of the CNS and spectrum of neuropathology in disease creates a vast potential for targeted and combinatorial EMM interventions.

Other Areas

          Additionally, we are looking at the application of EMMs in other organ systems affected by metabolic dysfunction, including targets relating to kidney and pulmonary function.

Competition

          The biotechnology and pharmaceutical industries utilize rapidly advancing technologies and are characterized by intense competition. There is also a strong emphasis on intellectual property and proprietary products.

          We believe that our pioneering research in establishing EMM compositions for drug or non-drug pathways such as non-drug products, coupled with our capabilities across our AXA Candidate platform technology, product design, development pathway and manufacturing provide us with a competitive advantage. However, we will continue to face competition from different sources, including major pharmaceutical companies, biotechnology companies, consumer health product companies, academic institutions, government agencies, public and private research institutions, consumer nutritional supplement or conventional consumer health manufacturers and manufacturers of amino acids and other EMMs. For any products that we eventually commercialize, we will not only compete with existing products but also with new products that may become available in the future, such as microbiome products.

          We compete in the consumer health, pharmaceutical and biotechnology industries. There are additional companies that are working on modulating specific metabolic pathways involved in various health and disease conditions, although we are not aware of any company creating AXA Candidate-like products with multifactorial activity. Companies with clinical programs that could compete with our AXA Candidates include Madrigal Pharmaceuticals, Inc., Intercept Pharmaceuticals, Inc., Gilead Sciences, Inc., Novartis AG, Bristol-Myers Squibb Co., Esperion Therapeutics, Inc., Viking Therapeutics, Inc., Scholar Rock Holding Corporation, NGM Biopharmaceuticals Inc., Genfit SA and Kaleido Biosciences, Inc., among others.

          Finally, we anticipate competing with the largest consumer health companies and nutritional pharmaceutical and amino acid companies in the world, such as Nestlé Health Science S.A., Abbott Laboratories, Johnson & Johnson, The Procter & Gamble Company, and Ajinomoto Co., Inc., all of which are currently conducting research in competitive indications or may be interested in using amino acids and other EMMs as drugs or nutritional supplements.

Intellectual Property

          As a first mover in this approach to EMMs, we are establishing a broad, global intellectual property portfolio for our pipeline and have already received our first notice of allowance for an AXA1125 patent application. This is notable considering the speed of our development model and establishes a foundation for the large number of submitted applications for our pipeline (35 patent applications filed as of April 1, 2019). Our matrixed approach to IP, trade secrets, and capabilities

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that we take across the AXA Candidate, the indication, the AXA Development Platform, manufacturing processes and technologies; formulations; and amounts provides an important asset for the company.

          We seek to create a multi-dimensional intellectual property portfolio as a strategic asset that has the potential to provide us with a significant competitive advantage. We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to our business, including seeking, maintaining and defending patent rights, whether developed internally or through collaborations, or licensed from third parties. Our policy is to file patent applications related to our proprietary technology, inventions, improvements and AXA Candidates that are important to the development and implementation of our business in the United States and in jurisdictions outside of the United States. We also rely on trade secrets and know-how relating to our proprietary technology and AXA Candidates, continuing innovation and in-licensing opportunities to develop, strengthen and maintain our proprietary position in the field of rebalancing dysregulated metabolism. We additionally rely on regulatory-related protections such as data exclusivity, market exclusivity and patent term extensions when available, and where appropriate, plan to seek and rely on regulatory protection afforded through Orphan Drug designations. Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for our technology, inventions and improvements; to preserve the confidentiality of our trade secrets; to maintain our licenses to use intellectual property owned by third parties; to defend and enforce our proprietary rights, including our patents; and to operate without infringing on the valid and enforceable patents and other proprietary rights of third parties.

          We believe that we have a strong global intellectual property position anchored by our matrix of patents directed to proprietary AXA Candidates, technology, AXA Development Platform, related manufacturing processes and technology, unique formulations, and knowledge about amounts, uses and features established as standards for AXA Candidates. As for our AXA Candidates, AXA Development Platform, and the processes we develop and commercialize, in the normal course of business, we pursue, as appropriate, patent protection or trade secret protection relating to compositions, methods of use, treatment of indications, dosing, formulations and methods of manufacturing. As of April 1, 2019, our AXA Candidate-related patent portfolio consisted of 18 patent families, two granted U.S. patents, 22 U.S. pending patent applications (including provisional applications) and 13 pending patent applications in jurisdictions outside of the United States (including Patent Cooperation Treaty, or PCT, applications) that, in many cases, are counterparts to the foregoing U.S. patent applications. To date all of our patent rights are owned by us. Our objective is to continue to expand our portfolio of patent applications to protect our AXA Candidates and certain aspects of our AXA Development Platform, manufacturing processes, formulations, and insights into amounts, uses, and features of AXA Candidate composition.

          In addition, we own a portfolio of legacy patents and patent applications related to recombinant proteins for nutrition and therapeutics, including nine granted and three pending U.S. patents, and five granted and five pending foreign patents.

          Examples of the AXA Candidates and technology areas covered by our intellectual property portfolio are described below.

Indication-Related Intellectual Property

          The indication-related patent rights in our intellectual property portfolio relate to conditions and disorders associated with dysregulated metabolism and provide coverage for AXA Candidates to specifically address those conditions and the associated disease states, as well as structure and function of normal organs in the context of dysregulated metabolism. The indication-related patent applications for our lead programs cover novel AXA Candidate compositions and their uses broadly

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and, with respect to individual AXA Candidates, in detail. Often, we are able to exemplify even our earliest AXA Candidate inventions with human as well as animal and in vitro data. Each of the indication-related patent rights and applications described below are owned by us and are not licensed from any third party.

          Notably, while our intellectual property covers drug and non-drug areas, each initial AXA Candidate is first tested as a food in order to better understand the impact on normal human physiology and metabolic pathways. After such initial testing, a decision may be made to deem the AXA Candidate a drug product candidate, and subsequent studies on disease endpoints are conducted under INDs. Thus, the descriptions of patent rights should not be considered as suggesting a current intent to pursue the AXA Candidate as a drug candidate.

AXA Candidate Compositions and Methods for the Treatment of Cirrhosis

          Our patent applications cover a class of AXA Candidate compositions for cirrhosis, including clinical candidate AXA1665. Currently, patent rights relating to cirrhosis include a U.S. patent application, a PCT patent application, and two foreign national patent applications. We expect any granted patent based on this family to expire in 2038, excluding any patent term adjustments or extensions.

AXA Candidate Compositions and Methods for NAFLD/NASH

          Our patent applications cover a class of AXA Candidate compositions for fatty liver disease, including clinical candidate AXA1125. Currently, patent rights relating to fatty liver disease include two U.S. patent applications and two granted U.S. patents, a PCT patent application, and two foreign national patent applications. We expect any granted patent based on this family to expire in 2037, excluding any patent term adjustments or extensions.

AXA Candidate Compositions and Methods for Acute Muscle Atrophy

          Our patent applications cover a class of AXA Candidate compositions for muscle atrophy, including clinical candidate AXA2678. Currently, patent rights relating to muscle atrophy include three U.S. patent applications, a PCT patent application, and two foreign national patent applications. We expect any granted patent based on this family to expire in 2037, excluding any patent term adjustments or extensions.

AXA Candidate Compositions and Methods for Treatment of Traumatic Brain Injury and Stroke

          Our patent applications cover a class of AXA Candidate compositions for traumatic brain injury and stroke. Currently, patent rights relating to traumatic brain injury include one U.S. patent application, two PCT patent applications, and two foreign national patent applications. We expect any granted patent based on this family to expire in 2038, excluding any patent term adjustments or extensions.

Additional Indication-Related Patents

          We have filed six provisional patent applications directed to additional indications associated with dysregulated metabolism. We expect the patent applications in this portfolio, if issued, to expire in 2039, without taking into account any patent term adjustments or extensions we may obtain. Our AXA Development Platform allows us to rapidly identify and file on AXA Candidates, often including human data in the earliest patent application.

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Additional AXA Combination-Related Patents

          We have filed three provisional patent applications directed to combinations of particular AXAs (AXA1125, AXA1665 and AXA1957) with particular NAFLD/NASH drugs and drug candidates. We expect the patent applications in this portfolio, if issued, to expire in 2040, without taking into account any patent term adjustments or extensions we may obtain.

Platform-Related Intellectual Property

          In addition to the indication-related intellectual property, our intellectual property portfolio also includes know-how and patent applications directed to our AXA Development Platform and other technologies developed internally. Exemplary platform technologies that are the subject of such patent applications include:

    manufacturing processes for complex AXA Candidate mixtures;

    taste formulations; and

    pharmacological characteristics of AXA Candidate compositions.

          Our AXA Development Platform iterates and integrates data from literature, including patents, in vitro experiments, animal studies, and Non-IND, IRB-Approved Clinical Studies, giving us significant competitive advantages. Our AXA Development Platform, which is protected by trade secrets, is core to maintaining our first mover advantage. These advantages translate into a unique understanding of metabolism, development of many new AXA Candidates, and creation of intellectual property around AXA Candidates and our AXA Development Platform technologies.

          These AXA Development Platform technologies, and our intellectual property protection related thereto, are broadly applicable to our AXA Candidates. Our patent applications directed to platform-related technologies, if issued, would expire in 2039, without taking into account any patent term adjustment or extensions we may obtain.

Therapeutic Modality Intellectual Property

          Our proprietary knowledge and insights into the behavior of EMMs have yielded inventions related to categories of metabolic dysfunction, such as insulin resistance, inflammation, and fibrosis. Our patent applications directed to these underlying modalities, if issued, would expire in 2039, without taking into account any patent term adjustment or extensions we may obtain.

          We continually assess and refine our intellectual property strategy as we develop new platform technologies and AXA Candidates. To that end, we are prepared to file additional patent applications if our intellectual property strategy requires such filings, or where we seek to adapt to competition or seize business opportunities. Further, we are prepared to file patent applications, as we consider appropriate under the circumstances, relating to the new technologies that we develop. In addition to filing and prosecuting patent applications in the United States, we plan to file counterpart patent applications in additional countries where we believe such foreign filing is likely to be beneficial, including, but not limited to, Australia, Brazil, Canada, China, Europe, Hong Kong, India, Israel, Japan, and South Korea.

          Individual patent terms depend upon the date of filing of the patent application, the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for applications filed in the United States and most other countries have patent terms that expire 20 years from the earliest effective filing date. In certain instances, a patent term can be extended to recapture a portion of the term effectively lost as a result of a regulatory review period, although patent term restoration in the United States applies to a new chemical entity, so may not apply to some AXA Candidate compositions. Furthermore, any restoration period is limited

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to a maximum restoration time (five years in the United States and Europe) and total effective patent life (14 years in the United States and 15 years in Europe). The actual protection afforded by a patent varies on a product-by-product basis, from country-to-country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country, and local decisions about the validity and enforceability of the patent.

Regulatory Exclusivity

          Under certain circumstances, approval of a drug product by a health authority will result in a period of data exclusivity and/or market exclusivity for the product. Data exclusivity means that no party can file for approval of a drug product based on the original drug approval application data. Market exclusivity (such as Orphan Drug exclusivity) means that the health authority may not be permitted to give final approval to a drug product for a defined period of time, absent certain conditions. In the United States, five-year data exclusivity is only available upon approval of a new chemical entity, which may not apply to some AXA Candidate compositions, and market exclusivity for new indications supported by or clinical studies essential to the approval is limited to three years from approval. In Europe, the period of regulatory exclusivity for a drug product approved through the full process is 10 years (eight years of data exclusivity and two years of market exclusivity, with an additional year of market exclusivity available for a substantial new indication). We believe that AXA products, if approved, should be entitled to the full 10 years of regulatory exclusivity in Europe.

Trademark Protection

          As of April 1, 2019, our trademark portfolio contains more than 50 registrations and pending applications. We have trademarks in over 12 countries, including European Union. For the marks AXCELLA and the Axcella LOGO, we have pending applications in the United States, Canada and Brazil as well as International Registrations designating China, the European Union, India, Japan and Russia. In addition, we have a pending U.S. application for AXCELLA HEALTH.

Trade Secrets

          We may also rely, in some circumstances, on trade secrets to protect our technology and aspects of our AXA Development Platform. However, trade secrets are difficult to protect. We seek to protect our trade secret technology, e.g., AxcellaKB, confidential AXA Candidates, and commercial plans in part by entering into confidentiality agreements with those who have access to our confidential information, including our employees, contractors, consultants, collaborators and advisors. We also seek to preserve the integrity and confidentiality of our proprietary technology and processes by maintaining physical security of our premises and physical and electronic security of our information technology systems. Although we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or may be independently discovered by competitors. We have policies in place to ensure that our employees, contractors, consultants, collaborators and advisors do not use intellectual property owned by others in their work for us. Nevertheless, disputes may arise as to the rights in related or resulting know-how and inventions. For this and more comprehensive risks related to our proprietary technology, inventions, improvements and AXA products, if approved, please see the section on "Risk factors — Risks related to our intellectual property."

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Manufacturing

          To date, we have rapidly designed and efficiently manufactured AXA Candidates and believe our process is readily scalable. Under our existing agreements with our manufacturers, we have been able to secure initial AXA Candidates to initiate our Non-IND, IRB-Approved Clinical Studies in less than three months from identifying the product amount needed. We are making great strides in our goal to create and design product candidates that are consumer-friendly, including in their formulation (e.g., taste), packaging (e.g., easy to open sachets) and administration (e.g., water soluble). Our AXA Candidates are supplied in a dry powder form, which is dissolved in water and then administered orally as an orange-flavored drink. Our formulation development expertise enables us to deliver high concentrations of raw materials at appropriate administration volumes. This expertise covers a wide range of raw material characteristics, and we believe will enable us to deliver multiple oral dosage forms to meet Non-IND, IRB-Approved Clinical Study and clinical needs, as well as commercial needs, if we decide to pursue development of any AXA Candidate under an IND.

          The raw materials in our AXA Candidates are used in the pharmaceutical and non-drug product industries. These materials are sourced from commercial manufacturers who are subject to current Good Manufacturing Practice, or cGMP, requirements and who have active drug master files with the FDA wherever possible. We have identified multiple manufacturers of the raw materials. The raw materials are tested and released per defined product specifications for physical, chemical and microbiological, where applicable, properties by the commercial manufacturers using the current edition of United States Pharmacopeia, or USP, and validated methods per the commercial manufacturer's established quality system, for non-USP materials.

          Our AXA Candidates are manufactured through a series of proprietary processing steps at a contract manufacturing organization, or CMO, to produce the dry powder forms in sealed foil stick packs. Each batch is tested per its defined product specification for chemical and microbiological properties, and a Certificate of Analysis, or CoA, is issued for each batch. Chemical testing is performed both in-house and at a contract research organization, or CRO, while microbiological testing is outsourced to a specialty CRO. Chemical and microbiological testing is performed using qualified test methods.

          The accuracy, precision and technical robustness of our in-house test methods are confirmed through formal method validation performed by a specialty CRO. This confirmation of our quality-based assays ensures that the quality of our AXA Candidates remains consistent through the shelf life of the AXA Candidate.

          Any AXA Candidates that we decide to develop as drug candidates under INDs will be manufactured through a series of proprietary processing steps at a different, well-known CMO under pharmaceutical cGMPs to produce the dry powder forms in sealed foil sachets. Chemical and microbiological testing of AXA Candidates would be performed by this same CMO per defined product specifications and CoAs will be issued for each batch. Chemical and microbiological testing will be performed using validated test methods. We believe these processing steps would enable us to readily provide high quality Clinical Trial Material, or CTM, product to support multiple Clinical Trials conducted under INDs and that are readily scalable to support a greater amount of CTM to commercial drug product requirements, if any of our AXA Candidates regulated as drugs receive regulatory approval.

Suppliers and CMOs

          We have entered into clinical supply and quality agreements with our CMOs and have established manufacturing redundancy within our supply chain. The CMO for our AXA Candidates

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has the capability and capacity to support clinical to commercial scale quantities of our AXA Candidates, if approved, including manufacturing redundancy between North America and Europe.

          We have also entered into clinical supply agreements with well-known clinical drug product labeling, packaging and distribution organizations to support post-IND global clinical studies, as required, if we were to decide to pursue the development of any AXA Candidate as a drug. These agreements provide further redundancy within our supply chain.

          At the appropriate time, we will enter into appropriate supply agreements with key commercial raw material manufacturers and additional CMOs to ensure raw material sourcing and additional AXA Candidate product supply redundancy within the supply chain, if any of our AXA Candidates is approved.

Government regulation

          The FDA and other regulatory authorities at federal, state and local levels, as well as in foreign countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging, storage, distribution, record keeping, approval (when required), advertising, promotion, marketing, post-approval monitoring and post-approval reporting of drugs as well as non-drug products such as foods, dietary supplements, and medical foods. We, along with our contract research organizations and contract manufacturers, will be required to navigate the various preclinical, clinical, manufacturing and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval for some or all of our product candidates, depending on the development pathway pursued in each case. The process of obtaining regulatory approvals of drugs for therapeutic indications or commercialization of non-drug products and ensuring subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources.

          In the United States, the FDA regulates drug products as well as non-drug products under the Federal Food, Drug and Cosmetic Act, or the FD&C Act, as amended, its implementing regulations and other laws. None of our product candidates has been approved by the FDA for marketing for therapeutic indications in the United States, and we have not marketed any product as a food (including dietary supplements) or medical food. If we fail to comply with applicable FDA or other requirements at any time with respect to product development, clinical testing, or any approval process, where applicable, or any other legal requirements relating to product manufacture, processing, handling, storage, quality control, safety, marketing, advertising, promotion, packaging, labeling, export, import, distribution, or sale, we may become subject to administrative or judicial sanctions or other legal consequences. These sanctions or consequences could include, among other things, the FDA's refusal to approve pending applications, issuance of clinical holds for ongoing studies, suspension or revocation of approved applications, warning or untitled letters, product withdrawals or recalls, product seizures, relabeling or repackaging, total or partial suspensions of manufacturing or distribution, injunctions, fines, civil penalties or criminal prosecution.

          If we decide to pursue development of our AXA Candidates as drugs for therapeutic indications, the process required by the FDA before our EMM product candidates as drugs for therapeutic indications may be marketed in the United States generally involves the following:

    completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted in accordance with good laboratory practice, or GLP, requirements;

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    submission to the FDA of an IND application, which must become effective before human Clinical Trials may begin;

    approval by an IRB or independent ethics committee at each Clinical Trial site before each trial may be initiated;

    performance of adequate and well-controlled human Clinical Trials in accordance with applicable IND regulations, GCP requirements and other Clinical Trial-related regulations to establish the safety and efficacy of the investigational product for each proposed indication;

    submission to the FDA of an NDA;

    a determination by the FDA within 60 days of its receipt of a New Drug Application, or NDA, to accept the filing for review;

    satisfactory completion of one or more FDA pre-approval inspections of the manufacturing facility or facilities where the drug will be produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug's identity, strength, quality and purity;

    potential FDA audit of the Clinical Trial sites that generated the data in support of the NDA;

    payment of user fees for FDA review of the NDA;

    FDA review and approval of the NDA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the drug in the United States; and

    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.

          The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all.

Regulatory status of AXA Candidates

          We are currently developing our EMM product candidates as Non-Drug Products, and in particular, as food for humans. AXA Candidates in our pipeline are predominantly comprised of amino acids. There is a long history of safe use of many amino acids as food additives and the FDA's food regulations concerning special dietary and nutritional additives specifically provide that "certain food additive amino acids may be safely used as nutrients added to foods" when certain conditions are met. Based on the large body of studies and scientific literature on the human exposure to and safety information on amino acids, the FDA's issuance of regulations authorizing use of specific amino acids under certain conditions as safe and permissible food additives when used as nutrients, our own data on amino acids used in AXA Candidates, and the fact that we use amino acids in our AXA Candidates within amounts previously studied in humans with no significant safety concerns or issues observed, we believe we design AXA Candidates to have favorable safety profiles, but we further characterize the safety and tolerability of these AXA Candidates in our Non-IND, IRB-Approved Clinical Studies.

          We believe that the use of AXA Candidates containing amino acids may be studied as a Non-Drug Product for certain non-therapeutic uses without an IND. Specifically, under FDA's September 2013 Guidance for clinical investigators, sponsors, and IRBs entitled "Investigational New Drug Applications (INDs) — Determining Whether Human Research Studies Can Be Conducted Without an IND," we believe Non-IND, IRB-Approved Clinical Studies of Non-Drug

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Products may be conducted to study the safety, tolerability, effect on normal structure or function in humans and characterize the mechanism by which a substance acts to maintain such structure or function, including in individuals with disease (as long as the study is not intended to evaluate the Non-Drug Product's ability to diagnose, cure, mitigate, treat, or prevent a disease). However, if such formulations are being studied or developed for therapeutic or drug uses, studies designed to assess the potential therapeutic use of a product candidate, such as its ability to diagnose, cure, mitigate, treat or prevent disease, including effects on an abnormal and uncommon or serious condition, then such product candidate is regulated as a drug and any clinical studies in the United States must be conducted under an IND. Similarly, an investigation intended to evaluate the effects of a medical food on a disease would require an IND, unless the medical food is simply being fed to subjects for nutritional purposes during a study examining the effects of another intervention.

          Depending on the results observed for our AXA Candidates in our Non-IND, IRB-Approved Clinical Studies, and other factors related to the potential market for the candidates, we may elect to pursue development of our candidates under one of four regulatory pathways: to continue development as a conventional food or food additive, dietary supplement, medical food, or drug. After meeting with the FDA in March 2019, we made a decision to pursue a drug development path for AXA1665 and plan to file an IND submission after potentially having additional interactions with the FDA. We have not yet made a development path decision for any of our other AXA Candidates, and may never successfully develop and market an AXA Candidate under either drug or non-drug paths.

          The development path decision we make for an AXA Candidate will also influence our strategy in bringing an AXA Candidate to market in the appropriate channel, such as a drug product intended to cure, mitigate, treat or prevent a target disease, a Non-Drug Product intended to support the normal structures and functions of the body and to maintain health, or a consumer health product intended for the dietary management of a disease or condition for which there are distinctive nutritional requirements. We intend to focus on and carry forward development of AXA Candidates that we believe may have the potential for therapeutic benefit.

FDA regulation of conventional food

          Conventional food products are subject to regulation by the FDA and other regulatory authorities, including the Federal Trade Commission, or FTC, which regulate the manufacturing, preparation, quality control, import, export, packaging, labeling, marketing, advertising, promotion, distribution, safety, and/or adverse event reporting of conventional foods. Among other things, manufacturers of conventional foods must meet applicable current good manufacturing practices, or cGMPs, and certain requirements that govern the manufacturing, packaging, labeling and holding of foods.

          The FD&C Act requires that all food products be safe, meaning a reasonably scientific certainty that the substance is not harmful for its intended use. The FD&C Act prohibits the introduction into interstate commerce of a food to which has been an added an approved drug or biologic, or a drug or biologic for which substantial clinical investigations have been instituted and made public, unless such a drug was marketed as a food before approval or meets other certain exceptions.

          Under sections 201(s) and 409 of the FD&C Act, any substance that is reasonably expected to become a component of food or added to food is considered to be a "food additive", with a few exceptions, and is therefore subject to FDA premarket review and approval, unless the substance is generally recognized among experts qualified by scientific training and experience to evaluate its safety, as having been adequately shown through scientific procedures or, in the case of a substance used prior to January 1, 1958 through experience based on common use in food, to be

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safe under the conditions of its intended use, a standard referred to as "generally recognized as safe," or GRAS. A food additive must either already be included within one of the number of FDA regulations authorizing the use of certain food additives under certain conditions of use or be approved for use by the FDA. To obtain approval for use of a food additive, a manufacturer must submit a petition to the FDA with sufficient data to demonstrate reasonable certainty of no harm at the intended levels of use. Any food that contains an unapproved food additive is considered adulterated under section 402(a)(2)(C) of the FD&C Act.

          Ingredients that are determined to be GRAS (as described below) do not fall within the definition of a food additive, which, as noted above, requires mandatory premarket approval. Under sections 201(s) of the FD&C Act, and FDA's implementing regulations in 21 CFR § 170.3 and 21 CFR § 170.30, the use of a food substance may be GRAS either through scientific procedures or, for a substance used in food before 1958, through experience based on common use in food.

          General recognition of safety through scientific procedures requires the same quantity and quality of scientific evidence as is required to obtain approval of the substance as a food additive and must be based upon the application of generally available and accepted scientific data, information, or methods, which are ordinarily published, as well as the application of scientific principles, and may be corroborated by unpublished studies and other data and information. General recognition of safety through experience based on common use in foods requires a substantial history of consumption of a substance for food use by a significant number of consumers. If an ingredient is GRAS for one use or in one form, it is not necessarily GRAS for all uses or forms. Under section 201(s) of the FD&C Act, it is the intended use of a substance, rather than the substance itself, that is eligible for classification as GRAS.

          Manufacturers of GRAS substances may notify the FDA of their view that a substance is GRAS and thus not subject to the premarket approval requirements of section 409 of the FD&C Act. The notification must include, among other things, a description of the substance, the applicable conditions of use, the dietary exposure, an explanation of the basis for the determination that the substance was determined to be safe for the intended use and supporting data and information. Upon review of such a notification, the FDA may respond with a "no questions" letter stating that while it has not made its own GRAS determination, it has no questions at the time regarding the applications' own GRAS determination. Alternatively, manufacturers may elect to "self-affirm" a given substance is GRAS without the voluntary FDA notification but should retain all applicable safety data used for the GRAS determination in the case of inquiry by the FDA. However, in neither case does this constitute an approval equivalent to that achieved through the food additive process. A manufacturer's use of such food additive is at its own risk and is dependent upon adequate substantiation and/or scientific support demonstrating safe use.

          With certain exceptions, clinical investigations in which an investigational drug is administered to human subjects must be conducted under an IND, as required by FDA regulations. The FDA published a guidance document in September 2013 for clinical investigators, sponsors, and IRBs, "Investigational New Drug Applications (INDs) — Determining Whether Human Research Studies Can Be Conducted without an IND ," that provides the FDA's thinking on when an IND is required for human research studies. Based on this guidance, we understand and believe that the FDA's interpretation of its regulations is that they do not require human testing of food ingredients or dietary supplements to be conducted under an IND unless such testing is intended to evaluate the product's ability to diagnose, cure, mitigate, treat, or prevent a disease or condition. In this guidance, the FDA specifically recognizes an IND will not be required when a study is designed to "evaluate the tolerability of a food in a specific susceptible population, including individuals with a disease in a diseased population," provided the study is not designed to assess the impact of the food or medical food on the disease. There is no assurance that our understanding of the FDA's guidance is accurate or that the FDA's thinking on this matter will not change. If it does, the FDA

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may decide to take enforcement action to prohibit the Non-IND testing of substances that it believes should be conducted under an IND. For any products that we ultimately develop as drugs, the FDA may delay or deny an IND submitted with supporting data from human studies with such products not conducted under an IND or require alternate or additional data to support the IND before authorizing an applicant to proceed.

          Additionally, depending on the circumstances, the use of a substance in certain clinical investigations under an IND may restrict the marketing of such substance in food. Section 301(II) of the FD&C Act prohibits the marketing of any food containing a drug substance for which substantial clinical investigations have been instituted and for which the existence of such investigations has been made public, unless the substance was marketed in food before any substantial clinical investigations involving the drug were instituted or one of the other exceptions in section 301(II) applies. Marketing the substance of interest in food before seeking an IND or beginning any clinical investigations preserves the option to continue to market the substance in those forms after substantial clinical investigations have been instituted and their existence has been made public.

          The FDA may classify some or all of our potential product candidates as containing a food additive that is not GRAS. Such classification would cause these product candidates to require pre-market approval for a food additive, or else it would need to be subject to an existing food additive regulation authorizing its use, which could substantially delay or prevent the commercialization of these product candidates for non-drug uses. Any delay in the regulatory consultation process or a determination that any of our drug or food product candidates do not meet regulatory requirements of the FDA, including any applicable GRAS requirements, could cause a delay in or prevent the commercialization of our product candidates, which may lead to reduced acceptance by the public or others or an inability to commercialize those candidates at all. Moreover, if the FDA determines that a product candidate marketed as a conventional food contains a non-GRAS additive after the product has already been commercialized, then the FDA may take enforcement or other legal consequences, including, but not limited to, warning or untitled letters, product withdrawals or recalls, product seizures, relabeling or repackaging, total or partial suspensions of manufacturing or distribution, injunctions, fines, civil penalties or criminal prosecution.

FDA regulation of dietary supplements

          The Dietary Supplement Health and Education Act of 1994, defines dietary supplement products to be "foods" under the FD&C Act, and they are regulated as such by the FDA. The FDA and other regulatory authorities, including the Federal Trade Commission, or FTC, similarly with conventional foods, regulate the manufacturing, preparation, quality control, import, export, packaging, labeling, marketing, advertising, promotion, distribution, safety, and/or adverse event reporting of dietary supplements. Among other things, manufacturers of dietary supplements must meet applicable cGMPs, and certain requirements that govern the manufacturing, packaging, labeling and holding of dietary supplements.

          Under federal law, dietary supplements are defined in relevant part as a product (other than tobacco) intended to supplement the diet that bears or contains one or more dietary ingredients, which include any of the following: a vitamin; a mineral; an herb or other botanical; an amino acid; a dietary substance for use by man to supplement the diet by increasing the total dietary intake; or a concentrate, metabolite, constituent, or extract, or any combination of those substances. Dietary supplements may not include articles that are approved as new drugs or biologics or that have been authorized for investigation as new drugs or biologics for which substantial clinical investigations have been instituted and made public, unless the article was marketed as a dietary supplement or food prior to such approval or authorization.

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          The manufacturer of a dietary supplement is responsible for ensuring the safety of its product and must demonstrate either that each dietary ingredient was marketed as a dietary supplement in the United States before October 15, 1994, or if the dietary ingredient was not marketed as a dietary supplement in the United States before October 15, 1994, referred to as a "new dietary ingredient," or NDI, then the dietary supplement contains only dietary ingredients that have been present in the food supply as an article used for food in a form in which the food has not been chemically altered. For any supplement containing a new dietary ingredient for which the dietary ingredients have not been present in the food supply as an article used for food in a form in which the food has not been chemically altered, the manufacturer or distributor of the dietary ingredient or the supplement must submit pre-market notification to the FDA at least 75 days before the initial marketing of the dietary ingredient when used under the conditions or suggested in the labeling of the dietary supplement. Even to the extent the NDI was present in the food supply prior to October 15, 1994 or is used in conventional foods, if there are any changes to the ingredient's manufacturing or form as it was present in the food supply at that time or from how it exists in its conventional food form, then the ingredient may also be considered a NDI requiring notification.

          Notification of use of a "New Dietary Ingredient" must inform the FDA of the basis on which the manufacturer has concluded that the supplement containing an NDI is reasonably expected to be safe under the recommended conditions of use. The FDA may not respond to such notification, but no response does not mean the FDA has determined that the ingredient is safe or permissible for use in a dietary supplement.

          If the FDA determines that a product candidate which has already been brought to market and marketed as a dietary supplement contains a NDI without prior notification or contains some other substance not permitted in supplements, it may determine that the product is adulterated and/or misbranded in violation of federal law. In such a case, the FDA may take enforcement or other legal actions, including, but not limited to, warning or untitled enforcement letters, product withdrawals or recalls, product seizures, relabeling or repackaging, total or partial suspensions of manufacturing or distribution, injunctions, fines, civil penalties or criminal prosecution. Any such enforcement actions or other consequences could have a material adverse effect on the firm and its current and future ability to development the product candidates through the selected pathway or other pathways.

          In addition, manufacturers of dietary supplements must ensure that ingredients in their products that are not defined as dietary ingredients comply with all the requirements applicable to foods. For example, fillers and other constituents of the product must be approved as food additives or must be deemed GRAS for the conditions of use in order to be sold.

Permissible claims for conventional foods and dietary supplements

          The FDA and other regulatory authorities, including the FTC, heavily regulate any express or implied claims made about food and dietary supplement products, and/or their ingredients, including, but not limited to, any claims made in product labeling, marketing, promotion, on social media, or on the firm's website. FTC seeks to ensure the truth, accuracy, and substantiation of dietary supplement claims, and the FDA regulates the type and specific content of such claims.

          With respect to dietary supplements, products are only allowed to make certain truthful and non-misleading claims without prior FDA-approval, and may not make health or qualified health claims, or any other claims that expressly or implicitly characterize the relationship between a substance and a disease or health-related condition (e.g., drug claims). Specifically, 21 C.F.R. § 101.93(g) prohibits claims, whether express or implied, that a dietary supplement is intended to "diagnose, mitigate, treat, cure, or prevent disease" and the use of such claims could subject a dietary supplement product to regulation as a drug. The FDA defines "disease" at 21 C.F.R. § 101.93(g)(1) to include any "damage to an organ, part, structure, or system of the body such that

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it does not function properly . . ., or a state of health leading to such dysfunctioning," though excludes diseases resulting from deficiencies in essential nutrients. For these types of claims, there must be significant scientific support and approval by the FDA prior to marketing the product. In other words, products marketed as dietary supplements cannot make health claims or drug claims (i.e., that the product is intended to diagnose, prevent, or cure any disease or condition) without prior FDA-approval of such claims. Dietary supplement products are permitted to make certain claims subject to post-market notification to the FDA and inclusion of an FDA-required disclaimer. These requirements apply to multiple types of claims, including "structure/function" claims that refer to a product's ability to maintain healthy bodily structure or function or claims describing the role of a nutrient or dietary ingredient or characterizing the way in which a nutrient or dietary ingredient supports or maintains such structure or function.

          In determining whether or not a particular claim is permissible, the FDA considers the overall context in which that claim is made. As such, the direct recommendation of particular products to users based on deficiencies or other characteristics in their nutritional or health profiles may be viewed by the FDA as an implied disease claim and thus impermissible (except for specific allowed health claims or qualified health claims for supplements or foods or allowed nutrient content claims in foods or structure/function claims for dietary supplements).

          The use of product claims on product candidates developed as non-drug products always carries a risk of regulatory enforcement action or other legal consequences, which may include class action litigation. Claims and other marketing or promotional activities also are potentially subject to federal and state consumer protection and unfair competition laws. Any such actions could materially affect us in an adverse way.

FDA regulation of medical food uses

          Medical foods are a category of foods distinct from conventional food and dietary supplements. The FDA and other regulatory authorities, including the FTC, also regulate the manufacturing, preparation, quality control, import, export, packaging, labeling, marketing, advertising, promotion, distribution, safety, and/or adverse event reporting of medical foods. Among other things, manufacturers of medical foods must meet relevant cGMPs, and certain requirements that govern the manufacturing, packaging, labeling and holding of foods.

          As defined in section 5(b)(3) of the Orphan Drug Act (21 U.S.C. 360ee(b)(3)), a medical food is "a food which is formulated to be consumed or administered enterally under the supervision of a physician and which is intended for the specific dietary management of a disease or condition for which distinctive nutritional requirements, based on recognized scientific principles, are established by medical evaluation." The FDA has established a regulation at 21 C.F.R. 101.9(j)(8) that further defines a medical food as a product that is (1) is specially formulated and processed product (as opposed to a naturally occurring foodstuff used in its natural state) for the partial or exclusive feeding of a patient by means of oral intake or enteral feeding by tube; (2) is intended for the dietary management of a patient who, because of therapeutic or chronic medical needs, has limited or impaired capacity to ingest, digest, absorb, or metabolize ordinary foodstuffs or certain nutrients, or who has other special medically determined nutrient requirements, the dietary management of which cannot be achieved by the modification of the normal diet alone; (3) provides nutritional support specifically modified for the management of the unique nutrient needs that result from the specific disease or condition, as determined by medical evaluation; (4) is intended to be used under medical supervision; and (5) is intended only for a patient receiving active and ongoing medical supervision wherein the patient requires medical care on a recurring basis for, among other things, instructions on the use of the medical food.

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          Because the marketing of medical foods generally does not require FDA pre-market approval, the medical food category may offer promising opportunities for our products should we pursue that development path. However, we understand that the FDA considers the statutory definition of medical foods to narrowly constrain the types of products that fit within this category of food. There can be no assurance we will be able to develop the data that are needed to substantiate the positioning of the product as a medical food or that the FDA would concur the product meets the definition of medical food. In such cases, the commercialization of such product candidates may be delayed or prevented. To the extent that any product candidate is marketed as a medical food and subsequently determined to not fall within the proper regulatory category or are considered to be misbranded or adulterated, the company may be subject to enforcement action or other legal consequences, including, but not limited to, warning or untitled letters, product withdrawals or recalls, product seizures, relabeling or repackaging, total or partial suspensions of manufacturing or distribution, injunctions, fines, civil penalties or criminal prosecution. Any such actions or other consequences could have a material adverse effect on the firm and its current and future ability to development the product candidates through the selected pathway or other pathways.

          Moreover, the ingredients and additives used in medical foods are subject to the same regulations as conventional foods and must be GRAS or otherwise covered by an existing food additive regulation, approved food additive petition, or authorized by a prior sanction. The FDA may determine that some or all of our potential product candidates contain ingredients that are not GRAS and are therefore food additives. Such classification would cause these product candidates to require pre-market approval for a food additive, which could substantially delay or prevent the commercialization of these product candidates for medical food uses. If the FDA determines that a product candidate marketed as a medical food contains a substance that is not GRAS and is therefore a food additive after the product has already been commercialized, and such food additive is not approved or authorized by the FDA pursuant to a food additive regulation, then the firm may face enforcement or other legal consequences including, but not limited to, those mentioned above.

Preclinical and Clinical Trials for drugs

          Once a product candidate is identified for development as a drug, it generally enters the preclinical testing stage. Preclinical studies include laboratory evaluations of drug chemistry, formulation and stability, as well as in vitro and animal studies to evaluate the potential for adverse events, which must be conducted in accordance with federal regulations and requirements, including GLP requirements. The results of the preclinical studies, together with manufacturing information and analytical data as well as the results of our Non-IND, IRB-Approved Clinical Studies, would be submitted to the FDA as part of an IND. An IND is a request for authorization from the FDA to administer an investigational product to humans for a therapeutic indication and must become effective before human Clinical Trials for such purpose may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the Clinical Trial, including concerns that human research subjects will be exposed to unreasonable health risks, and imposes a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the Clinical Trial can begin. Submission of an IND may result in the FDA not allowing Clinical Trials to commence or not allowing Clinical Trials to commence on the terms originally specified in the IND. A separate submission to an existing IND must also be made for each successive Clinical Trial conducted during product development, and the FDA must grant permission, either explicitly or implicitly by not objecting, before each Clinical Trial can begin.

          Such Clinical Trials involve the administration of the product candidate to human volunteers under the supervision of qualified investigators. Clinical Trials are conducted under protocols

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detailing, among other things, the objectives of the Clinical Trial, dosing procedures, subject selection and exclusion criteria and the parameters and criteria to be used in monitoring safety and evaluating effectiveness. Each protocol for our product candidates which we decide to market through the drug development pathway for therapeutic indications must be submitted to the FDA as part of the IND. An IRB for each investigator site proposing to participate in a Clinical Trial must also review and approve the Clinical Trial before it can begin at that site, and the IRB must monitor the Clinical Trial until it is completed. The FDA, the IRB, or the sponsor may suspend or discontinue a Clinical Trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk. Clinical testing of product candidates for therapeutic indications also must satisfy extensive GCP requirements, including requirements for informed consent.

          Human Clinical Trials to evaluate therapeutic indications to support New Drug Applications, or NDAs, for marketing approval are typically conducted in three sequential phases, which may overlap or be combined. In certain circumstances, where sufficient evidence of safety and tolerability are collected from preclinical studies and other human experience with a product, subject to discussions and acceptance by the FDA, such as our non-IND human clinical studies, we believe that for the development of such drug candidate, a human Clinical Trial may begin at Phase II rather than starting at Phase I. We would expect to discuss with the FDA such proposal to initiate the clinical development program of a drug candidate in a later phase study without first conducting a Phase I Clinical Trial or Trials.

    Phase I  — Phase I Clinical Trials involve initial introduction of the investigational product into healthy human volunteers or patients with the target disease or condition. These studies are typically designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the investigational product in humans, excretion the side effects associated with increasing Doses, and, if possible, to gain early evidence of effectiveness.

    Phase II  — Phase II Clinical Trials typically involve administration of the investigational product to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks.

    Phase III  — Phase III Clinical Trials typically involve administration of the investigational product to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed Clinical Trial sites. These Clinical Trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval and physician labeling.

          Post-approval trials, sometimes referred to as Phase IV Clinical Trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication and are commonly intended to generate additional safety data regarding use of the product in a clinical setting. In certain instances, the FDA may mandate the performance of Phase IV Clinical Trials as a condition of approval of an NDA.

          Progress reports detailing the results of the Clinical Trials for therapeutic indications, among other information, must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from other studies or animal or in vitro testing that suggest a significant risk for human volunteers and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.

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          Concurrent with Clinical Trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the product candidate and finalize a process for manufacturing the drug product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and manufacturers must develop, among other things, methods for testing the identity, strength, quality and purity of the final drug product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

Orphan Drug Designation

          Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000 individuals in the United States, there is no reasonable expectation that the cost of developing and making the product available in the United States for the disease or condition will be recovered from sales of the product. Orphan designation must be requested before submitting an NDA. Orphan designation does not convey any advantage in or shorten the duration of the regulatory review and approval process, though companies developing orphan products are eligible for certain incentives, including tax credits for qualified clinical testing and waiver of application fees.

          If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to a seven-year period of marketing exclusivity during which the FDA may not approve any other applications to market the same therapeutic agent for the same indication, except in limited circumstances, such as a subsequent product's showing of clinical superiority over the product with orphan exclusivity or where the original applicant cannot produce sufficient quantities of product. Competitors, however, may receive approval of different therapeutic agents for the indication for which the orphan product has exclusivity or obtain approval for the same therapeutic agent for a different indication than that for which the orphan product has exclusivity. Orphan product exclusivity could block the approval of one of our products for seven years if a competitor obtains approval for the same therapeutic agent for the same indication before we do, unless we are able to demonstrate that our product is clinically superior. If an orphan designated product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan exclusivity. Further, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Expedited development and review programs for drugs

          The FDA maintains several programs intended to facilitate and expedite development and review of new drugs to address unmet medical needs in the treatment of serious or life-threatening diseases or conditions. These programs include Fast Track designation, Breakthrough Therapy designation, Priority Review and Accelerated Approval, and the purpose of these programs is to either expedite the development or review of important new drugs to get them to patients earlier than under standard FDA development and review procedures.

          A new drug is eligible for Fast Track designation if it is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address unmet medical needs for such disease or condition. Fast Track designation provides increased opportunities for sponsor interactions with the FDA during preclinical and clinical development, in addition to the

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potential for rolling review once a marketing application is filed, meaning that the agency may review portions of the marketing application before the sponsor submits the complete application, as well as Priority Review, discussed below. In addition, a new drug may be eligible for Breakthrough Therapy designation if it is intended 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. Breakthrough Therapy designation provides all the features of Fast Track designation in addition to intensive guidance on an efficient drug development program beginning as early as Phase I, and FDA organizational commitment to expedited development, including involvement of senior managers and experienced review staff in a cross-disciplinary review, where appropriate.

          Any product submitted to the FDA for approval, including a product with Fast Track or Breakthrough Therapy designation, may also be eligible for additional FDA programs intended to expedite the review and approval process, including Priority Review designation and accelerated approval. A product is eligible for Priority Review if it has the potential to provide a significant improvement in safety or effectiveness in the treatment, diagnosis or prevention of a serious disease or condition. Under priority review, the FDA must review an application in six months compared to ten months for a standard review. Additionally, products are eligible for accelerated approval if they can be shown to have an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or an effect on a clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality which 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.

          Accelerated approval is usually contingent on a sponsor's agreement to conduct additional post-approval studies to verify and describe the product's clinical benefit. The FDA may withdraw approval of a drug or indication approved under accelerated approval if, for example, the confirmatory trial fails to verify the predicted clinical benefit of the product. In addition, unless otherwise informed by the FDA, the FDA currently requires, as a condition for accelerated approval, that all advertising and promotional materials that are intended for dissemination or publication within 120 days following marketing approval be submitted to the agency for review during the pre-approval review period, and that after 120 days following marketing approval, all advertising and promotional materials must be submitted at least 30 days prior to the intended time of initial dissemination or publication.

          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 the time period for FDA review or approval may not be shortened. Furthermore, Fast Track designation, Breakthrough Therapy designation, Priority Review and Accelerated Approval do not change the scientific or medical standards for approval or the quality of evidence necessary to support approval but may expedite the development or review process.

U.S. marketing approval for drugs

          Assuming successful completion of the required clinical testing of our product candidates for drug uses, the results of the preclinical 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. An NDA is a request for approval to market a new drug for one or more specified indications and must contain proof of the drug's safety and efficacy. The marketing application may include both negative and ambiguous results of preclinical studies and Clinical

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Trials, as well as positive findings. Data may come from company-sponsored Clinical Trials intended to test the safety and efficacy of a product's use or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of the FDA. FDA approval of an NDA must be obtained before a drug may be marketed in the United States. Under the Prescription Drug User Fee Act 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 on whether to accept the application for review.

          In addition, under the Pediatric Research Equity Act of 2003, as amended and reauthorized, 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. An Agreed Initial Pediatric Study Plan requesting a waiver from the requirement to conduct clinical studies has been submitted to the FDA.

          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 an in-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, which 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 Sponsor product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more Clinical Trial sites to assure compliance with GCP and other requirements and the integrity of the clinical data submitted to the FDA.

          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

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order to secure final approval of the NDA and may require additional clinical or preclinical 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, depending on the specific risk(s) to be addressed 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 IV 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.

U.S. post-approval requirements for drugs

          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. There is also a continuing, annual prescription drug product program user fee.

          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-market testing, including Phase IV Clinical Trials, and surveillance to further assess and monitor the product's safety and effectiveness after commercialization.

          In addition, drug manufacturers and their subcontractors involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP, which impose certain procedural and documentation requirements upon us and our contract manufacturers. Failure to comply with statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, product seizures, injunctions, civil penalties or criminal prosecution.

          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 revisions to the approved labeling to add new safety information, requirements for post-market studies or Clinical Trials to assess new safety risks, or imposition of distribution or other restrictions under a REMS. Other potential consequences include, among other things:

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

    safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the product;

    fines, warning letters or holds on post-approval Clinical Trials;

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

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

    injunctions or the imposition of civil or criminal penalties; and

    consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs; or mandated modification of promotional materials and labeling and issuance of corrective information.

Other regulatory matters

          Manufacturing, sales, promotion and other activities of product candidates following product approval, where applicable, or commercialization are also subject to regulation by numerous regulatory authorities in the United States in addition to the FDA, which may include the Centers for Medicare & Medicaid Services, or CMS, other divisions of the Department of Health and Human Services, the Department of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments and governmental agencies.

Other healthcare laws

          Healthcare providers, physicians, and third-party payors will play a primary role in the recommendation and prescription of any products for which we obtain marketing approval. Our business operations and any current or future arrangements with third-party payors, healthcare providers and physicians may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we develop, market, sell and distribute any drugs for which we obtain marketing approval. In the United States, these laws include, without limitation, state and federal anti-kickback, false claims, physician transparency, and patient data privacy and security laws and regulations, including but not limited to those described below.

    The Anti-Kickback Statute prohibits for any person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration, directly or indirectly, in cash or in kind, that is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to ten years in prison, criminal fines, administrative civil money penalties and exclusion from participation in federal healthcare programs. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it.

    Federal civil and criminal false claims laws, and civil monetary penalty laws including the federal False Claims Act, which imposes civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities (including manufacturers) for, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claim or avoiding, decreasing or concealing an obligation to pay money to the federal government. The government may deem manufacturers to have "caused" the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers, with respect to drug products, purportedly concealing price concessions in the pricing information submitted to the government for government price reporting purposes, allegedly providing free product to customers with the expectation

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      that the customers would bill federal healthcare programs for the product, or promoting a product off-label. Claims that include items or services resulting from a violation of the federal Anti-Kickback Statute are false or fraudulent claims for purposes of the False Claims Act. Any future marketing and activities relating to the reporting of wholesaler or estimated retail prices for drug products, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party reimbursement for our products, and the sale and marketing of our product and any future product candidates, are subject to scrutiny under this law.

    The Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for knowingly and willfully executing a scheme, or attempting to execute a scheme, to defraud any healthcare benefit program, including private payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, or falsifying, concealing or covering up a material fact or making any materially false statements in connection with the delivery of or payment for healthcare benefits, items or services.

    HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing regulations, imposes, among other things, specified requirements on covered entities and their business associates relating to the privacy and security of individually identifiable health information including mandatory contractual terms and required implementation of technical safeguards of such information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates in some cases, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys' fees and costs associated with pursuing federal civil actions.

    The Physician Payments Sunshine Act, enacted as part of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, imposed new annual reporting requirements for certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children's Health Insurance Program, for certain payments and "transfers of value" provided to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

    Analogous state and foreign fraud and abuse laws and regulations, such as state anti-kickback and false claims laws, which may be broader in scope and apply regardless of payor. These laws are enforced by various state agencies and through private actions. Some state laws require pharmaceutical companies implement compliance to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant federal government compliance guidance, require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, and restrict marketing practices or require disclosure of marketing expenditures and pricing information. State and foreign laws also govern the privacy and security of health information in some circumstances. These data privacy and security laws may differ from each other in significant ways and often are not pre-empted by HIPAA, which may complicate compliance efforts.

          The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of

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investigations, prosecutions, convictions and settlements in the healthcare industry. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other related governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, disgorgement, exclusion from government funded healthcare programs, such as Medicare and Medicaid, reputational harm, additional oversight and reporting obligations if we become subject to a corporate integrity agreement or similar settlement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to similar actions, penalties and sanctions. Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible investigations by government authorities, can be time- and resource-consuming and can divert a company's attention from its business.

Current and future healthcare reform legislation

          In the United States and foreign jurisdictions, there have been and continue to be a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could 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. We expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and additional downward pressure on the price that we, or any collaborators, may receive for any approved products.

          The ACA, for example, may reduce the profitability of drug products through increased rebates for drugs reimbursed by Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies' share of sales to federal health care programs. With the current Administration and Congress, there will likely be additional administrative or legislative changes, including modification, repeal, or replacement of all, or certain provisions of, the ACA, which may impact reimbursement for drugs. Since January 2017, President Trump has signed two executive orders and other directives designed to delay, circumvent or loosen certain requirements mandated by the ACA. While Congress has not passed repeal legislation, the Tax Reform Act includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the "individual mandate." 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 ACA, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. While the current administration and CMS have both stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, if any, and other efforts to repeal and replace the ACA will impact the ACA. Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the "donut hole." Congress may consider other legislation to repeal and replace elements of the ACA. Litigation and legislation over the ACA are likely to continue, with unpredictable and uncertain results.

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          Additionally, other federal health reform measures have been proposed and adopted in the United States since the ACA was enacted:

    The Budget Control Act of 2011, among other things, included aggregate reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2027, unless additional Congressional action is taken.

    The American Taxpayer Relief Act of 2012, among other things, also reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers.

          Further, there has been heightened governmental scrutiny over the manner in which drug manufacturers set prices for their marketed products, which have resulted in several recent Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. In addition, the United States government, state legislatures, and foreign governments have shown significant interest in implementing cost containment programs, including price-controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs to limit the growth of government paid health care costs. For example, the United States government has passed legislation requiring pharmaceutical manufacturers to provide rebates and discounts to certain entities and governmental payors to participate in federal healthcare programs. Further, Congress and the current administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs, and the current administration recently released a "Blueprint," or plan, to reduce the cost of drugs. The current administrations' Blueprint contains certain measures that the U.S. Department of Health and Human Services is already working to implement. Individual states in the United States have also been increasingly 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.

Compliance with other federal and state laws or requirements; Changing Legal requirements

          If any products that we may develop are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, labeling, packaging, distribution, sales, promotion and other activities also are potentially subject to federal and state consumer protection and unfair competition laws, among other requirements to which the firm or its products may be subject.

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

          The failure to comply with any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, exclusion from federal healthcare programs, requests for recall, seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, relabeling or repackaging, or refusal to allow a firm to enter into supply contracts, including government contracts. Any claim or action against us for violation of these laws, even if we successfully defend against it, could cause

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us to incur significant legal expenses and divert our management's attention from the operation of our business. Prohibitions or restrictions on marketing, sales or withdrawal of future products marketed by us could materially affect our business in an adverse way.

          Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling or packaging; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.

Other U.S. environmental, health and safety laws and regulations

          We may be subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and may also produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and waste products, we cannot completely eliminate the risk of contamination or injury resulting from these materials. In the event of contamination or injury resulting from the use or disposal of our hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

          We maintain workers' compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees, but this insurance may not provide adequate coverage against potential liabilities. However, we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us.

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

Government regulation of drugs outside of the United States

          To market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, Clinical Trials, marketing authorization or identification of an alternate regulatory pathway, manufacturing, commercial sales and distribution of our products. For instance, in the European Economic Area, or the EEA (comprised of the 28 EU Member States plus Iceland, Liechtenstein and Norway), medicinal products must be authorized for marketing by using either the centralized authorization procedure or national authorization procedures.

    Centralized procedure  — If pursuing marketing authorization of a product candidate for a therapeutic indication under the centralized procedure, following the opining of the EMA's Committee for Medicinal Products for Human Use, or, CHMP, the European Commission issues a single marketing authorization valid across the EEA. The centralized procedure is compulsory for human medicines derived from biotechnology processes or advanced therapy medicinal products (such as gene therapy, somatic cell therapy and tissue engineered products), products that contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, neurodegenerative disorders, diabetes, autoimmune diseases and other immune dysfunctions, viral diseases, and officially designated orphan medicines. For medicines that do not fall within these categories, an

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      applicant has the option of submitting an application for a centralized marketing authorization to the EMA, as long as the medicine concerned contains a new active substance not yet authorized in the EEA, is a significant therapeutic, scientific or technical innovation, or if its authorization would be in the interest of public health in the EEA. Under the centralized procedure the maximum timeframe for the evaluation of an MAA by the EMA 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 assessment might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest, particularly from the point of view of therapeutic innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is 150 days, excluding clock stops.

    National authorization procedures  — There are also two other possible routes to authorize products for therapeutic indications in several countries, which are available for products that fall outside the scope of the centralized procedure:

    Decentralized procedure  — Using the decentralized procedure, an applicant may apply for simultaneous authorization in more than one EU country of medicinal products that have not yet been authorized in any EU country and that do not fall within the mandatory scope of the centralized procedure.

    Mutual recognition procedure  — In the mutual recognition procedure, a medicine is first authorized in one EU Member State, in accordance with the national procedures of that country. Following this, additional marketing authorizations can be sought from other EU countries in a procedure whereby the countries concerned recognize the validity of the original, national marketing authorization.

          In the EEA, new products for therapeutic indications that are authorized for marketing (i.e., reference products) qualify for eight years of data exclusivity and an additional two years of market exclusivity upon marketing authorization. The data exclusivity period prevents generic or biosimilar applicants from relying on the preclinical and Clinical Trial data contained in the dossier of the reference product when applying for a generic or biosimilar marketing authorization in the EU during a period of eight years from the date on which the reference product was first authorized in the EU. The market exclusivity period prevents a successful generic or biosimilar applicant from commercializing its product in the EU until ten years have elapsed from the initial authorization of the reference product in the EU. The ten-year market exclusivity period can be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies.

          The criteria for designating an "orphan medicinal product" in the EEA are similar in principle to those in the United States. In the EEA a medicinal product may be designated as orphan if (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the EU when the application is made, or (b) the product, without the benefits derived from orphan status, would not generate sufficient return in the EU to justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the EU, or if such a method exists, the product will be of significant benefit to those affected by the condition. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon grant of a marketing authorization, entitled to ten years of market exclusivity for the approved therapeutic indication. During this ten-year orphan market exclusivity period, no marketing authorization application shall be accepted, and no marketing authorization shall be granted for a similar medicinal product for the same indication. An orphan product can

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also obtain an additional two years of market exclusivity in the EU for pediatric studies. The ten-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally, marketing authorization may be granted to a similar product for the same indication at any time if (i) the second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior; (ii) the applicant consents to a second orphan medicinal product application; or (iii) the applicant cannot supply enough orphan medicinal product.

          Similar to the United States, the various phases of non-clinical and clinical research in the European Union are subject to significant regulatory controls.

          The Clinical Trials Directive 2001/20/EC, the Directive 2005/28/EC on GCP and the related national implementing provisions of the individual EU Member States govern the system for the approval of Clinical Trials in the European Union. Under this system, an applicant must obtain prior approval from the competent national authority of the EU Member States in which the Clinical Trial is to be conducted. Furthermore, the applicant may only start a Clinical Trial at a specific study site after the competent ethics committee has issued a favorable opinion. The Clinical Trial application must be accompanied by, among other documents, an investigational medicinal product dossier (the Common Technical Document) with supporting information prescribed by Directive 2001/20/EC, Directive 2005/28/EC, where relevant the implementing national provisions of the individual EU Member States and further detailed in applicable guidance documents.

          In April 2014, the new Clinical Trials Regulation, (EU) No 536/2014 (Clinical Trials Regulation) was adopted. The Regulation is anticipated to come into application in 2019. The Clinical Trials Regulation will be directly applicable in all the EU Member States, repealing the current Clinical Trials Directive 2001/20/EC. Conduct of all Clinical Trials performed in the European Union will continue to be bound by currently applicable provisions until the new Clinical Trials Regulation becomes applicable. The extent to which ongoing Clinical Trials will be governed by the Clinical Trials Regulation will depend on when the Clinical Trials Regulation becomes applicable and on the duration of the individual Clinical Trial. If a Clinical Trial continues for more than three years from the day on which the Clinical Trials Regulation becomes applicable the Clinical Trials Regulation will at that time begin to apply to the Clinical Trial. The new Clinical Trials Regulation aims to simplify and streamline the approval of Clinical Trials in the European Union. The main characteristics of the regulation include: a streamlined application procedure via a single-entry point, the "EU portal"; a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures for Clinical Trial sponsors; and a harmonized procedure for the assessment of applications for Clinical Trials, which is divided in two parts. Part I is assessed by the competent authorities of all EU Member States in which an application for authorization of a Clinical Trial has been submitted (Member States concerned). Part II is assessed separately by each Member State concerned. Strict leadlines have been established for the assessment of Clinical Trial applications. The role of the relevant ethics committees in the assessment procedure will continue to be governed by the national law of the concerned EU Member State. However, overall related timelines will be defined by the Clinical Trials Regulation.

          The collection and use of personal health data in the European Union, previously governed by the provisions of the Data Protection Directive, is now governed by the GDPR, which became effective on May 25, 2018. While the Data Protection Directive did not apply to organizations based outside the EU, the GDPR has expanded its reach to include any business, regardless of its location, that provides goods or services to residents in the EU. This expansion would incorporate any Clinical Trial activities in EU members states. The GDPR imposes strict requirements on controllers and processors of personal data, including special protections for "sensitive information" which includes health and genetic information of data subjects residing in the EU. GDPR grants

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individuals the opportunity to object to the processing of their personal information, allows them to request deletion of personal information in certain circumstances, and provides the individual with an express right to seek legal remedies in the event the individual believes his or her rights have been violated. Further, the GDPR imposes strict rules on the transfer of personal data out of the European Union to the United States or other regions that have not been deemed to offer "adequate" privacy protections. Failure to comply with the requirements of the GDPR and the related national data protection laws of the European Union Member States, which may deviate slightly from the GDPR, may result in fines of up to 4% of global revenues, or € 20,000,000, whichever is greater. As a result of the implementation of the GDPR, we may be required to put in place additional mechanisms ensuring compliance with the new data protection rules.

          There is significant uncertainty related to the manner in which data protection authorities will seek to enforce compliance with GDPR. For example, it is not clear if the authorities will conduct random audits of companies doing business in the EU, or if the authorities will wait for complaints to be filed by individuals who claim their rights have been violated. Enforcement uncertainty and the costs associated with ensuring GDPR compliance are onerous and may adversely affect our business, financial condition, results of operations and prospects.

          Additionally, should we elect one or more product candidates to develop and market as non-drug products in foreign countries, such products would also be subject to regulation under various national, local, and international laws that include provision governing, among other things, the formulation, manufacturing, packaging, labeling, advertising. These regulations may prevent or delay entry into the market or prevent or delay the introduction, or require the reformulation, of certain of our non-drug product candidates.

          The regulatory environment outside the United States varies and in general is less developed then in the United States, but some exceptions do exist. The regulatory requirements for nutritional non-drug products and food products outside of the United States varies greatly from jurisdiction to jurisdiction. Each jurisdiction may have its own regulatory framework regarding nutritional non-drug products and food products. The two leading jurisdictions, the United States and the Europe, currently have and may continue to in the future to have distinctly different regulatory regimes with different rules and requirements nutritional non-drug products and food products, with, for example, the European Union having a stronger process for claims review and preapproval for nutritional products. Regulation in Europe is exercised primarily through the European Union, which regulates the combined market of each of its member states. Other European countries, such as Switzerland, have voluntarily adopted laws and regulations that mirror those of the European Union with respect to dietary products.

          We cannot predict how the global regulatory landscape regarding our possible nutritional non-drug products or food products, if any, will evolve and we may incur increased regulatory costs as regulations in the jurisdictions in which we operate evolve or change. We cannot predict whether or when any jurisdiction will change its regulations with respect to any of our product candidates.

          Should we utilize third part distributors, compliance with such foreign governmental regulations would generally be the responsibility of such distributors, who may be independent contractors over whom we have limited control.

Government regulation of food for special medical purpose in the European Union

          The regulatory requirements for foods for special medical purposes, or FSMPs, in the European Union cover FSMP development and commercialization.

          In the European Union, FSMPs are designed to feed patients who, because of a particular disease, disorder or medical condition, have nutritional needs that cannot be met by consuming standard foodstuffs. European Union Regulation defines food for special medical purposes' as food

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specially processed or formulated and intended for the dietary management of patients, including infants, to be used under medical supervision; it is intended for the exclusive or partial feeding of patients with a limited, impaired or disturbed capacity to take, digest, absorb, metabolize or excrete ordinary food or certain nutrients contained therein, or metabolites, or with other medically-determined nutrient requirements, whose dietary management cannot be achieved by modification of the normal diet alone.

          Businesses intending to commercialize FSMPs in the European Union are required to register their FSMPs by submitting notifications regarding FSMP use, demonstrating compliance with applicable European Union rules, prior to market commercialization. These notifications to competent authority of each European Union Member State include information appearing on the label, and any other information the competent authority may reasonably request to establish compliance with this Regulation.

          The European Commission may decide, by means of implementing acts (a) whether a given food falls within the scope of this Regulation; and (b) to which specific category of food a given food belongs. European Food Safety Authority Guidance provides, among other requirements, that the dossier must include an explanation of the scientific and medical basis on which it has been concluded that the use of the specific food product is necessary or is more practical or safer than the exclusive use of non-FSMP foodstuffs.

          FSMPs can also fall within the scope of the novel food legislation in the European Union. Where an ingredient used in the FSMP to be marketed in the European Union falls within the definition of a novel food ingredient' prior authorization for use of the ingredient needs to be sought. A "novel" food or food ingredients as food that has not been consumed to a significant degree by humans in the European Union before May 15, 1997 and that falls within one of the ten food categories listed. Novel foods and novel food ingredients can only be authorized if they do not pose a safety risk to human health, their intended use does not mislead the consumer and they do not differ from the food they are intended to replace in such a way that its normal consumption would be nutritionally disadvantageous for the consumer. The authorization procedure is likely to take between 12 and 18 months.

          In accordance with European Union Clinical Trials directives, before a Clinical Trial site is allowed to start enrolling patients in a Clinical Trial, the IRB/independent ethics committee, or IEC, must provide a positive opinion concerning the study protocol and all study-related materials. The competent authorities of the relevant European Union Member State must also provide their related authorization. Clinical Trials involving the investigation of the action of non-medicinal products (e.g., foods, such as many FSMPs), are not covered and are not required to register the Clinical Trial or to complete a Clinical Trial application (CTA) for approval by an European Union Member State.

Employees

          As of December 31, 2018, we had 49 full-time employees. Of those employees, 23 have Ph.D. or M.D. degrees and 32 are engaged in research and development activities. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good.

Facilities

          We lease a facility containing 19,200 square feet of laboratory and office space, which is located at 840 Memorial Drive, Cambridge, Massachusetts. The lease expires in April 2021, subject to two options to extend the lease for a total of six years. We believe that our current facilities are sufficient to meet our current and near-term needs.

Legal proceedings

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

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MANAGEMENT

Executive officers

          The following table sets forth certain information, as of April 1, 2019, concerning our executive officers who, subject to rights pursuant to any employment agreements, serve at the pleasure of our board of directors:

Name
  Age     Position  
William Hinshaw     50   President and Chief Executive Officer, Director
Thomas Leggett     42   Senior Vice President of Finance, Chief Financial Officer
Stephen Mitchener, PharmD.      40   Senior Vice President, Chief Business Officer
Manu Chakravarthy, M.D., Ph.D.      45   Senior Vice President, Chief Medical Officer
Tony Tramontin, Ph.D.      51   Senior Vice President of Research & Development, Chief Scientific Officer
Paul Fehlner, J.D., Ph.D.      55   Senior Vice President, Chief Intellectual Property Officer

          The following is a biographical summary of the experience of our executive officers.

           William Hinshaw has served as our President and Chief Executive Officer and as a member of our board of directors since June 2018. Prior to joining us, Mr. Hinshaw served in increasing roles of responsibility at Novartis Pharmaceuticals Corporation, a pharmaceutical company, from December 2003 until November 2017, most recently as the Executive Vice President and Head of U.S. Oncology. Mr. Hinshaw holds a B.S. in molecular biology from the University of Wisconsin. We believe that Mr. Hinshaw's experience, qualifications, attributes and skills, including experience in operations management and executive leadership qualify him to serve on our board of directors.

           Thomas Leggett has served as our Senior Vice President of Finance and Chief Financial Officer since January 2017. Prior to joining us, Mr. Leggett served as the Treasurer and Head of Business Development Finance at Purdue Pharma L.P., a pharmaceutical company, from May 2015 to December 2016. From November 2009 to May 2015, Mr. Leggett was an Executive Director at UBS Securities LLC, an investment bank, in the Global Healthcare Group with a primary focus in the biopharmaceutical sector. Mr. Leggett holds an M.B.A. in finance from The Wharton School at the University of Pennsylvania and a B.A. in economics from Columbia University.

           Stephen Mitchener, PharmD. has served as our Senior Vice President and Chief Business Officer since August 2018. Prior to joining us, Dr. Mitchener served in increasing roles of responsibility at Novartis Pharmaceuticals Corporation, a pharmaceutical company, from April 2005 to August 2018, most recently as Head of U.S. Oncology Strategy, Partnering and Operations. He previously served as a board observer for COTA Healthcare on behalf of Novartis Oncology. Dr. Mitchener holds a Post-Doctorate from Rutgers University and a PharmD. from the University of North Carolina at Chapel Hill.

           Manu Chakravarthy, M.D., Ph.D. has served as our Senior Vice President of Clinical Development and Chief Medical Officer since August 2017. Prior to joining us, Dr. Chakravarthy served as the Global Head of Innovation Strategy and External R&D in diabetes and cardiovascular research at Eli Lilly & Company, a pharmaceutical company, from August 2015 to June 2017. Previously, Dr. Chakravarthy spent more than seven years at Merck & Co., from September 2008 to August 2015, where he assumed positions of increasing responsibility and leadership within the company, most recently as a Distinguished Scientist and leader of the Discovery Medicine group for diabetes and cardiometabolic diseases within Translational Medicine. He is also Board-certified in Internal Medicine and Endocrinology, Diabetes & Metabolism and an Adjunct Clinical Assistant Professor of Medicine at the Rutgers School of Medicine, New Jersey. Dr. Chakravarthy holds an M.D. from the University of Texas Houston Medical School, a Ph.D. in cell biology and physiology

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from the University of Texas Graduate School of Biomedical Sciences and the MD Anderson Cancer Center and a B.A. in biology and chemistry from St. John's University.

           Tony Tramontin, Ph.D. has served as our Senior Vice President of Research & Development and Chief Scientific Officer since June 2017. Prior to joining us, Dr. Tramontin served as a Partner at McKinsey & Company, a consulting firm, in its Global Healthcare Practice from 2003 until May 2017. Dr. Tramontin holds a Ph.D. in biology (neuroscience and endocrinology) from the University of Washington and a B.A. in business from the University of Notre Dame.

           Paul Fehlner, J.D., Ph.D. has served as our Senior Vice President and Chief Intellectual Property Officer since April 2018. In addition, Dr. Fehlner has served as a Principal at Life Sciences Innovation LLC, an intellectual property and legal consulting firm, since December 2017. From November 2008 through November 2017, Dr. Fehlner served as Global Head of Intellectual Property at Novartis Pharma AG in Basel, Switzerland. Dr. Fehlner holds a J.D. from Fordham University School of Law, a Ph.D. in immunology and biochemistry from The Rockefeller University and a B.S. in chemistry from Haverford College.

Non-employee directors

          The following table sets forth certain information, as of April 1, 2019, concerning our non-employees who serve on our board of directors:

Name
  Age     Position  
Non-employee directors:          
David R. Epstein (2)(3)     57   Chairman, Director
William D. Baird III (1)(2)     47   Director
Grégory Behar (1)     49   Director
David A. Berry, M.D., Ph.D. (3)     41   Director
Stephen Hoge, M.D. (2)     43   Director
Gary Pisano, Ph.D. (1)     57   Director
Cristina M. Rondinone, Ph.D. (3)     58   Director
Christopher A. Viehbacher     58   Director

(1)
Member of audit committee.

(2)
Member of compensation committee.

(3)
Member of nominating and corporate governance committee.

          The following is a biographical summary of the experience of our non-employee directors.

           David R. Epstein has served as our Chairman and as a member of our board of directors since December 2017. Mr. Epstein has also served as Executive Partner at Flagship Pioneering, a private equity and venture capital firm, since January 2017. From January 2010 to July 2016, Mr. Epstein served as Chief Executive Officer of Novartis Pharmaceuticals Corporation, a pharmaceutical company. He currently serves on the boards of directors of International Flavors and Fragrances, Inc. (NYSE: IFF), Evelo Biosciences, Inc. (Nasdaq: EVLO) and of Rubius Therapeutics, Inc. (Nasdaq: RUBY), as Executive Chairman. Mr. Epstein holds an M.B.A. in finance and marketing from Columbia Business School and a B.S. in pharmacy from Rutgers University. We believe that Mr. Epstein's extensive experience serving in executive roles in the life sciences industry and leading the development and commercialization of numerous therapeutics qualify him to serve on our board of directors.

           William D. Baird III has served as a member of our board of directors since June 2018. He joined bluebird bio, Inc. as Chief Financial Officer in February 2019 and previously served as Chief

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Financial Officer of Amicus Therapeutics, Inc., a pharmaceutical company, from April 2012 to December 2018. Mr. Baird holds an M.B.A. in finance from The Wharton School of the University of Pennsylvania and a B.S.F.S. in international affairs from the Edmund A. Walsh School of Foreign Service of Georgetown University. We believe Mr. Baird's broad experience in pharmaceutical finance and executive management roles qualify him to serve on our board of directors.

           Grégory Behar has served as a member of our board of directors since February 2016. Mr. Behar has also served as Chief Executive Officer of Nestlé Health Science S.A., a health sciences company, since October 2014. He currently serves on the board of directors of Aimmune Therapeutics, Inc. (Nasdaq: AIMT) and Seres Therapeutics, Inc. (Nasdaq: MCRB). Mr. Behar holds an M.B.A. from INSEAD in France, a M.S. in mechanical engineering and manufacturing from EPFL in Switzerland, and a B.S. in mechanical engineering from the University of California, Los Angeles. We believe that Mr. Behar's extensive business experience in the health sciences and pharmaceutical industries qualifies him to serve on our board of directors.

           David A. Berry, M.D., Ph.D. helped co-found the company in 2008 and has served as a member of our board of directors since February 2011. Dr. Berry has also served in roles of increasing responsibility at Flagship Pioneering Inc. since January 2005 most recently as General Partner. He previously served as a director of Seres Therapeutics, Inc. (Nasdaq: MCRB). He holds an M.D. from Harvard Medical School, a Ph.D. in biological engineering from the Massachusetts Institute of Technology Biological Engineering Division and a B.S. in brain and cognitive sciences from the Massachusetts Institute of Technology. We believe that Dr. Berry's extensive experience in the life sciences industry qualifies him to serve on our board of directors.

           Stephen Hoge, M.D. has served as a member of our board of directors since May 2014. He has also served in roles of increasing responsibility at Moderna Therapeutics, Inc., a biopharmaceutical company, since December 2012, most recently as President. Dr. Hoge holds an M.D. from the University of California, San Francisco and a B.A. in neuroscience from Amherst College. We believe that Dr. Hoge's medical knowledge and extensive experiences in the pharmaceutical industry as a management consultant and executive at a biotechnology company qualify him to serve on our board of directors.

           Gary Pisano, Ph.D. has served as a member of our board of directors since October 2011. Dr. Pisano is the Harry E. Figgie, Jr. Professor of Business Administration and Senior Associate Dean for Faculty Development at the Harvard Business School. He has served on the Harvard faculty since 1988. Dr. Pisano's research and teaching focus on technology and operations strategy, the management of innovation and intellectual property, and competitive strategy. For more than two decades, he has consulted extensively on these issues with companies in the pharmaceutical, biotechnology, medical device, specialty chemical and healthcare industries. He has previously served as a director of Axovant Sciences Ltd. (Nasdaq: AXON) and Patheon NV (NYSE: PTHN). Dr. Pisano holds a Ph.D. in business administration from the University of California, Berkeley and a B.A. in economics from Yale University. We believe that Dr. Pisano's knowledge of business administration, innovation, and strategy, particularly within the healthcare industry, qualifies him to serve on our board of directors.

           Cristina M. Rondinone, Ph.D. has served as a member of our board since June 2018. Dr. Rondinone has also served in roles of increasing responsibility at MedImmune, LLC, a wholly owned subsidiary of AstraZeneca, since March 2011, most recently as Senior Vice President R&D, Head of Cardiovascular, Renal and Metabolic Diseases Innovative Medicines and Early Development. Dr. Rondinone holds a Docent in molecular medicine from the University of Goteborg, Sweden School of Medicine and a M.Sc. and Ph.D. in biological sciences from the University of Buenos Aires. We believe that Dr. Rondinone's extensive industry experience qualifies her to serve on our board of directors.

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           Christopher A. Viehbacher has served as a member of our board of directors since September 2015. Mr. Viehbacher has also served as the Managing Partner of Gurnet Point Capital, an investment fund, since 2015. He currently serves on the boards of directors of PureTech Health plc. From 2011 to 2104, Mr. Viehbacher served as the Chief Executive Officer of Sanofi S.A., a French pharmaceutical company. He holds a B.C. from Queen's University. We believe that Mr. Viehbacher's extensive experience in the pharmaceutical and healthcare industries qualifies him to serve on our board of directors.

Our Board of Directors

          As of December 31, 2018, our board of directors consisted of nine members, each of whom is a member pursuant to the board composition provisions of our certificate of incorporation and agreements with our stockholders. These board composition provisions will terminate upon the completion of this offering. Upon the termination of these provisions, there will be no further contractual obligations regarding the election of our directors. Our nominating and corporate governance committee and our board of directors may therefore consider a broad range of factors relating to the qualifications and background of nominees. Our nominating and corporate governance committee's and our board of directors' priority in selecting board members is the identification of persons who will further the interests of our stockholders through their established record of professional accomplishment, the ability to contribute positively to the collaborative culture among board members, knowledge of our business, understanding of the competitive landscape, professional and personal experiences and expertise relevant to our growth strategy. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal. Our restated certificate of incorporation and amended and restated bylaws that will become effective upon the completion of this offering also provide that our directors may be removed only for cause by the affirmative vote of the holders of at least two-thirds of the votes that all of our stockholders would be entitled to cast in an annual election of directors, and that any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office.

Director independence

          Our board of directors has determined that all members of the board of directors, except William Hinshaw, are independent directors, including for purposes of the rules of The Nasdaq Global Market and the SEC. In making such independence determination, our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances that our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. In considering the independence of the directors listed above, our board of directors considered the association of our directors with the holders of more than 5% of our common stock. Upon the completion of this offering, we expect that the composition and functioning of our board of directors and each of our committees will comply with all applicable requirements of The Nasdaq Global Market and the rules and regulations of the SEC, subject to applicable phase-in periods. Under Nasdaq listing rule 5615(b)(1) a company listing in connection with its initial public offering is permitted to phase in its compliance with the independent committee requirements, the committee composition requirements and the majority independent board requirement. There are no family relationships among any of our directors or executive officers. William Hinshaw is not an independent director under these rules because he is an executive officer of our company.

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Staggered board

          In accordance with the terms of our restated certificate of incorporation and amended and restated bylaws that will become effective upon the completion of this offering, our board of directors will be divided into three staggered classes of directors and each director will be assigned to one of the three classes. At each annual meeting of the stockholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The terms of the directors will expire upon the election and qualification of successor directors at the annual meeting of stockholders to be held during the years 2020 for Class I directors, 2021 for Class II directors and 2022 for Class III directors.

    Our Class I directors will be Christopher Viehbacher, David Epstein and David Berry;

    Our Class II directors will be Grégory Behar, Gary Pisano and Cristina M. Rondinone; and

    Our Class III directors will be William D. Baird III, William Hinshaw and Stephen Hoge.

          Our restated certificate of incorporation and amended and restated bylaws that will become effective upon the completion of this offering will provide that the number of directors shall be fixed from time to time by a resolution of the majority of our board of directors.

          The division of our board of directors into three classes with staggered three-year terms may delay or prevent stockholder efforts to effect a change of our management or a change in control.

Board leadership structure and board's role in risk oversight

          David R. Epstein is the current Chairman of our board of directors and William Hinshaw is our current Chief Executive Officer, hence the roles of Chairman of our board of directors and Chief Executive Officer are separated. We believe that separating these positions allows our Chief Executive Officer to focus on our day-to-day business, while allowing our Chairman of the board to lead the board of directors in its fundamental role of providing advice to and independent oversight of management. Our board of directors recognizes the time, effort and energy that the Chief Executive Officer is required to devote to his position in the current business environment, as well as the commitment required to serve as our Chairman, particularly as the board of directors' oversight responsibilities continue to grow. While our amended and restated bylaws and corporate governance guidelines do not require that our Chairman and Chief Executive Officer positions be separate, our board of directors believes that having separate positions is the appropriate leadership structure for us at this time and demonstrates our commitment to good corporate governance.

          Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including risks relating to our financial condition, development and commercialization activities, operations, strategic direction and intellectual property as more fully discussed in the section entitled "Risk Factors" appearing elsewhere in this prospectus. Management is responsible for the day-to-day management of risks we face, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

          The role of the board of directors in overseeing the management of our risks is conducted primarily through committees of the board of directors, as disclosed in the descriptions of each of the committees below and in the charters of each of the committees. The full board of directors (or the appropriate board committee in the case of risks that are under the purview of a particular committee) discusses with management our major risk exposures, their potential impact on us, and

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the steps we take to manage them. When a board committee is responsible for evaluating and overseeing the management of a particular risk or risks, the chairman of the relevant committee reports on the discussion to the full board of directors during the committee reports portion of the next board meeting. This enables the board of directors and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.

Committees of our board of directors

          Our board of directors has established an audit committee and a compensation committee, and intends to establish a nominating and corporate governance committee, each of which will operate pursuant to a charter adopted by our board of directors and will be effective upon the effectiveness of the registration statement of which this prospectus is a part. Upon the effectiveness of the registration statement of which this prospectus is a part, the composition and functioning of all of our committees will comply with all applicable requirements of the Sarbanes-Oxley Act of 2002, Nasdaq and SEC rules and regulations.

Audit committee

          Effective upon the closing of this offering Grégory Behar, William D. Baird III, and Gary Pisano will serve on the audit committee, which will be chaired by Mr. Baird. Our board of directors has determined that each of the members of the audit committee "independent" for audit committee purposes as that term is defined in the rules of the SEC and the applicable Nasdaq rules, and each of the committee members has sufficient knowledge in financial and auditing matters to serve on the audit committee. Our board of directors has designated Mr. Baird as an "audit committee financial expert," as defined under the applicable rules of the SEC. The audit committee's responsibilities include:

    appointing, approving the compensation of, and assessing the independence of our independent registered public accounting firm;

    pre-approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;

    reviewing the overall audit plan with our independent registered public accounting firm and members of management responsible for preparing our financial statements;

    reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us;

    coordinating the oversight and reviewing the adequacy of our internal control over financial reporting;

    establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns;

    recommending based upon the audit committee's review and discussions with management and our independent registered public accounting firm whether our audited financial statements shall be included in our Annual Report on Form 10-K;

    monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to our financial statements and accounting matters;

    preparing the audit committee report required by SEC rules to be included in our annual proxy statement;

    reviewing all related person transactions for potential conflict of interest situations and approving all such transactions; and

    reviewing quarterly earnings releases.

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Compensation committee

          Effective upon the closing of this offering David R. Epstein, William D. Baird III, and Stephen Hoge will serve on the compensation committee, which will be chaired by Mr. Epstein. Our board of directors has determined that each member of the compensation committee is "independent" as defined in the applicable Nasdaq rules. The compensation committee's responsibilities include:

    annually reviewing and recommending to the board of directors the corporate goals and objectives relevant to the compensation of our Chief Executive Officer;

    evaluating the performance of our Chief Executive Officer in light of such corporate goals and objectives and based on such evaluation: (i) recommending to the board of directors the cash compensation of our Chief Executive Officer and (ii) recommending grants and awards to our Chief Executive Officer under equity-based plans;

    reviewing and approving or recommending to the board of directors the cash compensation of our other executive officers;

    reviewing and establishing our overall management compensation, philosophy and policy;

    overseeing and administering our compensation and similar plans;

    evaluating and assessing potential and current compensation advisors in accordance with the independence standards identified in the applicable Nasdaq rules;

    reviewing and approving our policies and procedures for the grant of equity-based awards;

    reviewing and recommending to the board of directors the compensation of our directors;

    preparing the compensation committee report required by SEC rules, if and when required, to be included in our annual proxy statement; and

    reviewing and approving the retention, termination or compensation of any consulting firm or outside advisor to assist in the evaluation of compensation matters.

Nominating and corporate governance committee

          Effective upon the closing of this offering David R. Epstein, David A. Berry, and Christina M. Rondinone will serve on the nominating and corporate governance committee, which will be chaired by Mr. Epstein. Our board of directors has determined that each of the members of the nominating and corporate governance committee are "independent" as defined in the applicable Nasdaq rules. The nominating and corporate governance committee's responsibilities include:

    developing and recommending to the board of directors criteria for board and committee membership;

    establishing procedures for identifying and evaluating board of director candidates, including nominees recommended by stockholders;

    reviewing the composition of the board of directors to ensure that it is composed of members containing the appropriate skills and expertise to advise us;

    identifying individuals qualified to become members of the board of directors;

    recommending to the board of directors the persons to be nominated for election as directors and to each of the board's committees;

    developing and recommending to the board of directors a code of business conduct and ethics and a set of corporate governance guidelines; and

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    overseeing the evaluation of our board of directors and management. Our board of directors may from time to time establish other committees.

Compensation committee interlocks and insider participation

          None of the members of our compensation committee has at any time during the prior three years been one of our officers or employees. None of our executive officers currently serves, or in the past fiscal year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Corporate governance

          We have adopted a written code of business conduct and ethics, which will become effective upon the effectiveness of the registration statement of which this prospectus is a part, that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Following the effectiveness of the registration statement of which this prospectus is a part, a current copy of the code will be posted on the investor relations section of our website, which is located at http://www.axcellahealth.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.

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EXECUTIVE COMPENSATION

Executive compensation overview

          Our executive compensation program has reflected our growth and development-oriented corporate culture. To date, the compensation of the individuals listed below, whom we refer to as our named executive officers, has primarily consisted of a combination of base salary, bonuses and long-term incentive compensation. Our named executive officers, like all of our full-time employees, are eligible to participate in our health and welfare benefit plans. As we transition from a private company to a publicly traded company, we will evaluate our compensation values and philosophy and compensation plans and arrangements as circumstances require. At a minimum, we expect to review executive compensation annually with input from a compensation consultant. As part of this review process, we expect the board of directors and the compensation committee to apply our values and philosophy, while considering the compensation levels needed to ensure our executive compensation program remains competitive. We will also review whether we are meeting our retention objectives and the potential cost of replacing a key employee.

2018 Summary compensation table

          The following table presents information regarding the total compensation awarded to, earned by, and paid to our named executive officers for services rendered to us in all capacities for the year indicated.

Name and principal position
  Year     Salary ($)     Bonus ($)     Non-Equity
Incentive Plan
Compensation ($) (1)
 
  Option
awards ($) (2)
 
  All other
compen-
sation ($)
 
  Total ($)    

William Hinshaw,

    2018     278,910 (4)         231,563     3,608,347     160,000 (7)   4,278,820  

President and CEO (Principal Executive Officer) (3)

                                           

Thomas Leggett,

    2018     341,700           137,534     392,188         871,422  

CFO (Principal Financial Officer)

                                           

Stephen Mitchener, PharmD.,

    2018     127,563 (5)   15,000 (6)   53,969     674,923     21,210 (8)   892,665  

Chief Business Officer

                                           

Robert Connelly,

    2018     206,291                   355,578 (9)   561,869  

Former President and CEO (Principal Executive Officer) (3)

                                           

(1)
The amounts reported represent cash incentive compensation based on the Board's assessment of the achievement of company and individual performance objectives for the year ended December 31, 2018, which were paid in February 2019.

(2)
The amounts reported represent the aggregate grant-date fair value of stock options awarded in 2018, calculated in accordance with FASB ASC Topic 718. The assumptions used in calculating the grant-date fair value are set forth in Note 7 to our audited consolidated financial statements appearing at the end of this prospectus.

(3)
Mr. Hinshaw currently serves as our President and Chief Executive Officer and commenced employment with us in June 2018. Previously, Mr. Connelly served as our President and Chief Executive Officer until May 2018.

(4)
Mr. Hinshaw commenced employment with us in June 2018. His annual base salary for 2018 was $475,000.

(5)
Dr. Mitchener commenced employment with us in August 2018. His annual base salary for 2018 was $330,000.

(6)
The amounts reported represent a one-time sign-on bonus.

(7)
The amounts reported represent a one-time relocation stipend.

(8)
The amounts reported represent a housing stipend of $15,000 and commuting expenses of $6,210.

(9)
The amounts reported represent $337,500 in severance payments and $18,078 in COBRA premiums.

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Narrative disclosure to 2018 summary compensation table

          Base Salary — Each named executive officer's base salary is a fixed component of annual compensation for performing specific duties and functions, and has been established by our board of directors taking into account each individual's role, responsibilities, skills and experience.

          Cash Bonus — Our annual bonus program is intended to reward our named executive officers for meeting objective or subjective performance goals for a fiscal year.

          Long-Term Equity Incentives — Our equity grant program is intended to align the interests of our named executive officers with those of our stockholders and to motivate them to make important contributions to our performance.

Employment and consulting arrangements with our named executive officers

William Hinshaw

          Under our Amended and Restated Employment Agreement with Mr. Hinshaw, dated December 20, 2018, or the Hinshaw Employment Agreement, he will continue to serve as our President and Chief Executive Officer on an at will basis. Mr. Hinshaw currently receives a base salary of $475,000 per year, which is subject to periodic review and adjustment. Mr. Hinshaw is also eligible for an annual performance bonus targeted at 50% of his base salary and is eligible to participate in the employee benefit plans generally available to our employees, subject to the terms of those plans. Effective upon the completion of this offering, Mr. Hinshaw's base salary will increase to $500,000 per year and his annual performance bonus target will increase to 55% of his base salary. In addition, in March 2019, we approved a grant to Mr. Hinshaw of a performance option to purchase 112,000 shares of our common stock, contingent upon the completion of an initial public offering that the board of directors deems successful (the "Vesting Start Date"). The option will vest 25% on the first anniversary of the Vesting Start Date, with the remainder vesting in equal quarterly installments over the three years following the first anniversary of the Vesting Start Date.

          The Hinshaw Employment Agreement further provides that if Mr. Hinshaw's employment is terminated by us without Cause (as defined in the Hinshaw Employment Agreement) or Mr. Hinshaw resigns for Good Reason (as defined in the Hinshaw Employment Agreement), he will be entitled to receive: (i) base salary continuation for 12 months following termination, or the Hinshaw Severance Amount, and, (ii) if Mr. Hinshaw is enrolled in our health care program immediately prior to the date of termination and properly elects to receive COBRA benefits, 12 months of COBRA premiums for himself and his eligible dependents at our normal rate of contribution for employees for coverage at the level in effect immediately prior to the date of termination (or a monthly cash payment in lieu thereof if we determine we cannot pay such amounts without potentially violating applicable law). Payment of the Hinshaw Severance Amount shall immediately cease if Mr. Hinshaw breaches the terms of the Restrictive Covenants Agreement between him and us. In lieu of the severance payments and benefits set forth above, in the event Mr. Hinshaw's employment is by us without Cause or he resigns for Good Reason, in either case within 12 months following a Change in Control (as defined in the Hinshaw Employment Agreement), he will be entitled to receive: (i) a lump sum cash amount equal to 1.5 times the sum of (A) his current base salary (or his base salary in effect prior to the Change in Control, if higher) plus (B) his target annual cash incentive compensation for the year of termination, (ii) if Mr. Hinshaw is enrolled in our health care program immediately prior to the date of termination and properly elects to receive COBRA benefits, 18 months of COBRA premiums for himself and his eligible dependents at our normal rate of contribution for employees for coverage at the level in effect immediately prior to the date of termination (or a monthly cash payment in lieu thereof if we determine we cannot pay such amounts without potentially violating applicable law), and

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(iii) notwithstanding anything to the contrary provided in the applicable award agreement, accelerated vesting of 100% of all Time-Based Equity Awards held by Mr. Hinshaw.

Thomas Leggett

          Under our Amended and Restated Employment Agreement with Mr. Leggett, dated December 31, 2018, or the Leggett Employment Agreement, he will continue to serve as our Senior Vice President and Chief Financial Officer on an at-will basis. Mr. Leggett currently receives a base salary of $341,700 per year, which is subject to periodic review and adjustment. Mr. Leggett is also eligible for an annual performance bonus targeted at 40% of his base salary and is eligible to participate in the employee benefit plans generally available to our employees, subject to the terms of those plans.

          The Leggett Employment Agreement further provides that if Mr. Leggett's employment is terminated by us without Cause (as defined in the Leggett Employment Agreement) or Mr. Leggett resigns for Good Reason (as defined in the Leggett Employment Agreement), he will be entitled to receive: (i) base salary continuation for nine months following termination, or the Leggett Severance Amount, and, (ii) if Mr. Leggett is enrolled in our health care program immediately prior to the date of termination and properly elects to receive COBRA benefits, nine months of COBRA premiums for himself and his eligible dependents at our normal rate of contribution for employees for coverage at the level in effect immediately prior to the date of termination (or a monthly cash payment in lieu thereof if we determine we cannot pay such amounts without potentially violating applicable law). Payment of the Leggett Severance Amount shall immediately cease if Mr. Leggett breaches the terms of the Restrictive Covenants Agreement between him and us. In lieu of the severance payments and benefits set forth above, in the event Mr. Leggett's employment is by us without Cause or he resigns for Good Reason, in either case within 12 months following a Change in Control (as defined in the Leggett Employment Agreement), he will be entitled to receive: (i) a lump sum cash amount equal to 1 times the sum of (A) his current base salary (or his base salary in effect prior to the Change in Control, if higher) plus (B) his target annual cash incentive compensation for the year of termination, (ii) if Mr. Leggett is enrolled in our health care program immediately prior to the date of termination and properly elects to receive COBRA benefits, 12 months of COBRA premiums for himself and his eligible dependents at our normal rate of contribution for employees for coverage at the level in effect immediately prior to the date of termination (or a monthly cash payment in lieu thereof if we determine we cannot pay such amounts without potentially violating applicable law), and (iii) except as otherwise provided in the applicable award agreement, accelerated vesting of 100% of all Time-Based Equity Awards held by Mr. Leggett.

Stephen Mitchener

          Under our Amended and Restated Employment Agreement with Dr. Mitchener, dated December 29, 2018, or the Mitchener Employment Agreement, he will continue to serve as our Senior Vice President and Chief Business Officer on an at-will basis. Dr. Mitchener currently receives a base salary of $330,000 per year, which is subject to periodic review and adjustment. Dr. Mitchener is also eligible for an annual performance bonus targeted at 40% of his base salary and is eligible to participate in the employee benefit plans generally available to our employees, subject to the terms of those plans.

          Under the Mitchener Employment Agreement, Dr. Mitchener is entitled to a housing stipend of up to $3,000 per month as long as his main domicile remains in New Jersey. The Company will review the housing stipend two years after Dr. Mitchener's start date and may extend or terminate it in its sole discretion. Dr. Mitchener is also entitled to receive reimbursements of up to $600 per week for commuting expenses as long as his main domicile remains in New Jersey. In addition,

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under the Mitchener Employment Agreement, Dr. Mitchener is also obligated to repay the entire signing bonus he received from the Company (equal to $15,000 less taxes and withholding) in the event that, prior to February 13, 2019, he resigns other than for Good Reasons or his employment is terminated for Cause (as such terms are defined in the Mitchener Employment Agreement).

          The Mitchener Employment Agreement also provides for the grant of the following equity awards subject to final approval by the board of directors or the compensation committee: (i) an option to purchase the Company's common stock in an amount equal to approximately 0.6% of the Company's stock on a fully diluted basis following the closing of the Company's Series E financing round (the "New Hire Options"), and (ii) if during the 12 month period after August 13, 2018, which may be extended to 24 months with modified terms at the discretion of the Compensation Committee, the Company signs a partnership agreement with an upfront cash payment of at least $10 million with a third party to develop one or more therapeutic products an additional option to purchase the Company's common stock in an amount equal to approximately 0.25% of the Company's stock on a fully diluted basis following the closing of the Company's Series E financing round (the "Performance Options"). The New Hire Options will vest 25% on the first anniversary of Dr. Mitchener's start date, with the remainder vesting in equal quarterly installments over the three years following the first anniversary of Dr. Mitchener's start date. The Performance Options will vest 25% on the first anniversary of the closing of the partnership satisfying the performance criteria, with the remainder vesting in equal quarterly installments over the three years following the first anniversary of closing the partnership.

          The Mitchener Employment Agreement further provides that if Dr. Mitchener's employment is terminated by us without Cause (as defined in the Mitchener Employment Agreement) or Dr. Mitchener resigns for Good Reason (as defined in the Mitchener Employment Agreement), he will be entitled to receive: (i) base salary continuation for nine months following termination, or the Mitchener Severance Amount, and, (ii) if Dr. Mitchener is enrolled in our health care program immediately prior to the date of termination and properly elects to receive COBRA benefits, nine months of COBRA premiums for himself and his eligible dependents at our normal rate of contribution for employees for coverage at the level in effect immediately prior to the date of termination (or a monthly cash payment in lieu thereof if we determine we cannot pay such amounts without potentially violating applicable law). Payment of the Mitchener Severance Amount shall immediately cease if Dr. Mitchener breaches the terms of the Restrictive Covenants Agreement between him and us. In lieu of the severance payments and benefits set forth above, in the event Dr. Mitchener's employment is by us without Cause or he resigns for Good Reason, in either case within 12 months following a Change in Control (as defined in the Mitchener Employment Agreement), he will be entitled to receive: (i) a lump sum cash amount equal to one times the sum of (A) his current base salary (or his base salary in effect prior to the Change in Control, if higher) plus (B) his target annual cash incentive compensation for the year of termination, (ii) if Dr. Mitchener is enrolled in our health care program immediately prior to the date of termination and properly elects to receive COBRA benefits, 12 months of COBRA premiums for himself and his eligible dependents at our normal rate of contribution for employees for coverage at the level in effect immediately prior to the date of termination (or a monthly cash payment in lieu thereof if we determine we cannot pay such amounts without potentially violating applicable law), and (iii) notwithstanding anything to the contrary provided in the applicable award agreement, accelerated vesting of 100% of all Time-Based Equity Awards held by Dr. Mitchener.

Robert Connelly

          In connection with Mr. Connelly's employment relationship ending on May 31, 2018, or the Separation Date, we entered into a Separation Agreement with Mr. Connelly dated May 7, 2018. Under this Separation Agreement, subject to Mr. Connelly's compliance with his obligations under

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the agreement, including a general release of any potential claims against the Company, Mr. Connelly received severance benefits that included COBRA coverage and base salary payments for nine months and an extension of the applicable exercise period for 51,146 options that were vested as of the Separation Date through the earlier of (i) a date that is six months after the closing an initial public offering by us or (ii) December 31, 2019. All unvested options were forfeited and void as of the Separation Date. In addition, we entered into a Stock Repurchase Agreement with Mr. Connelly dated May 31, 2019 in which we repurchased 168,594 shares of the Company owned by Mr. Connelly at a cost of $3.37 per share, resulting in an aggregate repurchase price of $568,162, which amount was applied to settle a balance of $568,159, including principal and accrued interest, owed by Mr. Connelly under a loan granted by us under a Promissory Note dated September 5, 2013.

Other agreements

          We have also entered into employee confidentiality, inventions, non-solicitation and non-competition agreements with each of our named executive officers. Under such agreements, each named executive officer has agreed (1) not to compete with us during his or her employment and for a period of one year after the termination of such employment, (2) not to solicit our employees during his or her employment and for a period of one year after the termination of such employment, (3) to protect our confidential and proprietary information and (4) to assign to us related intellectual property developed during the course of his or her employment.

Outstanding equity awards at 2018 fiscal year-end

          The following table sets forth information concerning outstanding equity awards held by each of our named executive officers as of December 31, 2018. All equity awards set forth in the table below were granted under our 2010 Stock Incentive Plan, as amended, or the 2010 Plan.

    Option Awards     Stock Awards
 

Name
  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
 
  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
 
  Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
 
  Option
Exercise
Price ($)
 
  Option
Expiration
Date
 
  Number of
Shares or
Units of
Stock
That
Have Not
Vested (#)
 
  Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested ($)
 
 

William Hinshaw,

        1,729,691 (1)       3.37   6/21/2028          

President and CEO

                                         

Thomas Leggett,

    156,234 (2)   156,234 (2)       3.54   6/13/2027          

CFO

    13,270 (2)   13,270 (2)       3.54   8/9/2027          

                94,004 (3)   3.37   8/28/2028          

          94,004 (4)         3.37   8/28/2028          

Stephen Mitchener, PharmD,

        228,430 (5)         3.37   10/1/2028          

Chief Business Officer

                95,100 (6)   3.37   10/1/2028          

Robert Connelly,

    51,146               3.54   6/13/2027          

President and CEO

                                         

(1)
The shares underlying these awards vest 25% on May 31, 2019 and then in 12 equal quarterly installments thereafter.

(2)
The shares underlying these awards vested 25% on January 3, 2018 and then in 12 equal quarterly installments thereafter.

(3)
These awards may be earned upon the closing of an initial public offering of our common stock under an effective registration statement Filed on Form S-1 with the Securities Exchange Commission based on a pre-money valuation in excess of $500,000,000 (the "Vesting Commencement Date"). The shares underlying these awards vest 25% one year after the Vesting Commencement Date and then in 12 equal quarterly installments thereafter.

(4)
The shares underlying these awards vest 25% on November 30, 2019 and then in 12 equal quarterly installments thereafter.

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(5)
The shares underlying these awards vest 25% on August 13, 2019 and then in 12 equal quarterly installments thereafter.

(6)
These awards may be earned upon the Company entering into a partnership agreement with a third party to develop one or more therapeutic products that results in at least $10,000,000 in upfront cash to the Company, only if such event occurs prior to August 13, 2019 or, at the discretion of the Company's Compensation Committee, prior to August 13, 2020 (the "Vesting Commencement Date"). The shares underlying these awards vest 25% one year after the Vesting Commencement Date and then in 12 equal quarterly installments thereafter.

Employee benefit and equity compensation plans

2019 Stock Option and Incentive Plan

          Our 2019 Stock Option and Incentive Plan, or 2019 Plan, was adopted by our board of directors on                  , and approved by our stockholders on                  , and will become effective on the date immediately prior to the date on which the registration statement of which this prospectus is part is declared effective by the SEC. The 2019 Plan will replace our 2010 Plan, as our board of directors has determined not to make additional awards under that plan following the consummation of our initial public offering. The 2019 Plan allows the board of directors' compensation committee to make equity-based incentive awards to our officers, employees, directors and other key persons (including consultants).

          We have initially reserved                  shares of our common stock for the issuance of awards under the 2019 Plan, the Initial Limit. The 2019 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2020, by         % of the outstanding number of shares of our common stock on the immediately preceding December 31 or such lesser number of shares as determined by our compensation committee, or the Annual Increase. These limits are subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.

          The shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) under the 2019 Plan and 2010 Plan will be added back to the shares of common stock available for issuance under the 2019 Plan.

          The maximum aggregate number of shares that may be issued in the form of incentive stock options shall not exceed the Initial Limit cumulatively increased on January 1, 2020 and on each January 1 thereafter by the lesser of the Annual Increase for such year or                          shares.

          The 2019 Plan will be administered by our compensation committee. Our compensation committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2019 Plan. Persons eligible to participate in the 2019 Plan will be those full or part-time officers, employees, non-employee directors and other key persons (including consultants) as selected from time to time by our compensation committee in its discretion.

          The 2019 Plan permits the granting of both options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and options that do not so qualify. The option exercise price of each option will be determined by our compensation committee but may not be less than 100% of the fair market value of our common stock on the date of grant. The term of each option will be fixed by our compensation committee and may not exceed ten years from the date of grant. Our compensation committee will determine at what time or times each option may be exercised.

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          Our compensation committee may award stock appreciation rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common stock, or cash, equal to the value of the appreciation in our stock price over the exercise price. The exercise price may not be less than 100% of the fair market value of our common stock on the date of grant. The term of each stock appreciation right will be fixed by our compensation committee and may not exceed ten years from the date of grant. Our compensation committee will determine at what time or times each stock appreciation right may be exercised.

          Our compensation committee may award restricted shares of common stock and restricted stock units to participants subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified vesting period. Our compensation committee may also grant shares of common stock that are free from any restrictions under the 2019 Plan. Unrestricted stock may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant. Our compensation committee may grant dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of common stock.

          Our compensation committee may grant cash bonuses under the 2019 Plan to participants, subject to the achievement of certain performance goals.

          The 2019 Plan provides that upon the effectiveness of a "sale event," as defined in the 2019 Plan, an acquirer or successor entity may assume, continue or substitute outstanding awards under the 2019 Plan. To the extent that awards granted under the 2019 Plan are not assumed or continued or substituted by the successor entity, upon the effective time of the sale event, such awards under the 2019 Plan shall terminate. In such a case, all options and stock appreciation rights that are not exercisable immediately prior to the effective time of the sale event will become fully exercisable as of the effective time of the sale event, all other awards with time-based vesting, conditions or restrictions, will become fully vested and nonforfeitable as of the effective time of the sale event and all awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in the discretion of our compensation committee. In the event of such termination, individuals holding options and stock appreciation rights will be permitted to exercise such options and stock appreciation rights (to the extent exercisable) within a specified period of time prior to the sale event. In addition, in connection with the termination of the 2019 Plan upon a sale event, we may make or provide for a cash payment to participants holding vested and exercisable options and stock appreciation rights equal to the difference between the per share cash consideration payable to stockholders in the sale event and the exercise price of the options or stock appreciation rights and we may make or provide for a cash payment to participants holding other vested awards.

          Our board of directors may amend or discontinue the 2019 Plan and our compensation committee may amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may adversely affect rights under an award without the holder's consent. Certain amendments to the 2019 Plan require the approval of our stockholders.

          No awards may be granted under the 2019 Plan after the date that is ten years from the date of stockholder approval of the 2019 Plan. No awards under the 2019 Plan have been made prior to the date hereof.

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2019 Employee Stock Purchase Plan

          On March 22, 2019, our board of directors adopted the 2019 Employee Stock Purchase Plan, or 2019 ESPP, and on                  , our stockholders approved the 2019 ESPP. The 2019 ESPP is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Code. The 2019 ESPP initially reserves and authorizes the issuance of up to a total of                  shares of common stock to participating employees. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2020, by the lesser of (i)                   shares of common stock, (ii)          % of the outstanding number of shares of our common stock on the immediately preceding December 31 or (iii) such lesser number of shares as determined by the 2019 ESPP administrator. The number of shares reserved under the 2019 ESPP is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.

          All employees whose customary employment is for more than 20 hours per week are eligible to participate in the ESPP. However, any participating employee who would own 5% or more of the total combined voting power or value of all classes of stock after an option were granted under the ESPP would not be eligible to purchase shares under the 2019 ESPP.

          We will make one or more offerings each year to our employees to purchase shares under the ESPP. Offerings will usually begin on each January 1 and July 1 and will continue for six-month periods, referred to as offering periods. Each eligible employee may elect to participate in any offering by submitting an enrollment form at least 15 business days before the relevant offering date.

          Each employee who is a participant in the 2019 ESPP may purchase shares by authorizing payroll deductions of up to         % of his or her base compensation during an offering period. Unless the participating employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase shares on the last business day of the offering period at a price equal to 85% of the fair market value of the shares on the first business day or the last business day of the offering period, whichever is lower. Under applicable tax rules, an employee may purchase no more than $25,000 worth of shares of common stock, valued at the start of the purchase period, under the ESPP in any calendar year.

          The accumulated payroll deductions of any employee who is not a participant on the last day of an offering period will be refunded. An employee's rights under the 2019 ESPP terminate upon voluntary withdrawal from the plan or when the employee ceases employment with us for any reason.

          The 2019 ESPP may be terminated or amended by our board of directors at any time. An amendment that increases the number of shares of common stock authorized under the ESPP and certain other amendments require the approval of our stockholders.

Senior Executive Cash Incentive Bonus Plan

          On March 22, 2019, our board of directors adopted the Senior Executive Cash Incentive Bonus Plan, or the Bonus Plan. The Bonus Plan provides for cash bonus payments based upon the attainment of performance targets established by our compensation committee. The payment targets will be related to financial and operational measures or objectives with respect to our company, or Corporate Performance Goals, as well as individual performance objectives.

          Our compensation committee may select Corporate Performance Goals from among the following: cash flow (including, but not limited to, operating cash flow and free cash flow); sales or revenue; corporate revenue; earnings before interest, taxes, depreciation and amortization; net income (loss) (either before or after interest, taxes, depreciation and/or amortization); changes in

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the market price of our common stock; economic value-added; development, clinical, regulatory or commercial milestones; acquisitions or strategic transactions, partnerships or joint ventures; operating income (loss); return on capital, assets, equity, or investment; stockholder returns; return on sales; gross or net profit levels; productivity; expense efficiency; margins; operating efficiency; customer satisfaction; working capital; earnings (loss) per share of our common stock; sales or market shares; number of customers; operating income and/or other strategic, financial or operational objectives, any of which may be measured in absolute terms, as compared to any incremental increase, in terms of growth, as compared to results of a peer group, against the market as a whole, compared to applicable market indices and/or measured on a pre-tax or post-tax basis.

          Each executive officer who is selected to participate in the Bonus Plan will have a target bonus opportunity set for each performance period. The bonus formulas will be adopted in each performance period by the compensation committee and communicated to each executive. The Corporate Performance Goals will be measured at the end of each performance period after our financial reports have been published or such other appropriate time as the compensation committee determines. If the Corporate Performance Goals and individual performance objectives are met, payments will be made as soon as practicable following the end of each performance period. The Bonus Plan also permits the compensation committee to approve additional bonuses to executive officers in its sole discretion.

2010 Stock Incentive Plan

          Our 2010 Plan was approved and adopted by our board of directors on December 23, 2010, and approved by our stockholders on December 23, 2010. Under the 2010 Plan, we initially reserved for issuance an aggregate of 250,000 shares of our common stock, and most recently increased the shares reserved and available for issuance to 11,087,762 shares of our common stock on March 22, 2019. The number of shares of common stock reserved for issuance under the 2010 Plan, as amended and restated through the date hereof, is subject to adjustment in the event of a stock split, reverse stock split, stock dividend, reorganization, recapitalization, combination of shares, reclassification of shares, spin-off, or other similar change in our capitalization.

          The shares of common stock underlying awards that are forfeited, cancelled, reacquired prior to vesting, satisfied without the issuance of shares of common stock, withheld to cover the exercise price or tax withholding or otherwise terminated (other than by exercise) are added back to the shares of common stock available for issuance under the 2010 Plan.

          Our board of directors has acted as administrator of the 2010 Plan. The administrator has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, and to determine the specific terms and conditions of each award, subject to the provisions of the 2010 Plan. Persons eligible to participate in the 2010 Plan are those employees, full or part-time officers and directors, as well as consultants and key persons to our company as selected from time to time by the administrator in its discretion.

          The 2010 Plan permits the granting of (1) options, including incentive stock options, to purchase common stock, (2) restricted stock, (3) unrestricted stock and (4) restricted stock units. For stock options, the administrator will determine the per share option exercise price and at what time or times each option may be exercised.

          The 2010 Plan provides that in the case of and subject to the consummation of (i) the dissolution or liquidation of our company, (ii) the sale of all or substantially all of the assets of our company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation involving our company in which the shares of voting stock of our company outstanding immediately prior to such transaction represent or are converted into or exchanged for

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securities of the surviving or resulting entity immediately upon completion of such transaction which represent less than 50 percent of the outstanding voting power of such surviving or resulting entity, (iv) the acquisition of all or a majority of the outstanding voting stock of our company in a single transaction or a series of related transactions, or (v) any other acquisition of the business of our company, as determined by our board of directors, or taken together, a Sale Event, an acquirer or successor entity may assume, continue or substitute outstanding awards under the 2010 Plan. To the extent that awards granted under the 2010 Plan are not assumed, continued or substituted by the successor entity, upon the effective time of the Sale Event, the 2010 Plan and such awards under the 2010 Plan shall terminate or be forfeited. In the event of such termination, individuals holding options will be permitted to exercise such options (to the extent exercisable) within a specified period of time prior to the Sale Event. In addition, in connection with the termination of the 2010 Plan upon a Sale Event, we may make or provide for a cash payment to participants holding vested and exercisable options equal to the difference between the per share cash consideration payable to stockholders in the Sale Event and the exercise price of the options. In the event of the forfeiture of shares of restricted stock, such shares shall be repurchased from the holder thereof at a per share price equal to the lower of the original per share purchase price or the current fair market value of such shares immediately prior to the effective time of the Sale Event. In addition in connection with the termination of the 2010 Plan upon a Sale Event, we may make or provide for a cash payment to participants holding restricted stock or restricted stock units equal to the per share cash consideration payable to stockholders in the Sale Event.

          Our board of directors may amend or discontinue the 2010 Plan at any time, subject to approval by the Company stockholders entitled to vote at a meeting of stockholders where such approval is required by applicable law. Our board of directors may also amend or cancel any outstanding award, provided that no amendment to an award may materially and adversely affect a participant's rights without his or her consent.

          The 2010 Plan will terminate upon the closing of this offering; however, awards previously granted may extend beyond that date. As of December 31, 2018, 1,557,350 shares of common stock and options to purchase 7,440,736 shares of common stock were outstanding under the 2010 Plan. Our board of directors has determined not to make any further awards under the 2010 Plan following the completion of this offering.

401(k) plan

          We maintain a 401(k) retirement savings plan for the benefit of our employees, including our named executive officers, who satisfy certain eligibility requirements. Under the 401(k) plan, eligible employees may elect to defer a portion of their compensation, within the limits prescribed by the Code, on a pre-tax or after-tax (Roth) basis through contributions to the 401(k) plan. The Company is permitted to make discretionary profit sharing contributions to the Plan. The 401(k) plan is intended to qualify under Section 401(a) of the Code. As a tax-qualified retirement plan, pre-tax contributions to the 401(k) plan and earnings on those pre-tax contributions are not taxable to the employees until distributed from the 401(k) plan, and earnings on Roth contributions are not taxable when distributed from the 401(k) plan.

Health and welfare plans

          All of our full-time employees, including our named executive officers, are eligible to participate in our health and welfare plans, including medical and dental benefits, short-term and long-term disability insurance, and life insurance. We believe these perquisites are necessary and appropriate to provide a competitive compensation package to our named executive officers.

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Limitations on liability and indemnification matters

          Our restated certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by the Delaware General Corporation Law, or DGCL. Consequently, our directors are not personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

    any breach of the director's duty of loyalty to us or our stockholders;

    any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

    unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; or

    any transaction from which the director derived an improper personal benefit.

          Our amended and restated bylaws require us to indemnify our directors and officers to the maximum extent not prohibited by the DGCL and allow us to indemnify other employees and agents as set forth in the DGCL. Subject to certain limitations, our amended and restated bylaws also require us to advance expenses incurred by our directors and officers for the defense of any action for which indemnification is required or permitted.

          We have entered, and intend to continue to enter, into separate indemnification agreements with our directors, officers and certain of our key employees, in addition to the indemnification provided for in our restated certificate of incorporation and amended and restated bylaws. These agreements, among other things, require us to indemnify our directors, officers and key employees for certain expenses, including attorneys' fees, judgments, penalties, fines and settlement amounts actually incurred by these individuals in any action or proceeding arising out of their service to us or any of our subsidiaries or any other company or enterprise to which these individuals provide services at our request. Subject to certain limitations, our indemnification agreements also require us to advance expenses incurred by our directors, officers and key employees for the defense of any action for which indemnification is required or permitted

          We believe that provisions of our restated certificate of incorporation, amended and restated bylaws and indemnification agreements are necessary to attract and retain qualified directors, officers and key employees. We also maintain directors' and officers' liability insurance.

          The limitation of liability and indemnification provisions in our restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.

          At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

          Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, executive officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

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DIRECTOR COMPENSATION

          The following table presents the total compensation for each person who served as a non-employee member of our board of directors and received compensation for such service during the year ended December 31, 2018. Other than as set forth in the table and described more fully below, we did not pay any compensation, make any additional equity awards or non-equity awards to, or pay any other compensation to any of the non-employee members of our board of directors in 2018. We reimburse non-employee members of our board of directors for reasonable travel and out-of-pocket expenses incurred in attending meetings of our board of directors and committees of our board of directors.

          We also do not, and do not expect to, provide separate compensation to our directors who are also our employees, such as Mr. Hinshaw, our Chief Executive Officer and President.

Name
    Fees Earned or
Paid in Cash ($)
    Option
Awards ($) (1)
    Total ($)
 

William D. Baird III (2)

        196,460     196,460  

Grégory Behar (3)

             

David A. Berry, M.D., Ph.D. (4)

             

David R. Epstein (5)

    225,000         225,000  

Stephen Hoge, M.D. (6)

             

Gary Pisano, Ph.D. (7)

             

Cristina M. Rondinone, Ph.D. (8)

        177,650     177,650  

Christopher A. Viehbacher (9)

             

(1)
The amounts reported represent the aggregate grant date fair value of the stock options awarded to the non-employee directors in the fiscal year ended December 31, 2018, calculated in accordance with FASB ASC Topic 718. Such grant date fair values do not take into account any estimated forfeitures. The assumptions used in calculating the grant date fair value of the stock options reported in this column are set forth in Note 7 to our Consolidated Financial Statements included at the end of this prospectus. The amounts reported in this column reflect the accounting cost for these stock options and do not correspond to the actual economic value actually received by the non-employee directors or that may be received by the non-employee directors upon the exercise of the stock options or any sale of the underlying shares of common stock.

(2)
As of December 31, 2018, Mr. Baird held options to purchase 94,000 shares of our common stock. Such award vests 25% on the first anniversary of June 22, 2018 and then in 12 equal quarterly installments thereafter, subject to continued service — 0 shares subject to each such option were vested as of December 31, 2018.

(3)
As of December 31, 2018, Mr. Behar did not hold any outstanding equity awards.

(4)
As of December 31, 2018, Dr. Berry held 1,400,000 shares of stock.

(5)
As of December 31, 2018, Mr. Epstein held options to purchase 1,441,635 shares of our common stock. Such award vests 25% on the first anniversary of December 21, 2017 and then in 12 equal quarterly installments thereafter, subject to continued service — 360,409 shares subject to each such option were vested as of December 31, 2018. As of December 31, 2018, $225,000 was accrued related to a $450,000 retainer payment to Mr. Epstein for service rendered in 2018 and 2019 as Chairman of the board of directors.

(6)
As of December 31, 2018, Dr. Hoge held options to purchase 100,000 shares of our common stock, all of which were vested as of December 31, 2018.

(7)
As of December 31, 2018, Dr. Pisano held options to purchase 150,000 shares of our common stock, all of which were vested as of December 31, 2018.

(8)
As of December 31, 2018, Dr. Rondinone held options to purchase 85,000 shares of our common stock, 75,000 of which were awarded to Dr. Rondinone as compensation for her role on our board of directors and 10,000 for her role on our Scientific Advisory Board. Such awards vest 25% on the first anniversary of June 22, 2018 and July 13, 2018, respectively, and then in 12 equal quarterly installments thereafter, subject to continued service — 0 shares subject to each such option were vested as of December 31, 2018.

(9)
As of December 31, 2018, Mr. Viehbacher did not hold any outstanding equity awards.

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Non-employee director compensation policy

          Prior to the effectiveness of the registration statement of which this prospectus forms a part, we did not have a formal policy to compensate our non-employee directors. Prior to the effectiveness of the registration statement of which this prospectus forms a part, our board of directors intends to adopt a non-employee director compensation policy, to be effective upon effectiveness of the registration statement of which this prospectus forms a part, that is designed to enable us to attract and retain, on a long-term basis, highly qualified non-employee directors. Under the policy, each director who is not an employee will be paid cash compensation from and after the completion of this offering, as set forth below:

    Member
Annual Fee
    Chairman
Additional
Annual Fee
 

Board of Directors

  $     $    

Audit Committee

                                     

Compensation Committee

                                     

Nominating and Corporate Governance Committee

                                     

          In addition, each non-employee director serving on our board of directors upon the closing of this offering and each non-employee director elected or appointed to our board of directors following the completing of this offering will be granted a one-time equity award of             shares on the date of such director's election or appointment to the board of directors, which will vest annually over three years, subject to continued service through such vesting dates. On the date of each annual meeting of stockholders of our company, each non-employee director will be granted an annual equity award of             shares, which will vest in full on the earlier to occur of the first anniversary of the date of grant or the next annual meeting, subject to continued service as a director through such vesting date.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

          Other than the compensation agreements and other arrangements described under "Executive Compensation" and "Director Compensation" in this prospectus and the transactions described below, since January 1, 2016, there has not been and there is not currently proposed, any transaction or series of similar transactions to which we were, or will be, a party in which the amount involved exceeded, or will exceed, $120,000 and in which any director, executive officer, holder of 5% or more of any class of our capital stock or any member of the immediate family of, or entities affiliated with, any of the foregoing persons, had, or will have, a direct or indirect material interest.

Stockholder
    Common
Stock
    Shares of
Series A
Preferred
Stock
    Shares of
Series B
Preferred
Stock
    Shares of
Series B-1
Preferred
Stock
    Shares of
Series C
Preferred
Stock
    Shares of
Series D
Preferred
Stock
    Shares of
Series E
Preferred
Stock
    Total
Purchase
Price ($)
 

Flagship Pioneering Funds (1)

    5,000,000     5,538,462     2,320,184           992,063           1,342,882     41,800,000  

Fidelity Investments (2)

                            3,799,602           895,255     48,300,000  

Nestlé Health Sciences US Holdings, Inc. 

                                  2,997,179     581,915     49,000,000  

Gurnet Point L.P. 

                            1,488,095           895,255     25,000,000  

(1)
Flagship Pioneering Funds consists of Flagship VentureLabs IV, LLC, Flagship Ventures Fund 2007, L.P., Flagship Ventures Fund IV, L.P., Flagship Ventures Fund IV-Rx, L.P. and Flagship Ventures Opportunity Fund I, L.P.

(2)
Fidelity Investments consists of Fidelity Select Portfolios: Biotechnology Portfolio, Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund, Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund, Fidelity Growth Company Commingled Pool, Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund and FIAM Target Date Blue Chip Growth Commingled Pool.

Sales of securities

Series C preferred stock financing

          From January 2015 to August 2017, we issued and sold to investors in a private placement an aggregate of 6,969,044 shares of our Series C Preferred Stock at a purchase price of $10.08 per share, for aggregate consideration of approximately $70.3 million.

Series D preferred stock financing

          In February 2016, we issued and sold to investors in a private placement an aggregate of 2,997,179 shares of our Series D Preferred Stock at a purchase price of $14.18 per share, for aggregate consideration of approximately $42.5 million.

Series E preferred stock financing

          In November 2018, we issued and sold to investors in a private placement an aggregate of 5,282,002 shares of our Series E Preferred Stock at a purchase price of $11.17 per share, for aggregate consideration of approximately $59.0 million.

Services agreement

          In December 2008, we entered into a services agreement with Flagship Ventures Management, Inc., now known as Flagship Pioneering, Inc., an affiliate of the Flagship Pioneering Funds, under which Flagship Pioneering provides us with advisory and administrative services on an as-needed basis. The agreement, which is invoiced monthly, may be terminated by either party upon 30 days' prior written notice. For the years ended December 31, 2017 and 2018, we paid Flagship Pioneering, Inc. an aggregate of approximately $104,000 and $8,000, respectively, for services provided under the services agreement, inclusive of the services provided under the services agreement.

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Fifth amended and restated investors' rights agreement

          In connection with the initial closing of our Series E Preferred Stock financing on November 30, 2018, we entered into a fifth amended and restated investors' rights agreement, or investors' rights agreement, with certain of our stockholders, including affiliates of Flagship Pioneering Funds, or Flagship. The investors' rights agreement, among other things:

    grants investors party thereto certain registration rights with respect to shares of our common stock, including shares of common stock issued or issuable upon conversion of our convertible preferred stock;

    obligates us to deliver periodic financial statements to Flagship, Fidelity Investments, Gurnet Point L.P. and its affiliates and any investor who, individually or together with affiliates, holds at least 350,000 shares of our preferred stock, each of whom we refer to as a "Major Investor"; and

    grants a right of first offer with respect to sales of our shares by us, subject to specified exclusions (which exclusions include the sale of the shares in connection with this offering), to Major Investors.

          For more information regarding the registration rights provided in this agreement, please refer to the section of this prospectus titled "Description of Capital Stock — Registration rights."

          Certain provisions of this agreement, including certain of the covenants described above, will terminate automatically prior to the completion of this offering. This is not a complete description of the investors' rights agreement and is qualified by the full text of the investors' rights agreement filed as an exhibit to the registration statement of which this prospectus is a part.

Fifth amended and restated voting agreement

          In connection with the initial closing of our Series E Preferred Stock financing on November 30, 2018, we entered into a fifth amended and restated voting agreement, or the voting agreement, with certain of our stockholders, including affiliates of Flagship. The voting agreement, among other things, provides the terms for the voting of shares with respect to the constituency of our directors. Pursuant to the terms of the voting agreement, the following directors were elected to serve as members on our board of directors and, as of the date of this prospectus, continue to so serve: David R. Epstein, William Hinshaw, Gary Pisano, Cristina M. Rondinone, William D. Baird III, Stephen Hoge, David A. Berry, Christopher A. Viehbacher, and Grégory Behar. Mr. Epstein was selected to serve on our board of directors as designated by Flagship Ventures Fund IV, L.P., Mr. Hinshaw was selected to serve on our board of directors as our CEO, Dr. Berry was selected to serve on our board of directors as designated by Flagship, Mr. Behar was selected to serve on our board of directors by Nestlé Health Sciences US Holdings, Inc. and Dr. Pisano, Dr. Rondinone, Mr. Baird and Dr. Hoge were selected to serve on our board of directors as directors who are not affiliated with any investor, possess relevant industry experience and are acceptable to a majority of the investors party to the voting agreement. Mr. Viehbacher was selected to serve on our board of directors as a director who is acceptable to a majority of the other members of our board of directors.

          This voting agreement will terminate automatically upon the closing of this offering.

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Fifth amended and restated right of first refusal and co-sale agreement

          In connection with initial closing of our Series E Preferred Stock financing on November 30, 2018, we entered into a right of first refusal and co-sale agreement with certain of our stockholders, including Flagship. The right of first refusal and co-sale agreement, among other things:

    grants our investors certain rights of first refusal and co-sale with respect to proposed transfers of our securities by certain stockholders; and

    grants us certain rights of first refusal with respect to proposed transfers of our securities by certain stockholders.

          The right of first refusal and co-sale agreement will terminate automatically immediately prior to the completion of this offering.

Promissory notes

          We entered into a stock repurchase agreement with Robert Connelly, our former CEO, dated May 31, 2018, in which we repurchased 168,594 shares of our common stock owned by Mr. Connelly at a cost of $3.37 per share, resulting in an aggregate repurchase price of $568,162, which amount was applied to settle a balance of $568,159, including principal and accrued interest, owed to us by Mr. Connelly under a Promissory Note dated September 5, 2013.

Indemnification agreements

          In connection with this offering, we intend to enter into new agreements to indemnify our directors and executive officers. These agreements will, among other things, require us to indemnify these individuals for certain expenses (including attorneys' fees), judgments, fines and settlement amounts reasonably incurred by such person in any action or proceeding, including any action by or in our right, on account of any services undertaken by such person on behalf of our company or that person's status as a member of our board of directors to the maximum extent allowed under Delaware law.

Policies for approval of related party transactions

          Our board of directors reviews and approves transactions with directors, officers and holders of five percent or more of our voting securities and their affiliates, each a related party. Prior to this offering, upon consideration of a potential related party transaction, the material facts as to the related party's relationship or interest in the transaction are disclosed to our board of directors prior to their consideration of such transaction, and the transaction is not considered approved by our board of directors unless a majority of the directors who are not interested in the transaction approve the transaction. Further, when stockholders are entitled to vote on a transaction with a related party, the material facts of the related party's relationship or interest in the transaction are disclosed to the stockholders, who must approve the transaction in good faith.

          We have adopted a written related party transactions policy that will become effective on the date on which the registration statement of which this prospectus is part is declared effective by the SEC. Pursuant to this policy, the audit committee has the primary responsibility for reviewing and approving or disapproving "related party transactions," which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. For purposes of this policy, a related person will be defined as a director, executive officer, nominee for director, or greater than 5% beneficial owner of our common stock, in each case since the beginning of the most recently completed year, and their immediate family members.

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PRINCIPAL STOCKHOLDERS

          The following table sets forth certain information known to us regarding beneficial ownership of our capital stock as of December 31, 2018, as adjusted to reflect the sale of common stock offered by us in this offering, for:

          Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Under those rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment power and includes securities that the individual or entity has the right to acquire, such as through the exercise of stock options, within 60 days of December 31, 2018. Except as noted by footnote, and subject to community property laws where applicable, we believe, based on the information provided to us, that the persons and entities named in the table below have sole voting and investment power with respect to all common stock shown as beneficially owned by them.

          The percentage of beneficial ownership prior to this offering in the table below is based on shares of common stock deemed to be outstanding as of December 31, 2018, assuming the conversion of all outstanding shares of our preferred stock upon the completion of this offering into an aggregate of 34,524,129 shares of common stock upon the completion of this offering, and the

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percentage of beneficial ownership at this offering in the table below is based on shares of common stock assumed to be outstanding after the completion of the offering.

    Number of shares
beneficially
    Percentage of
shares
beneficially
owned
 

Name and address of beneficial owner
  owned prior
to offering
 
  Prior to
offering
 
  After
offering
 
 

5% Stockholders:

                   

Flagship Pioneering Funds (1)

    15,193,591     42.5 %      

Fidelity Investments (2)

    4,694,857     13.1 %      

Nestlé Health Sciences US Holdings, Inc. (3)

    3,718,446     10.4 %      

Gurnet Point L.P. (4)

    2,383,350     6.7 %      

Named executive officers and directors:

   
 
   
 
   
 
 

Thomas Leggett (5)

    169,504     *        

Stephen Mitchener

        *        

Robert Connelly (6)

    1,037,207     2.9 %      

William D. Baird III

        *        

Grégory Behar, M.B.A. 

        *        

David A. Berry, M.D., Ph.D. 

    1,400,000     3.9 %      

David R. Epstein (7)

    360,409     1.0 %      

William Hinshaw (8)

        *        

Stephen Hoge, M.D. (9)

    100,000     *        

Gary Pisano, Ph.D. (10)

    150,000     *        

Cristina M. Rondinone, Ph.D. 

        *        

Christopher A. Viehbacher

        *        

All executive officers and directors as a group (12 persons)

    3,217,120     9.0 %      

*
Represents beneficial ownership of less than 1%.

(1)
Consists of (a) 1,250,000 shares of common stock held by Flagship Ventures Fund 2007, L.P. ("Flagship Fund 2007"), (b) 3,750,000 shares of common stock held by Flagship Ventures Fund IV, L.P., (c) 1,384,615 shares of common stock issuable upon conversion of the Series A Preferred Stock held by Flagship Fund 2007, (d) 386,697 shares of common stock issuable upon conversion of the Series B/B1 Preferred Stock held by Flagship Fund 2007, (e) 222,506 shares of common stock issuable upon conversion of the Series C Preferred Stock held by Flagship Fund 2007, (f) 4,153,847 shares of common stock issuable upon conversion of the Series A Preferred Stock held by Flagship Fund IV, (g) 928,074 shares of common stock issuable upon conversion of the Series B/B1 Preferred Stock held by Flagship Fund IV, (h) 617,914 shares of common stock issuable upon conversion of the Series C Preferred Stock held by Flagship Fund IV, (i) 358,102 shares of common stock issuable upon conversion of the Series E Preferred Stock held by Flagship Fund IV (j) 1,005,413 shares of common stock issuable upon conversion of the Series B/B1 Preferred Stock held by Flagship Ventures Fund IV-Rx, L.P. ("Flagship Fund IV-Rx"), (k) 151,643 shares of common stock issuable upon conversion of the Series C Preferred Stock held by Flagship Fund IV-Rx, and (l) 89,525 shares of common stock issuable upon conversion of the Series E Preferred Stock held by Flagship Fund IV-Rx. The General Partner of Flagship Fund 2007 is Flagship Ventures 2007 General Partner LLC ("Fund 2007 GP"). Flagship Fund IV is a member of VentureLabs IV and also serves as its manager. The General Partner of Flagship Fund IV is Flagship Ventures Fund IV General Partner LLC ("Fund IV GP"). Noubar B. Afeyan, Ph.D. and Edwin M. Kania, Jr. are the managers of Fund IV GP and Fund 2007 GP and each of these individuals may be deemed to share voting and investment power with respect to all shares held by Flagship Fund IV, VentureLabs IV, and Flagship Fund 2007. While Mr. Kania is retired from Flagship Pioneering, he continues to serve as a manager of the Fund 2007 GP and Fund IV GP. None of the Flagship General Partners, Dr. Afeyan, or Mr. Kania directly own any of the shares held by the Flagship Funds, and each of the Flagship General Partners, Dr. Afeyan, and Mr. Kania disclaims beneficial ownership of such shares except to the extent of its or his pecuniary interest therein. The mailing address of the Flagship Funds is 55 Cambridge Parkway, Suite 800E, Cambridge, MA 02142.

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(2)
Consists of (a) 1,642,272 shares of common stock issuable upon conversion of the Series C Preferred Stock held by Fidelity Select Portfolios: Select Biotechnology Portfolio, (b) 341,857 shares of common stock issuable upon conversion of the Series C Preferred Stock held by Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund, (c) 545,634 shares of common stock issuable upon conversion of the Series C Preferred Stock held by Fidelity Securities Fund: Fidelity Blue Chip Growth Fund, (d) 248,015 shares of common stock issuable upon conversion of the Series C Preferred Stock held by Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund, (e) 343,890 shares of common stock issuable upon conversion of the Series C Preferred Stock and 407,669 shares of common stock issuable upon conversion of the Series E Preferred Stock held by Fidelity Growth Company Comingled Pool, (f) 111,581 shares of common stock issuable upon conversion of the Series C Preferred Stock and 120,735 shares of common stock issuable upon conversion of the Series E Preferred Stock held by Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund, (g) 536,592 shares of common stock issuable upon conversion of the Series C Preferred Stock and 366,851 shares of common stock issuable upon conversion of the Series E Preferred Stock held by Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund , and (h) 29,761 shares of common stock issuable upon conversion of the Series C Preferred Stock held by FIAM Target Date Blue Chip Growth Commingled Pool. Fidelity Select Portfolios, Fidelity Advisor Biotechnology Fund, Fidelity Mt. Vernon Street Trust, Fidelity Variable Insurance and Fidelity Advisor Series VII are managed by direct or indirect subsidiaries of FMR LLC. Edward C. Johnson 3d is a Director and the Chairman of FMR LLC and Abigail P. Johnson is a Director, the Vice Chairman and the President of FMR LLC. Members of the family of Edward C. Johnson 3d, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders' voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders' voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Edward C. Johnson 3d nor Abigail P. Johnson has the sole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the Investment Company Act (Fidelity Funds) advised by Fidelity Management & Research Company (FMR Co), a wholly owned subsidiary of FMR LLC, which power resides with the Fidelity Funds' Boards of Trustees. Fidelity Management & Research Company carries out the voting of the shares under written guidelines established by the Fidelity Funds' Boards of Trustees.

(3)
Consists of (a) 2,997,179 shares of common stock issuable upon conversion of the Series D Preferred Stock and (b) 581,915 shares of common stock issuable upon conversion of the Series E Preferred Stock.

(4)
Consists of (a) 1,488,095 shares of common stock issuable upon conversion of the Series C Preferred Stock and (b) 895,255 shares of common stock issuable upon conversion of the Series E Preferred Stock.

(5)
169,504 shares of common stock underlying options exercisable within 60 days of December 31, 2018.

(6)
Consists of (a) 986,061 shares held by Mr. Connelly and (b) 51,146 shares of common stock underlying options exercisable within 60 days of December 31, 2018.

(7)
360,409 shares of common stock underlying options exercisable within 60 days of December 31, 2018.

(8)
Mr. Hinshaw currently serves as our President and Chief Executive Officer and commenced employment with us in June 2018. Previously, Mr. Connelly served as our President and Chief Executive Officer until May 2018.

(9)
100,000 shares of common stock underlying options exercisable within 60 days of December 31, 2018.

(10)
150,000 shares of common stock underlying options exercisable within 60 days of December 31, 2018.

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DESCRIPTION OF CAPITAL STOCK

           The following descriptions are summaries of the material terms of our restated certificate of incorporation, which will be effective upon the completion of this offering and amended and restated bylaws, which will be effective upon the effectiveness of the registration statement of which this prospectus is a part. The descriptions of the common stock and preferred stock give effect to changes to our capital structure that will occur immediately prior to the completion of this offering.

General

          Upon the closing of this offering and after giving effect to the conversion of Series A, B, B-1, C, D and E Preferred Stock into common stock, the filing of an amended and restated certificate of incorporation solely for the purpose of eliminating any remaining designated, but unissued, shares of Series A Preferred Stock from our certificate of incorporation, and the retirement of all outstanding shares of our Series B, B-1, C, D and E preferred stock, our authorized capital stock will consist of                                                     shares of common stock, par value $0.001 per share, and                                        shares of preferred stock, par value $0.001 per share, all of which shares of preferred stock will be undesignated.

          In March 2019 and April 2019, respectively, our board of directors and our stockholders approved two amended and restated certificates of incorporation. The first amended and restated certificate of incorporation, or the First A&R Charter, contains all of the provisions that are set forth in the final restated certificate of incorporation, but also includes all of the terms of the Series A, B, B-1, C, D and E preferred stock. The First A&R Charter will be in effect immediately prior to the completion of this offering. The second amended and restated certificate of incorporation, or the Second A&R Charter, is identical to the First A&R Charter, except that it eliminates all provisions relating to the Series A preferred stock. The Second A&R Charter cannot, and will not, be filed until all outstanding shares of our Series A, B, B-1, C, D and E preferred stock have converted into common stock. Also in April 2019, our board of directors approved the retirement, following conversion of all shares of Series A, B, B-1, C, D and E preferred stock into common stock in connection with the completion of this offering, of all shares of Series B, B-1, C, D and E preferred stock following the filing of the Second A&R Charter. The certificate of retirement, or the Certificate of Retirement, will have the effect of eliminating from our certificate of incorporation all provisions relating to our Series B, B-1, C, D and E preferred stock. Finally, also in April 2019, our board of directors approved the restated certificate of incorporation, to be filed after the Certificate of Retirement eliminating the terms of our Series B, B-1, C, D and E preferred stock, which retirement occurs after the elimination of our Series A preferred stock pursuant to the filing of the Second A&R Charter, and which restated certificate of incorporation will govern the company following this offering until amended and/or restated in accordance with applicable law. The purpose of the filings described above is simply to allow us to eliminate the terms of our Series A, B, B-1, C, D and E preferred stock from our certificate of incorporation and to integrate and restate our certificate of incorporation into one operative document, namely the restated certificate of incorporation. The First A&R Charter will be filed and effective prior to the closing of this offering. The Second A&R Charter will be filed in manner that it will become effective on the date of the closing of this offering and after the effective time of the conversion our Series A, B, B-1, C, D and E preferred stock into common stock. The Certificate of Retirement will be filed in manner that it will become effective on the date of the closing of this offering and after the effective time of the Second A&R Charter. The restated certificate will be filed in a manner that it will become effective on the date of the closing and after the effective time of the Certificate of Retirement.

          As of                                        2019,                                         shares of our common stock and                                        shares of preferred stock were outstanding and held by                                        stockhold ers of record. This amount does not take into account the

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conversion of all outstanding shares of our preferred stock into common stock upon the completion of this offering.

Common stock

          The holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders. The holders of our common stock do not have any cumulative voting rights. Holders of our common stock are entitled to receive ratably any dividends declared by our board of directors out of funds legally available for that purpose, subject to any preferential dividend rights of any outstanding preferred stock. Our common stock has no preemptive rights, conversion rights or other subscription rights or redemption or sinking fund provisions.

          In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in all assets remaining after payment of all debts and other liabilities and any liquidation preference of any outstanding preferred stock. The shares to be issued by us in this offering will be, when issued and paid for, validly issued, fully paid and non-assessable.

Preferred stock

          Upon the closing of this offering, all outstanding shares of our Series A, B, B-1, C, D and E preferred stock will be converted into shares of our common stock, and all such shares of Series A, B, B-1, C, D and E preferred stock will be retired and will no longer be subject to reissuance. As described above, our board of directors and stockholders have approved a First A&R Charter to authorize the shares of common stock to be issued in this offering and in connection with the conversion of our shares of Series A, B, B-1, C, D and E preferred stock into common stock and to otherwise include the governance and other provisions which will govern the company immediately following this offering. The Second A&R Charter and the Certificate of Retirement have been authorized simply for purposes of allowing us to eliminate the terms of our existing Series A, B, B-1, C, D and E preferred stock. Finally, the restated certificate of incorporation simply reflects the elimination of the terms of our existing Series A, B, B-1, C, D and E preferred stock from our certificate of incorporation. Upon the consummation of this offering and after giving effect to the conversion and retirement of all Series A, B, B-1, C, D and E preferred stock, we will have no shares of Series A, B, B-1, C, D and E preferred stock designated for future issuance, and our board of directors will have the authority, without further action by our stockholders, to issue up to                                         shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting, or the designation of, such series, any or all of which may be greater than the rights of common stock. The issuance of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon our liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of our company or other corporate action. Immediately upon the closing of this offering, no shares of preferred stock will be outstanding and we have no present plan to issue any shares of preferred stock.

Stock options

          As of                                        , 2019, options to purchase                                        sha res of our common stock were outstanding.

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Warrants

          As of                                        , 2019, warrants to purchase up to                                        shares of our Series A preferred stock, at an exercise price of $             per share, were outstanding.

          Upon the closing of this offering, and after giving effect to the conversion of our preferred stock into common stock, the warrants to purchase our Series A preferred stock will become exercisable for an aggregate of up to                                        shares of our common stock, at a weighted average exercise price of $             . All of the warrants provide for adjustments in the event of specified mergers, reorganization, reclassification, stock dividends, stock splits or other changes in our corporate structure. The warrants to purchase shares of our Series A preferred stock expire on the earlier of the close of business April 13, 2020 or one year after the closing of our initial public offering.

Registration rights

          Upon the completion of this offering, the holders of                                        shares of our common stock (which includes issued but unvested shares of restricted common stock subject to repurchase), including those issuable upon the conversion of our preferred stock, which shares we refer to as "registrable securities," will be entitled to rights with respect to the registration of these registrable securities under the Securities Act. These rights are provided under the terms of an investors' rights agreement between us and holders of our preferred stock. The investors' rights agreement includes demand registration rights, short-form registration rights and piggyback registration rights. All fees, costs and expenses of underwritten registrations under this agreement will be borne by us and all selling expenses, including underwriting discounts and selling commissions, will be borne by the holders of the shares being registered.

Demand registration rights

          Beginning 180 days after the effective date of this registration statement, the holders of registrable securities are entitled to demand registration rights under certain conditions. Under the terms of the investors' rights agreement, we will be required, upon the request of holders of a majority of the registrable securities to register registrable securities that would result in an aggregate offering price of at least $5.0 million, to file a registration statement of all or a portion of these registrable securities for public resale. We are required to effect only two such registrations pursuant to this provision of the investors' rights agreement.

Short-form registration rights

          Pursuant to the investors' rights agreement, if we are eligible to file a registration statement on Form S-3, upon the written request of holders of at least 20% of the registrable securities to register registrable securities that would result in an aggregate offering price of at least $2.5 million, we will be required to file a registration statement on Form S-3 for such registrable securities subject to certain limitations. We are required to effect only two registrations in any twelve month period pursuant to this provision of the investors' rights agreement. The right to have such shares registered on Form S-3 is further subject to other specified conditions and limitations.

Piggyback registration rights

          Pursuant to the investors' rights agreement, if we register any of our securities either for our own account or for the account of other security holders, subject to certain exceptions, the holders of these shares are entitled to include their shares in the registration. Subject to certain exceptions contained in the investors' rights agreement, we and the underwriters may limit the number of shares included in the underwritten offering to the number of shares which we and the underwriters determine in our sole discretion will not jeopardize the success of the offering. However, in such

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circumstances, the number of shares to be included in the offering that are held by holders of registrable shares shall only be excluded if all shares proposed to be sold by us are excluded.

Indemnification

          Our investors' rights agreement contains customary cross-indemnification provisions, under which we are obligated to indemnify holders of registrable securities in the event of material misstatements or omissions in the registration statement attributable to us, and they are obligated to indemnify us for material misstatements or omissions attributable to them.

Expiration of registration rights

          The demand registration rights and short form registration rights granted to any holder of registrable securities under the investors' rights agreement will terminate upon the earliest to occur of (i) a deemed liquidation event (as defined in our certificate of incorporation), (ii) the fifth anniversary of the completion of this offering or (iii) such time after this offering when the holders' shares may be sold without restriction pursuant to Rule 144 within a three-month period.

Anti-takeover effects of our restated certificate of incorporation and amended and restated bylaws and Delaware Law

          Our restated certificate of incorporation and amended and restated bylaws include a number of provisions that may have the effect of delaying, deferring or preventing another party from acquiring control of us and encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include the items described below.

Board composition and filling vacancies

          Our restated certificate of incorporation provides for the division of our board of directors into three classes serving staggered three-year terms, with one class being elected each year. Our restated certificate of incorporation also provides that directors may be removed only for cause and then only by the affirmative vote of the holders of two-thirds or more of the shares then entitled to vote at an election of directors. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum. The classification of directors, together with the limitations on removal of directors and treatment of vacancies, has the effect of making it more difficult for stockholders to change the composition of our board of directors.

No written consent of stockholders

          Our restated certificate of incorporation provides that all stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting, and that stockholders may not take any action by written consent in lieu of a meeting. This limit may lengthen the amount of time required to take stockholder actions and would prevent the amendment of our amended and restated bylaws or removal of directors by our stockholders without holding a meeting of stockholders.

Meetings of stockholders

          Our restated certificate of incorporation and amended and restated bylaws provide that only a majority of the members of our board of directors then in office may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our amended and restated bylaws

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limit the business that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.

Advance notice requirements

          Our amended and restated bylaws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. Our bylaws specify the requirements as to form and content of all stockholders' notices. These requirements may preclude stockholders from bringing matters before the stockholders at an annual or special meeting.

Amendment to restated certificate of incorporation and amended and restated bylaws

          Any amendment of our restated certificate of incorporation must first be approved by a majority of our board of directors, and if required by law or our restated certificate of incorporation, must thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment and a majority of the outstanding shares of each class entitled to vote thereon as a class, except that the amendment of the provisions relating to stockholder action, board composition, limitation of liability and the amendment of our bylaws and certificate of incorporation must be approved by not less than two-thirds of the outstanding shares entitled to vote on the amendment, and not less than two-thirds of the outstanding shares of each class entitled to vote thereon as a class. Our amended and restated bylaws may be amended by the affirmative vote of a majority of the directors then in office, subject to any limitations set forth in the amended and restated bylaws, and may also be amended by the affirmative vote of at least two-thirds of the outstanding shares entitled to vote on the amendment, or, if our board of directors recommends that the stockholders approve the amendment, by the affirmative vote of the majority of the outstanding shares entitled to vote on the amendment, in each case voting together as a single class.

Undesignated preferred stock

          Our restated certificate of incorporation provides for                                        authoriz ed shares of preferred stock. The existence of authorized but unissued shares of preferred stock may enable our board of directors to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of our stockholders, our board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard, our restated certificate of incorporation grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring or preventing a change in control of us.

Choice of forum

          Our amended and restated bylaws that will become effective upon the closing of this offering will provide that, unless we consent in writing to the selection of an alternative forum, the Court of

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Chancery of the State of Delaware will be the sole and exclusive forum for any state law claim for: (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders; (3) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws; (4) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws or (5) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision does not apply to any actions arising under the Securities Act or the Exchange Act.

Section 203 of the Delaware General Corporation Law

          Upon the closing of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited unless it satisfies one of the following conditions:

    before the stockholder became interested, our board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

    upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances, but not the outstanding voting stock owned by the interested stockholder; or

    at or after the time the stockholder became interested, the business combination was approved by our board of directors and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

          Section 203 defines a business combination to include:

    any merger or consolidation involving the corporation and the interested stockholder;

    any sale, transfer, lease, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;

    subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

    subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; and

    the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

          In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

Nasdaq Global Market listing

          We have applied to list our common stock on The Nasdaq Global Market under the symbol "AXLA."

Transfer agent and registrar

          The transfer agent and registrar for our common stock will be Computershare Trust company, N.A. The transfer agent and registrar's address is 250 Royall Street, Canton, Massachusetts 02021.

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SHARES ELIGIBLE FOR FUTURE SALE

          Prior to this offering, there has been no public market for our shares. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.

          Based on the number of shares outstanding as of                          , 2019, upon the completion of this offering,                   shares of our common stock will be outstanding. Of the outstanding shares, all of the shares sold in this offering will be freely tradable, except that any shares held by our affiliates, as that term is defined in Rule 144 under the Securities Act, may only be sold in compliance with the limitations described below. All remaining shares of common stock held by existing stockholders immediately prior to the completion of this offering will be "restricted securities" as such term is defined in Rule 144. These restricted securities were issued and sold by us, or will be issued and sold by us, in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under the Securities Act, including the exemptions provided by Rule 144 or Rule 701, summarized below.

Rule 144

          In general, a person who has beneficially owned restricted stock for at least six months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, a sale and (ii) we are subject to the Exchange Act, periodic reporting requirements for at least 90 days before the sale. Persons who have beneficially owned restricted shares for at least six months but who are our affiliates at the time of, or any time during the 90 days preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either of the following:

provided, in each case, that we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Such sales both by affiliates and by non-affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.

Rule 701

          Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers or directors who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares.

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          However, substantially all Rule 701 shares are subject to lock-up agreements as described below and under "Underwriting" included elsewhere in this prospectus and will become eligible for sale upon the expiration of the restrictions set forth in those agreements.

Lock-up agreements

          We, our directors and executive officers and holders of substantially all of our common stock have signed a lock-up agreement that prevent us and them from selling any of our common stock or any securities convertible into or exercisable or exchangeable for common stock for a period of not less than 180 days from the date of this prospectus without the prior written consent of the representatives of the underwriters, subject to certain exceptions. See the section entitled "Underwriting" appearing elsewhere in this prospectus for more information.

Registration rights

          Upon the closing of this offering, certain holders of our securities will be entitled to various rights with respect to registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. See the section entitled "Description of Capital Stock—Registration rights" appearing elsewhere in this prospectus for more information.

Equity incentive plans

          We intend to file one or more registration statements on Form S-8 under the Securities Act to register our shares issued or reserved for issuance under our equity incentive plans. The first such registration statement is expected to be filed soon after the date of this prospectus and will automatically become effective upon filing with the SEC. Accordingly, shares registered under such registration statement will be available for sale in the open market, unless such shares are subject to vesting restrictions with us or the lock-up restrictions described above. As of                          , 2019, we estimate that such registration statement on Form S-8 will cover approximately                  shares.

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CERTAIN MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS

          The following discussion is a summary of the material U.S. federal income tax considerations applicable to non-U.S. holders (as defined below) with respect to their ownership and disposition of shares of our common stock issued pursuant to this offering. For purposes of this discussion, a non-U.S. holder means a beneficial owner of our common stock that is for U.S. federal income tax purposes:

          This discussion does not address the tax treatment of partnerships or other entities that are pass-through entities for U.S. federal income tax purposes or persons that hold their common stock through partnerships or other pass-through entities. A partner in a partnership or other pass-through entity that will hold our common stock should consult his, her or its tax advisor regarding the tax consequences of acquiring, holding and disposing of our common stock through a partnership or other pass-through entity, as applicable.

          This discussion is based on current provisions of the Code, existing and proposed U.S. Treasury Regulations promulgated thereunder, current administrative rulings and judicial decisions, all as in effect as of the date of this prospectus and, all of which are subject to change or to differing interpretation, possibly with retroactive effect. Any such change or differing interpretation could alter the tax consequences to non-U.S. holders described in this prospectus. There can be no assurance that the Internal Revenue Service, which we refer to as the IRS, will not challenge one or more of the tax consequences described herein. We assume in this discussion that a non-U.S. holder holds shares of our common stock as a capital asset within the meaning of Section 1221 of the Code, generally property held for investment.

          This discussion does not address all aspects of U.S. federal income taxation that may be relevant to a particular non-U.S. holder in light of that non-U.S. holder's individual circumstances including the alternative minimum tax, or the Medicare tax on net investment income and any election to apply Section 1400Z-2 of the Code to gains recognized with respect to shares of our common stock. This discussion also does not address any U.S. state, local or non-U.S. taxes or any other aspect of any U.S. federal tax other than the income tax. This discussion also does not consider any specific facts or circumstances that may apply to a non-U.S. holder and does not address the special tax rules applicable to particular non-U.S. holders, such as:

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          This discussion is for general information only and is not tax advice. Accordingly, all prospective non-U.S. holders of our common stock should consult their tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership and disposition of our common stock.

Distributions on our common stock

          Distributions, if any, on our common stock will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the non-U.S. holder's investment, up to such holder's tax basis in the common stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below in "Gain on sale or other taxable disposition of our common stock." Any such distributions will also be subject to the discussions below under the sections titled "Backup withholding and information reporting" and "Withholding and information reporting requirements—FATCA."

          Subject to the discussion in the following two paragraphs in this section, dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder's country of residence. If we or another withholding agent apply over-withholding or if a non-U.S. holder does not timely provide us with the required certification, the non-U.S. holder may be entitled to a refund or credit of any excess tax withheld by timely filing an appropriate claim with the IRS.

          Dividends that are treated as effectively connected with a trade or business conducted by a non-U.S. holder within the United States and, if an applicable income tax treaty so provides, that are attributable to a permanent establishment or a fixed base maintained by the non-U.S. holder within the United States, are generally exempt from the 30% withholding tax if the non-U.S. holder

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satisfies applicable certification and disclosure requirements. However, such U.S. effectively connected income, net of specified deductions and credits, is taxed at the same graduated U.S. federal income tax rates applicable to U.S. persons (as defined in the Code). Any U.S. effectively connected income received by a non-U.S. holder that is a corporation may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be specified by an applicable income tax treaty between the United States and such holder's country of residence.

          A non-U.S. holder of our common stock who claims the benefit of an applicable income tax treaty between the United States and such holder's country of residence generally will be required to provide a properly executed IRS Form W-8BEN or W-8BEN-E (or successor form) to the applicable withholding agent and satisfy applicable certification and other requirements. Non-U.S. holders are urged to consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty. A non-U.S. holder that is eligible for a reduced rate of U.S. withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by timely filing a U.S. tax return with the IRS.

Gain on sale or other taxable disposition of our common stock

          Subject to the discussions below under "Backup withholding and information reporting" and "Withholding and information reporting requirements—FATCA," a non-U.S. holder generally will not be subject to any U.S. federal income tax on any gain realized upon such holder's sale or other taxable disposition of shares of our common stock unless:

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Backup withholding and information reporting

          We must report annually to the IRS and to each non-U.S. holder the gross amount of the distributions on our common stock paid to such holder and the tax withheld, if any, with respect to such distributions. Non-U.S. holders may have to comply with specific certification procedures to establish that the holder is not a U.S. person (as defined in the Code) in order to avoid backup withholding at the applicable rate with respect to dividends on our common stock. Dividends paid to non-U.S. holders subject to withholding of U.S. federal income tax, as described above in "Distributions on Our Common Stock," generally will be exempt from U.S. backup withholding.

          Information reporting and backup withholding will generally apply to the proceeds of a disposition of our common stock by a non-U.S. holder effected by or through the U.S. office of any broker, U.S. or foreign, unless the holder certifies its status as a non-U.S. holder and satisfies certain other requirements, or otherwise establishes an exemption. Generally, information reporting and backup withholding will not apply to a payment of disposition proceeds to a non-U.S. holder where the transaction is effected outside the United States through a non-U.S. office of a broker. However, for information reporting purposes, dispositions effected through a non-U.S. office of a broker with substantial U.S. ownership or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker. Non-U.S. holders should consult their tax advisors regarding the application of the information reporting and backup withholding rules to them. Copies of information returns may be made available to the tax authorities of the country in which the non-U.S. holder resides or is incorporated under the provisions of a specific treaty or agreement. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holder's U.S. federal income tax liability, if any, provided that an appropriate claim is filed with the IRS in a timely manner.

Withholding and information reporting requirements — FATCA

          Provisions of the Code commonly referred to as the Foreign Account Tax Compliance Act, or FATCA, generally imposes a U.S. federal withholding tax at a rate of 30% on payments of dividends on, or gross proceeds from the sale or other disposition of, our common stock paid to a foreign entity unless (i) if the foreign entity is a "foreign financial institution," such foreign entity undertakes certain due diligence, reporting, withholding, and certification obligations, (ii) if the foreign entity is not a "foreign financial institution," such foreign entity identifies certain of its U.S. investors, if any, or (iii) the foreign entity is otherwise exempt under FATCA. Under applicable U.S. Treasury regulations, withholding under FATCA currently applies to payments of dividends on our common stock. Currently proposed U.S. Treasury Regulations provide that FATCA withholding does not apply to gross proceeds from the disposition of property of a type that can produce U.S. source dividends or interest; however, prior versions of the rules would have made such gross proceeds subject to FATCA withholding. Taxpayers (including withholding agents) can currently rely on the proposed Treasury Regulations. Under certain circumstances, a non-U.S. holder may be eligible for refunds or credits of this withholding tax. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Non-U.S. holders should consult their tax advisors regarding the possible implications of this legislation on their investment in our common stock and the entities through which they hold our common stock, including, without limitation, the process and deadlines for meeting the applicable requirements to prevent the imposition of the 30% withholding tax under FATCA.

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UNDERWRITING

          The company and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and SVB Leerink LLC are the representatives of the underwriters.

Underwriters
  Number of
Shares
 
 

Goldman Sachs & Co. LLC

       

J.P. Morgan Securities LLC

       

SVB Leerink LLC

       

Total

       

          The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.

          The underwriters have an option to buy up to an additional             shares from the company to cover sales by the underwriters of a greater number of shares than the total number set forth in the table above. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.

          The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by the company. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase             additional shares.

Paid by the Company
  No Exercise     Full Exercise    

Per Share

  $     $    

Total

  $     $    

          Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $             per share from the initial public offering price. After the initial offering of the shares, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters' right to reject any order in whole or in part.

          The Company has agreed that, subject to certain limited exceptions, it will not: (1) offer, pledge, sell, contract to sell, any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file with, or submit to, the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition, submission or filing, or (2) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any shares of common stock or any such other securities (in either case, regardless of whether any of these transactions are to be settled by the delivery of shares of common stock or such other securities, in cash or otherwise), in each case without the prior written consent of the representatives for a period of 180 days after the date of this prospectus.

          The directors and executive officers of the company and its significant shareholders have entered into lock-up agreements with the underwriters prior to the commencement of this offering

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pursuant to which each of these persons or entities, subject to certain limited exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of the representatives: (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such directors, executive officers, managers and members in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant); or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise; or (3) make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock.

          Prior to the offering, there has been no public market for the shares. The initial public offering price has been negotiated among the company and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be the company's historical performance, estimates of the business potential and earnings prospects of the company, an assessment of the company's management and the consideration of the above factors in relation to market valuation of companies in related businesses.

          We have applied to quote the common stock on The Nasdaq Global Market under the symbol "AXLA."

          In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A "covered short position" is a short position that is not greater than the amount of additional shares for which the underwriters' option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to cover the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option described above. "Naked" short sales are any short sales that create a short position greater than the amount of additional shares for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.

          The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

          Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in

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the market price of the company's stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on The Nasdaq Global Market, in the over-the-counter market or otherwise.

European Economic Area

          In relation to each Member State of the EEA which has implemented the Prospectus Directive (each, a "Relative Member State") an offer to the public of shares of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of shares of our common stock may be made at any time under the following exemptions under the Prospectus Directive:

          provided that no such offer or shares of our common stock shall result in a requirement for the publication by us or any Brazilian placement agent of a prospectus pursuant to Article 3 of the Prospectus Directive.

          For the purposes of this provision, the expression an "offer to public" in relation to shares of our common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and shares of our common stock to be offered so as to enable an investor to decide to purchase shares of our common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression "Prospectus Directive" means Directive 2003/71/EC (as amended), including by Directive 2010/73/EU and includes any relevant implementing measure in the Relevant Member State.

          This EEA selling restriction is in addition to any other selling restrictions set out below.

United Kingdom

          In the United Kingdom, this prospectus is only addressed to and directed as qualified investors who are (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order); or (ii) high net worth entities and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). Any investment or investment activity to which this prospectus relates is available only to relevant persons and will only be engaged with relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents.

Canada

          The shares may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an

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exemption form, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

          Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this offering memorandum (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province or territory of these rights or consult with a legal advisor.

          Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.

Hong Kong

          The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) ("Companies (Winding Up and Miscellaneous Provisions) Ordinance") or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) ("Securities and Futures Ordinance"), or (ii) to "professional investors" as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.

Singapore

          This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA")) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.

          Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for 6 months after that corporation has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the

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SFA), (2) where such transfer arises from an offer in that corporation's securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore ("Regulation 32").

          Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferable for 6 months after that trust has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.

Japan

          The shares have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended), or the FIEA. The shares may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.

          The company estimates that its share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $             .

          The company has agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.

          The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the issuer and to persons and entities with relationships with the issuer, for which they received or will receive customary fees and expenses.

          In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities or instruments of the issuer (directly, as collateral securing other obligations or otherwise) or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

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LEGAL MATTERS

          The validity of the shares of common stock offered by this prospectus will be passed upon for us by Goodwin Procter LLP, Boston, Massachusetts. Certain legal matters related to this offering will be passed upon for the underwriters by Latham & Watkins LLP.


EXPERTS

          The consolidated financial statements included in this prospectus have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein. Such consolidated financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.


WHERE YOU CAN FIND MORE INFORMATION

          We have filed with the SEC a registration statement on Form S-1 (File Number 333-             ) under the Securities Act with respect to the common stock we are offering by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information pertaining to us and our common stock, you should refer to the registration statement and to its exhibits. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document.

          Upon the closing of the offering, we will be subject to the informational requirements of the Exchange Act and will file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, at the SEC's website at www.sec.gov. We also maintain a website at https://www.axcellahealth.com/. Upon completion of the offering, you may access, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendment to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.

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AXCELLA HEALTH INC. AND SUBSIDIARIES

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

    F-2  

Consolidated Balance Sheets

    F-3  

Consolidated Statements of Operations

    F-4  

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

    F-5  

Consolidated Statements of Cash Flows

    F-6  

Notes to Consolidated Financial Statements

    F-7  

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and Board of Directors of Axcella Health Inc.

Opinion on the Financial Statements

          We have audited the accompanying consolidated balance sheet of Axcella Health Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2018, and the related consolidated statements of operations, redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows for the years then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

          These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on 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 regulation of the Securities and Exchange Commission and the PCAOB.

          We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. 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/ Deloitte & Touche LLP    

Boston, Massachusetts
March 15, 2019

 

 

We have served as the Company's auditor since 2012.

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Axcella Health Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

    December 31,     Pro Forma
December 31,
 

    2017     2018     2018
 

                (Unaudited)  

Assets

                   

Current assets:

                   

Cash and cash equivalents

  $ 46,817   $ 79,466   $ 79,466  

Prepaid expenses and other current assets

    255     835     835  

Total current assets

    47,072     80,301     80,301  

Property and equipment, net

    1,525     1,076     1,076  

Security deposits and other assets

    216     216     216  

Deferred offering costs

        251     251  

Total assets

  $ 48,813   $ 81,844   $ 81,844  

Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

                   

Current liabilities:

                   

Accounts payable

  $ 1,019   $ 1,612   $ 1,612  

Accrued expenses

    4,076     5,299     5,299  

Total current liabilities

    5,095     6,911     6,911  

Long term debt, net of discount

    19,557     24,521     24,521  

Other liabilities

    1,276     1,898     1,898  

Preferred stock warrant liability

    411     425      

Total liabilities

    26,339     33,755     33,330  

Commitments and contingencies (Note 9)

             

Redeemable convertible preferred stock (Note 7)

    138,828     197,842      

Stockholders' equity (deficit):

                   

Common stock, $0.001 par value; 45,000,000 and 47,000,000 shares authorized, 9,716,458 and 9,567,239 shares issued and 7,790,039 and 8,795,475 shares outstanding at December 31, 2017 and 2018, respectively, actual; 47,000,000 shares authorized, 36,537,837 shares issued and 35,766,073 shares outstanding, pro forma as of December 31, 2018 (unaudited)

    9     10     37  

Additional paid-in-capital

    4,617     7,286     205,526  

Treasury stock, 771,764 shares at cost

             

Accumulated deficit

    (120,980 )   (157,049 )   (157,049 )

Total stockholders' equity (deficit)

    (116,354 )   (149,753 )   48,514  

Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)

  $ 48,813   $ 81,844   $ 81,844  

   

The accompanying notes are an integral part of these consolidated financial statements

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Axcella Health Inc.

Consolidated Statements of Operations

(in thousands, except share and per share data)

    December 31,
 

    2017     2018
 

Operating expenses:

             

Research and development

  $ 22,916   $ 25,486  

General and administrative

    6,005     8,410  

Total operating expenses

    28,921     33,896  

Loss from operations

    (28,921 )   (33,896 )

Other income (expense):

             

Change in fair value of preferred stock warrant liability

    81     (14 )

Interest income (expense), net

    (2,100 )   (2,159 )

Total other income (expense), net

    (2,019 )   (2,173 )

Net loss

  $ (30,940 ) $ (36,069 )

Net loss per share, basic and diluted

  $ (4.00 ) $ (4.33 )

Weighted average common shares outstanding, basic and diluted

    7,758,355     8,374,425  

Pro forma net loss per share, basic and diluted (unaudited)

        $ (1.19 )

Pro forma weighted average common shares outstanding, basic and diluted (unaudited)

          30,372,277  

   

The accompanying notes are an integral part of these consolidated financial statements

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Axcella Health Inc.

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

(in thousands, except share data)

    Redeemable
convertible
preferred stock
        Common stock     Additional     Treasury stock           Total
 

    Shares     Amount         Shares     Par
Value
    paid-in
capital
    Shares     Amount     Accumulated
deficit
    stockholders'
equity (deficit)
 

BALANCE — January 1, 2017

    18,976,824   $ 113,040         8,518,177   $ 9   $ 3,462     771,764   $   $ (90,040 ) $ (86,569 )

Issuance of Series C redeemable convertible preferred stock (net of issuance costs of $259)

    2,572,420     25,671                                              

Exercise of common stock options

                    43,626           26                       26  

Accretion of preferred stock to redemption value

          117                     (117 )                     (117 )

Stock-based compensation

                                1,246                       1,246  

Net loss

                                                  (30,940 )   (30,940 )

BALANCE — December 31, 2017

    21,549,244     138,828         8,561,803     9     4,617     771,764         (120,980 )   (116,354 )

Issuance of Series E redeemable convertible preferred stock (net of issuance costs of $139)

    5,282,002     58,861                                              

Exercise of common stock options

                    1,005,436     1     44                       45  

Accretion of preferred stock to redemption value

          153                     (153 )                     (153 )

Stock-based compensation

                                2,778                       2,778  

Net loss

                                                  (36,069 )   (36,069 )

BALANCE — December 31, 2018

    26,831,246   $ 197,842         9,567,239   $ 10   $ 7,286     771,764   $   $ (157,049 ) $ (149,753 )

   

The accompanying notes are an integral part of these consolidated financial statements

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Axcella Health Inc.

Consolidated Statements of Cash Flows

(in thousands)

    Year Ended
December 31,
 

    2017     2018
 

Cash flows from operating activities:

             

Net loss

  $ (30,940 ) $ (36,069 )

Adjustment to reconcile net loss to net cash used in operating activities:

             

Depreciation and amortization

    1,389     1,071  

Stock-based compensation expense

    1,246     2,778  

Change in fair value of preferred stock warrant liability

    (81 )   14  

Non-cash interest expense

    509     529  

Gain on sale of property and equipment

    (175 )   (36 )

Changes in current assets and liabilities:

             

Prepaid expenses and other current assets

    132     (580 )

Accounts payable

    40     595  

Accrued expense

    1,019     986  

Net cash used in operating activities

    (26,861 )   (30,712 )

Cash flows from investing activities:

             

Purchases of property and equipment

    (1,090 )   (659 )

Proceeds from the sale of property and equipment

    175     73  

Net cash used in investing activities

    (915 )   (586 )

Cash flows from financing activities:

             

Payment of deferred offering costs

        (14 )

Proceeds from issuance of long term debt

        6,000  

Payment of debt issuance costs

        (945 )

Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs

    25,671     58,861  

Proceeds from exercise of common stock options

    26     45  

Net cash provided by financing activities

    25,697     63,947  

Net increase (decrease) in cash and cash equivalents

    (2,079 )   32,649  

Cash and cash equivalents, beginning of year

    48,896     46,817  

Cash and cash equivalents, end of year

  $ 46,817   $ 79,466  

Supplemental cash flow information:

             

Cash paid during the year for interest

  $ 2,002   $ 2,255  

Deferred offering costs included in accounts payable and accrued expenses

  $   $ 237  

   

The accompanying notes are an integral part of these consolidated financial statements

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF BUSINESS

          Axcella Health Inc. and subsidiaries (the "Company" or "we") is a biotechnology company that was incorporated in Delaware on August 27, 2008 and has a principal place of business in Cambridge, Massachusetts. The Company is a biotechnology company pioneering the research and development of novel multifactorial interventions to support health and address dysregulated metabolism across a broad spectrum of consumers and patients who have limited options.

          The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, successful development of technology, obtaining additional funding, protection of proprietary technology, compliance with government regulations, risks of failure of preclinical studies, clinical studies and clinical trials, the need to obtain marketing approval for its product candidates and successfully market consumer products, fluctuations in operating results, economic pressure impacting therapeutic pricing, dependence on key personnel, risks associated with changes in technologies, development by competitors of technological innovations and the ability to scale manufacturing to large scale production. Product candidates currently under development will require significant additional research and development efforts, including clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company's development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

          The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has funded its operations with proceeds from sales of preferred stock and borrowings under a loan and security agreement. Since its inception, the Company has incurred recurring losses, including net losses of $30.9 million and $36.1 million for the years ended December 31, 2017 and 2018, respectively. As of December 31, 2018, the Company had an accumulated deficit of $157.0 million. The Company expects to continue to generate operating losses in the foreseeable future. The Company expects that its cash and cash equivalents as of December 31, 2018 will be sufficient to fund its operations for at least the next twelve months from the date of the issuance of the financial statements.

          The Company is seeking to complete an initial public offering ("IPO") of its common stock. Upon completion of a qualified public offering on specified terms, the Company's outstanding convertible preferred stock will automatically convert into shares of common stock (see Note 7). In the event the Company does not complete an IPO, the Company expects to seek additional funding through private equity financings, debt financings, strategic alliances and marketing, distribution, or licensing arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and may not be able to enter into collaborations or other arrangements. The terms of any financing may adversely affect the holdings or the rights of the Company's stockholders. If the Company is unable to secure funding, it could be forced to delay, reduce, or eliminate some or all of its research development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

          The Company's consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP").

          The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

          The preparation of the consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. The Company bases its estimates on historical experience, known trends and other market-specific or relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Actual results may differ from those estimates or assumptions.

Unaudited pro forma

          On December 18, 2018, the Company's board of directors (the "Board") authorized the Company to submit a confidential draft registration statement with the Securities and Exchange Commission to sell shares of its common stock to the public. Upon the closing of an IPO, all of the Company's outstanding shares of redeemable convertible preferred stock will automatically convert into shares of common stock. The unaudited pro forma consolidated balance sheet information as of December 31, 2018 reflects the conversion of all outstanding shares of redeemable convertible preferred stock into common stock upon the closing of an IPO and the conversion of the outstanding warrants to purchase shares of redeemable convertible preferred stock as of December 31, 2018 into warrants to purchase shares of common stock as if the proposed IPO had occurred on December 31, 2018.

          For purposes of calculating pro forma basic and diluted loss per share, all shares of redeemable convertible preferred stock outstanding as of the last reporting date have been treated as if they had been converted to common stock as of the beginning of the year or on the issuance date of the preferred stock, if later.

Subsequent Events

          The Company considers events or transactions that occur after the balance sheet date but before the final financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

Cash and Cash Equivalents

          Cash includes cash in readily available checking and money market accounts. Cash equivalents include all highly liquid investments maturing within 90 days from the date of purchase. The cash equivalents consisted of money market funds.

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Concentrations of Credit Risk

          Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company's cash deposits on hand at one financial institution often exceed federally insured limits. The Company places its cash in a financial institution that management believes to be of high credit quality.

Deferred offering costs

          The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with the proposed IPO as deferred offering costs. The deferred offering costs will be offset against the IPO proceeds upon the consummation of the IPO. In the event the IPO is abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations. The Company did not record any deferred offering costs as of December 31, 2017. As of December 31, 2018, the Company capitalized $0.3 million of deferred issuance costs related to the proposed IPO.

Property and Equipment

          Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets as follows:

    Estimated useful life
Laboratory equipment   3 - 5 years
Production Equipment   3 - 15 years
Furniture and fixtures   3 - 5 years
Office and computer equipment   3 - 5 years
Leasehold improvements   Shorter of the asset's estimated
useful life or the remaining
lease term

          Major additions and betterments are capitalized; expenditures for repairs and maintenance, which do not improve or extend the life of the respective assets, are charged to operating expense as incurred.

Impairment of Long-Lived Assets

          Long-lived assets to be held and used, including property and equipment, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. Evaluation of the recoverability of the asset or asset group is based on an estimate of undiscounted future cash flows resulting from the use of the asset or asset group and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the asset or asset group, the assets are written down to their estimated fair values. The impairment loss would be based on the excess of the carrying value

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

of the impaired asset over its fair value, determined based on discounted cash flows. The Company did not record any impairment losses on long-lived assets during the periods presented.

Fair Value Measurements

          Certain assets and liabilities are carried at fair value under US GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the user of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

    Level 1  — Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets and liabilities.

    Level 2  — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

    quoted prices for similar assets and liabilities in active markets

    quoted prices for identical or similar assets or liabilities in markets that are not active

    observable inputs other than quoted prices that are used in the valuation of the asset or liabilities (e.g., interest rate and yield curve quotes at commonly quoted intervals)

    inputs that are derived principally from or corroborated by observable market data by correlation or other means

    Level 3  — Unobservable inputs for the assets or liability (i.e., supported by little or no market activity). Level 3 inputs include management's own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

Research and Development Costs

          Research and development costs are expensed as incurred. Research and development costs consist of expenses incurred in performing research and development activities, including salaries, bonuses, stock-based compensation and benefits of employees, lab supplies and materials, depreciation, manufacturing expenses, facilities expenses, overhead expenses, and external costs of vendors engaged to conduct preclinical development activities and clinical trials. Research and development costs that are paid in advance of performance (if any) are capitalized as a prepaid expense and expensed as the goods are delivered or services performed.

Research and manufacturing contract costs and accruals

          The Company has entered into various research and development and manufacturing contracts. These agreements are generally cancelable, and related payments are recorded as the

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

corresponding expenses are incurred. The Company records accruals for estimated ongoing costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the research studies or clinical trials and manufacturing activities, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company's estimates. The Company's historical accrual estimates have not been materially different from the actual costs.

Patent Costs

          All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as research and development expenses.

Income Taxes

          Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the consolidated financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax asset to an amount, which, more likely than not, will be realized.

          The Company recognizes the tax benefit from any uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Interest and penalties associated with uncertain tax positions are recorded as a component of income tax expense. As of December 31, 2017 and 2018, the Company has not identified any uncertain tax positions for which reserves would be required.

Segment Information

          The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company's one business segment is the development of our products. All of the Company's assets are held in the United States.

Redeemable Convertible Preferred Stock

          The Company classifies stock that is redeemable in circumstances outside of the Company's control outside of permanent equity. The Company records redeemable convertible preferred stock at fair value upon issuance, net of any issuance costs, and the carrying value is increased by periodic accretion to its redemption value at the earliest redemption date, when the events that give rise to redemption are deemed probable of occurrence. These increases are effected through charges against retained earnings, if any, and then to additional paid-in capital. In the absence of paid-in capital, the accretion is charged to the accumulated deficit. The Company's redeemable

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

convertible preferred stock is subject to a dividend when and if declared by the Board. From inception through December 31, 2018, no dividend has been declared.

Stock-Based Compensation

          The Company accounts for stock-based awards granted to employees and non-employees at fair value, which is measured using the Black-Scholes option-pricing model. The measurement date for employee awards is generally the date of grant. Prior to the adoption of ASU No. 2018-07, Compensation — Stock Compensation (Topic 718) ("ASU 2018-07"), which simplifies the accounting for non-employee share based payment transactions and is discussed below under "Recently Issued Accounting Pronouncements," the fair value measurement date for non-employee awards was the date the performance of services was completed. Stock-based compensation costs are recognized as expense over the requisite service period, which is generally the vesting period, on a straight-line basis for all time-vested awards.

          Upon adoption of ASU 2018-07 on January 1, 2018, the measurement date for non-employee awards is the date of grant. The compensation expense for non-employees is recognized, without changes in the fair value of the award, over the requisite service period, which is the vesting period of the respective award. The impact on its consolidated financial statements was immaterial.

          The Company classifies equity-based compensation expense in its consolidated statement of operations in the same manner in which the award recipient's salary and related costs are classified or in which the award recipient's service payments are classified.

Preferred Stock Warrant Liability

          Warrants to purchase shares of redeemable or contingently redeemable preferred stock are classified as a liability on the consolidated balance sheets and carried at fair value with the change in fair value recorded in the consolidated statements of operations. The liability has been classified as long-term as the warrants are not expected to be settled in the next 12 months. The warrants will expire the earlier of the close of business April 13, 2020 or one year after closing an IPO.

          Upon the closing of an IPO, the preferred stock warrants will become exercisable for common stock instead of preferred stock, and the fair value of the warrant liability at that time will be reclassified to additional paid-in capital. As a result, subsequent to the closing of this IPO, the Company will no longer remeasure the fair value of the warrant liability at each reporting date.

Comprehensive Loss

          Comprehensive loss includes net loss as well as other changes in stockholders' equity (deficit) that result from transactions and economic events other than those with stockholders. For the years ended December 31, 2017 and 2018, there was no difference between net loss and comprehensive loss in the accompanying consolidated financial statements.

Net Income (Loss) Per Share

          Basic net loss per share attributable to common stockholders is calculated by dividing net loss attributable to common stockholders by the weighted average shares outstanding during the period. During periods of income, the Company allocates participating securities a proportional

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

share of income determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and participating securities (the "two class method"). The Company's redeemable convertible preferred stock participates in any dividends declared by the Company and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, the Company allocates no loss to participating securities because they have no contractual obligation to share in the losses of the Company. Diluted net income (loss) per share attributable to common stockholders is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock and if-converted methods. For purposes of the diluted net income (loss) per share attributable to common stockholders' calculation, redeemable convertible preferred stock, stock options, and preferred stock warrants are considered to be common stock equivalents. All common stock equivalents have been excluded from the calculation of diluted net loss per share attributable to common stockholders, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share were the same for all periods presented.

Recently Issued Accounting Pronouncements

          In February 2016, the FASB issued ASU No. 2016-02, Leases , which alters the accounting model and financial statement presentation and disclosure of leases. The new standard increases the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for the Company's fiscal years beginning January 1, 2020. We are assessing the impact the adoption of ASU 2016-02 will have on our consolidated financial statements and will recognize a lease obligation and right of use asset for our existing operating leases upon adoption. See additional information regarding the Company's lease obligations in Note 9.

          In June 2018, the FASB issued ASU No. 2018-07, Compensation — Stock Compensation (Topic 718) . ASU 2018-07 simplifies the accounting for non-employee share-based payment transactions. The Company adopted this ASU on January 1, 2018 and applied the standard prospectively in accordance with the guidance. The impact on the Company's consolidated financial statements was immaterial.

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. PROPERTY AND EQUIPMENT

          Property and equipment consist of the following (in thousands):

    December 31,
 

    2017     2018
 

Laboratory equipment

  $ 3,319   $ 3,489  

Production equipment

    119      

Leasehold improvements

    601     564  

Office and computer equipment

    299     294  

Furniture and fixtures

    122     122  

Property and equipment

    4,460     4,469  

Less: accumulated depreciation and amortization

    (2,935 )   (3,393 )

Property and equipment, net

  $ 1,525   $ 1,076  

          Depreciation and amortization expense for the years ended December 31, 2017 and 2018 was $1.4 million and $1.1 million, respectively.

4. FAIR VALUE MEASUREMENTS

          The following table sets forth by level, within the fair value hierarchy, the assets (liabilities) carried at fair value as of December 31, 2018 (in thousands):

    Fair value measurements
at December 31, 2018 using:
 

    Level 1     Level 2     Level 3     Total
 

Cash Equivalents

  $ 79,216   $   $   $ 79,216  

Success Fee Liability

            1,220     1,220  

Preferred Stock Warrant Liability

            425     425  

Total

  $ 79,216   $   $ 1,645   $ 80,861  

          The following table sets forth by level, within the fair value hierarchy, the assets (liabilities) carried at fair value as of December 31, 2017 (in thousands):

    Fair value measurements at December 31, 2017 using:
 

    Level 1     Level 2     Level 3     Total
 

Cash Equivalents

  $ 46,567   $   $   $ 46,567  

Success Fee Liability

            700     700  

Preferred Stock Warrant Liability

            411     411  

Total

  $ 46,567   $   $ 1,111   $ 47,678  

          The cash equivalents are comprised of funds held in an exchange traded money market fund and the fair value of the cash equivalents is determined based upon quoted market price for that fund. The fair value of the preferred stock warrant was determined using the Black-Scholes option-

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. FAIR VALUE MEASUREMENTS (Continued)

pricing model with the assumptions as disclosed in Note 7. These assumptions include significant judgments including the fair value of the underlying preferred stock. An increase or decrease in the estimated fair value will result in increases or decreases in the fair value of the warrant liability and such changes could be material.

          The fair value of the success fee liability was determined using a probability weighted present value of cash flows. The Company has projected that 100% of the liability will be paid and that the time value of discounting those cash flows does not have a material impact on the fair value measurement due to the expected term. The liability could decrease if the Company changes its assessment of the probability of the paying the success fee.

          A roll forward of the fair value of the success fee liability and preferred stock warrant liability categorized with Level 3 inputs for the years ended December 31, 2017 and 2018 is as follows (in thousands):

    Success fee     Preferred
stock warrant
liability
 

Balance — January 1, 2017

  $ 700   $ 492  

Decrease in warrant fair value included in other expense

        (81 )

Balance — December 31, 2017

    700     411  

Increase in success fee included in other liabilities

    520      

Increase in warrant fair value included in other expense

        14  

Balance — December 31, 2018

  $ 1,220   $ 425  

          There were no transfers among Level 1, Level 2, or Level 3 categories in the periods presented.

          The carrying value of cash, cash equivalents, accounts payable and accrued expenses that are reported on the consolidated balance sheets approximate their fair value due to the short-term nature of these assets and liabilities. The carrying value of the long-term debt approximates fair value as evidenced by the recent amendment.

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

          Accrued expenses and other liabilities consisted of the following (in thousands):

    December 31,
 

    2017     2018
 

Accrued employee compensation and benefits

  $ 1,765   $ 1,957  

Accrued external research and development expenses

    1,537     1,679  

Accrued professional fees

    252     678  

Other

    522     985  

Total accrued expenses and other current liabilities

  $ 4,076   $ 5,299  

6. DEBT FINANCING

          Long-term debt consisted of the following (in thousands):

    December 31,
 

    2017     2018
 

Principal amount of long term debt

  $ 20,000   $ 26,000  

Debt discount

    (257 )   (612 )

Deferred financing fees

    (186 )   (867 )

Long term debt, net of discount

  $ 19,557   $ 24,521  

          In February 2017, the Company amended and restated the August 2015 debt facility (the "February 2017 amended facility") to extend the interest only period through February 2018. Monthly principal payments of $1.0 million were to commence March 2018 for 10 months and then increase to $1.3 million for the eight months thereafter. The loan had an interest rate equal to the LIBOR rate plus 8.80% per annum (9.97% as of December 31, 2017) payable monthly and a $0.7 million success fee, payable upon the occurrence of certain events, including the completion of an IPO. The initial fair value of the success fee was recorded as an obligation to the lenders and creates a debt discount, which is then amortized to interest expense through the term of the loan.

          In January 2018, the Company entered into a new secured debt facility (the "2018 Facility") with the existing lender that replaced the February 2017 amended facility. The 2018 Facility provided funding of $21.0 million. The Company paid a transaction fee of $0.9 million to the lender in connection with the 2018 Facility, and that fee was recognized as debt discount. The 2018 Facility requires interest only payments through January 2019 with the ability to extend the interest only payment period through January 2020 if certain conditions are met. Monthly principal payments of $0.6 million were to commence in February 2019 for 36 months. The 2018 Facility has an interest rate equal to the LIBOR plus 8.50% per annum (10.54% as of December 31, 2018) payable monthly and a $1.1 million success fee which is payable upon the occurrence of certain events. The success fee is comprised of $0.7 million associated with the February 2017 amended facility and an additional $0.4 million arising from the January 2018 amendment. The fair value of the additional success fee was recorded as an obligation to the lenders and created an additional debt discount. The Company granted the lender a first security interest in all assets of the

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. DEBT FINANCING (Continued)

Company, excluding intellectual property and granted a negative pledge on such intellectual property.

          In October 2018, the Company amended the 2018 Facility (the "Amended 2018 Facility") to extend the interest only period through July 2020 or January 2021 and the Maturity Date to July 2022 or January 2023 if certain conditions are met. The Amended 2018 Facility provides additional funding in the amounts of $5.0 million ("Term B Loan") and $4.0 million ("Term C Loan") if certain conditions are met. The Term B Loan of $5.0 million was drawn in December 2018. Monthly principal payments of $1.1 million are to commence August 2020 for 24 months. The success fee increased to $1.2 million, which increased the debt discount by $0.1 million. Deferred financing costs of $0.1 million were incurred related to the amendment. The interest rate was not changed through the amendment.

          For the years ended December 31, 2017 and 2018, interest expense arising from the amortization of the debt discount and deferred financing fees was $0.2 million and $0.4 million, respectively.

    Terminal Interest Fee

          The Company's August 2015 debt facility, as amended and the 2018 Facility, included a terminal interest fee obligation, which is due with the final principal payment of the loan and has been modified from time to time as the facilities were amended. The Company is accruing the terminal fee obligation over the term of the facility. At December 31, 2017, the terminal fee obligation was $1.1 million. The October 2018 amendment increased the terminal interest fee to $1.4 million.

          The following summarizes the accrued terminal fee payable activity (in thousands):

    December 31,
 

    2017     2018
 

Balance at beginning of year

  $ 266   $ 576  

Terminal interest fees accrued during the year

    310     101  

Balance at end of year

  $ 576   $ 677  

          The scheduled principal maturity of the long-term debt, reflecting the 2018 Amended Facility and the Term B Loan draw offers, is as follows (in thousands):

Year Ended December 31,
   
 

2020

  $ 5,417  

2021

    13,000  

2022

    7,583  

  $ 26,000  

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. STOCKHOLDERS' EQUITY

          The following summarizes the significant terms of the Company's capital stock and stock- based compensation plans.

Series A Preferred Stock

          On April 8, 2011, the Company entered into the Series A Preferred Stock Purchase Agreement with its founding investor committing $10.8 million in Series A Preferred Stock equity financing. During 2011 and 2012, the Company issued an aggregate of 5,538,462 shares of Series A Redeemable Convertible Preferred Stock ("Series A Preferred Stock") at $1.95 per share. In 2013, an additional 223,077 shares of Series A Preferred Stock was issued. Issuance costs associated with the transaction were $30,000.

Series B Preferred Stock

          On October 10, 2013 and December 11, 2013, the Company entered into the Series B Preferred Stock Purchase Agreements with its founding investor and other investors providing $12.3 million in Series B Preferred Stock equity financing (the "Series B Agreement"). In connection with entering into the Series B Agreement, the Company issued 4,737,041 shares of Series B Redeemable Convertible Preferred Stock ("Series B Preferred Stock") at $2.59 per share for gross cash proceeds of $12.3 million (inclusive of $4.1 million in convertible notes and accrued interest that were converted). Issuance costs associated with the transaction were $57,000.

Series B-1 Preferred Stock

          On March 12, 2014, the Company entered into the Series B-1 Preferred Stock Purchase Agreement with a new investor providing $3.0 million in Series B-1 Preferred Stock equity financing (the "Series B-1 Agreement"). In connection with entering into the Series B-1 Agreement, the Company issued 1,084,441 shares of Series B-1 Redeemable Convertible Preferred Stock ("Series B-1 Preferred Stock") at $2.77 per share for gross cash proceeds of $3.0 million. Issuance costs associated with the transaction were $38,000.

Series C Preferred Stock

          On each of January 30, 2015, April 28, 2015 and September 16, 2015, the Company entered into the Series C Preferred Stock Purchase Agreements with its founding investor and other investors providing $44.3 million in Series C Preferred Stock equity financing (the "Series C Agreement"). In connection with entering into the Series C Agreement, the Company issued 4,396,624 shares of Series C Redeemable Convertible Preferred Stock ("Series C Preferred Stock") at $10.08 per share for gross cash proceeds of $44.3 million. Issuance costs associated with the transaction were $175,000.

          On August 11, 2017, the Company extended the Series C Agreement with existing investors providing an additional $25.9 million in Series C Preferred Stock equity financing (the "Series C Extension Agreement"). In connection with the Series C Extension Agreement, the Company issued 2,572,420 shares of Series C Preferred Stock at $10.08 per share for gross cash proceeds of $25.9 million. Issuance costs associated with the transaction were $259,000.

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. STOCKHOLDERS' EQUITY (Continued)

Series D Preferred Stock

          On February 10, 2016, the Company entered into the Series D Preferred Stock Purchase Agreement with a new strategic investor providing $42.5 million in Series D Preferred Stock equity financing (the "Series D Agreement"). In connection with entering into the Series D Agreement, the Company issued 2,997,179 shares of Series D Redeemable Convertible Preferred Stock ("Series D Preferred Stock") at $14.18 per share for gross cash proceeds of $42.5 million. Issuance costs associated with the transaction were $150,000.

Series E Preferred Stock

          On November 30, 2018, the Company entered into the Series E Preferred Stock Purchase Agreement with a new strategic investor and existing investors providing $59.0 million in Series E Preferred Stock equity financing (the "Series E Agreement"). In connection with entering into the Series E Agreement, the Company issued 5,282,002 shares of Series E Redeemable Convertible Preferred Stock ("Series E Preferred Stock") at $11.17 per share for gross cash proceeds of $59.0 million. Issuance costs associated with the transaction were $139,000.

          As of each balance sheet date, the Preferred Stock consisted of the following (in thousands, except for share data):

    December 31, 2018
 

    Preferred
Stock
Authorized
    Preferred
Stock
Issued and
Outstanding
    Carrying
Value
    Liquidation
Preference
    Common
stock issuable
upon
conversion
 

Series A preferred stock

    5,874,334     5,761,539   $ 11,235   $ 11,235     5,761,539  

Series B preferred stock

    4,737,041     4,737,041     12,250     12,250     4,737,041  

Series B-1 preferred stock

    1,084,441     1,084,441     2,998     3,000     1,084,441  

Series C preferred stock

    6,969,044     6,969,044     70,062     70,248     6,969,044  

Series D preferred stock

    2,997,179     2,997,179     42,434     42,500     3,136,531  

Series E preferred stock

    6,266,786     5,282,002     58,863     59,000     5,282,002  

    27,928,825     26,831,246   $ 197,842   $ 198,233     26,970,598  

 

    December 31, 2017
 

    Preferred
Stock
Authorized
    Preferred
Stock
Issued and
Outstanding
    Carrying
Value
    Liquidation
Preference
    Common
stock issuable
upon
conversion
 

Series A preferred stock

    5,874,334     5,761,539   $ 11,235   $ 11,235     5,761,539  

Series B preferred stock

    4,737,041     4,737,041     12,244     12,250     4,737,041  

Series B-1 preferred stock

    1,084,441     1,084,441     2,990     3,000     1,084,441  

Series C preferred stock

    9,356,941     6,969,044     69,950     70,248     6,969,044  

Series D preferred stock

    2,997,179     2,997,179     42,409     42,500     3,064,165  

    24,049,936     21,549,244   $ 138,828   $ 139,233     21,616,230  

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. STOCKHOLDERS' EQUITY (Continued)

          The terms and conditions of the Series A, Series B, Series B-1, Series C, Series D and Series E Preferred Stock are as follows:

          Dividends  — Dividends shall accrue at the rate of 8% annually and are non-cumulative in nature. Dividends are payable only when and if declared by the Board. The Company shall not declare, pay, or set aside any dividends on shares of any class of common stock, unless the holders of the preferred stock shall first receive dividends on each outstanding share of preferred stock in the amount of the accrued dividends unpaid as of such date. No dividends have been declared or paid.

          Liquidation  — In the event of any liquidation, dissolution, or winding-up of the Company, which would include the sale of the Company, Series E Preferred Stock is senior to the Series A, Series B, and Series B-1 Preferred Stock, and pari-passu with the Series C and Series D Preferred Stock. The Series C, Series D, and Series E Preferred stockholders would be entitled to be paid before any payment shall be made to the holders of common stock, Series A Preferred Stock, Series B Preferred Stock, or Series B-1 Preferred Stock an amount per share equal to (i) in the case of the Series C Preferred Stock, the greater of the Series C original issue price of $10.08, plus any dividends declared but unpaid or such amount per share as would have been payable had all shares of Series C Preferred Stock been converted into Common Stock immediately prior to such liquidation, dissolution, or winding up of the Company, (ii) in the case of the Series D Preferred Stock, the greater of the Series D original issue price of $14.18, plus any dividends declared but unpaid or such amount per share as would have been payable had all shares of Series D Preferred Stock been converted into Common Stock immediately prior to such liquidation, dissolution, or winding up of the Company, and (iii) in the case of the Series E Preferred Stock, the greater of the Series E original issue price of $11.17, plus any dividends declared but unpaid or such amount per share as would have been payable had all shares of Series E Preferred Stock been converted into Common Stock immediately prior to such liquidation, dissolution, or winding up of the Company. Following the payment of the Series C, Series D, and Series E liquidation amount, the Series A Preferred stockholders would be entitled to be paid pari-passu with the Series B Preferred stockholders and Series B-1 Preferred Stockholders and before any distribution or payment is made to the holders of the common stock. The amount to be paid to the holders of Series A, Series B and Series B-1 Preferred Stock is an amount equal to the greater of the original purchase price per share, plus all declared but unpaid dividends thereon or such amount per share as would have been payable had all shares of Series A, Series B, Series B-1, and Series C Preferred Stock been converted to common stock prior to such liquidation, dissolution, or winding up of the Company. The original issue purchase price per share of the Series A Preferred Stock was $1.95 per share, the original issue price of the Series B Preferred Stock was $2.59 per share and the original issue price of the Series B-1 Preferred Stock was $2.77 per share. Any assets remaining following the preferential distribution to the holders of Series A, Series B, and Series B-1 Preferred Stock would be available for distribution ratably among the holders of common stock.

          Voting  — The preferred stockholders are entitled to the number of votes equal to the number of shares of common stock into which the shares of preferred stock held by each holder are then convertible.

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. STOCKHOLDERS' EQUITY (Continued)

          Conversion  — Each share of Series A, Series B, Series B-1, Series C, Series D and Series E Preferred Stock is convertible at any time at the option of the holder. The number of shares into which the preferred stock converts is equal to the issuance price divided by the conversion price. The conversion price shall initially be $1.95 per share for the Series A Preferred Stock, $2.59 per share for the Series B Preferred Stock, $2.77 per share for the Series B-1 Preferred Stock, $10.08 for the Series C Preferred Stock, $14.18 for the Series D Preferred Stock, and $11.17 for the Series E Preferred Stock and may be adjusted for certain dilutive events. Conversion to common stock shall be mandatory upon the closing of an IPO resulting in net proceeds of at least $35.0 million or upon the decision of the holders of at least a majority of the outstanding preferred stock shares and the holders of at least a majority of the outstanding shares of Series C Preferred Stock. The conversion price at December 31, 2018 was $1.95 per share for the Series A Preferred Stock, $2.59 per share for the Series B Preferred Stock, $2.77 per share for the Series B-1 Preferred Stock, $10.08 for the Series C Preferred Stock, $13.55 for the Series D Preferred Stock and $11.17 for the Series E Preferred Stock.

          Redemption  — The preferred stock may be redeemed at the option of the majority of the holders in three annual installments on or after February 10, 2021, at a price per share equal to $1.95 per share for the Series A Preferred Stock, $2.59 per share for the Series B Preferred Stock, $2.77 per share for the Series B-1 Preferred Stock, $10.08 per share for the Series C Preferred Stock, $14.18 per share for the Series D Preferred Stock and $11.17 per share for the Series E Preferred Stock plus all declared but unpaid dividends.

          Preferred Stock Warrants  — In connection with the issuance of debt in 2012, the Company issued warrants to purchase 112,795 shares of Series A Preferred Stock with an exercise price of $1.95 per share. The warrants expire upon the earliest of April 13, 2020 or the first anniversary of the consummation of the initial public offering. Fair value has been estimated using a Black-Scholes option-pricing model with the following assumptions:

  December 31,

  2017   2018

Expected volatility

  71%   65%

Risk-free interest rate

  2.09%   2.49%

Weighted-average remaining contractual term (in years)

  2.28   1.28

Expected dividend yield

  0%   0%

Fair value of underlying Series A Preferred Stock

  $5.23   $5.59

          Unvested Common Stock  — The Company has entered into stock purchase agreements with certain senior executives of the Company.

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. STOCKHOLDERS' EQUITY (Continued)

          In August 2013, the Company issued 1,154,655 shares of nonvested common stock to a then-executive with an aggregate fair value of $0.5 million, or $0.46 per share, in exchange for $1,155 in cash and $0.5 million in a promissory note. The note bears interest at a rate of 1.22% per annum and has partial recourse for up to 50% of the value of the note. The promissory note is collateralized by all of the underlying shares of common stock (1,154,655 shares) and is due within 60 days of termination of the executive, immediately prior to a liquidity or liquidation event, or five years from the date of issuance. The vesting period for the shares is over a four-year period and reflects the period the stock-based compensation expense is recognized for the award. The outstanding principal balance on the promissory note as of December 31, 2017 and December 31, 2018, totaled $0.5 million and $0.0 million, respectively.

          The Company determined that the promissory note did not represent a substantive exercise of an option as the employee does not bear the risks and rewards of ownership as the note is partial recourse and, therefore, was accounted for as a nonrecourse note. The promissory note was accounted for as a stock option grant and the note receivable and related shares of common stock are not recorded until such time as they are repaid. The Company has estimated the aggregate grant date fair value of the awards at $0.3 million using the Black-Scholes option-pricing model with assumptions consistent with the assumptions outlined below. During the years ended December 31, 2017 and 2018, the Company recognized $0.03 million and $0.0 million, respectively, of stock-based compensation relating to these awards.

          The shares of common stock securing the promissory notes are not considered outstanding shares for accounting purposes until the shares vest, the repurchase right lapses and the holders have repaid the promissory notes. At December 31, 2017 and 2018, 1,154,655 and 0 shares of stock, respectively, were subject to repurchase agreements and partial recourse promissory notes.

          In 2018, upon termination of the executive, the Company withheld 168,594 shares of vested common stock in exchange for the settlement of the outstanding promissory note. The former executive retained ownership of the remaining 986,061 shares of vested common stock.

          No other shares of stock of the Company were subject to repurchase agreements or partial recourse promissory notes at December 31, 2017 or December 31, 2018.

          Stock Option Plan  — On December 23, 2010, the Company adopted the 2010 Stock Option and Grant Plan (the "2010 Plan"). The 2010 Plan, as amended, provides for the issuance of up to 9,587,762 shares of common stock to employees, officers, directors, consultants, and advisors in the form of nonqualified and incentive stock options, unvested stock awards, and other stock-based awards. In general, options typically vest over four years. An option's maximum term is 10 years. At December 31, 2018, there were 75,947 shares of common stock available for issuance under the 2010 Plan.

          The Company typically grants stock options to employees and non-employees at exercise prices deemed by the Board to be equal to the fair value of the common stock at the time of grant. The fair value of the common stock has been determined by the Board at each measurement date based on a variety of different factors, including the results obtained from independent third-party appraisals, the Company's financial position and historical financial performance, the status of development of the Company's services, the current climate in the marketplace, the illiquid nature

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. STOCKHOLDERS' EQUITY (Continued)

of the common stock, the effect of the rights and preferences of the preferred stockholders, and the prospects of a liquidity event, among others.

          The Company utilized the Black-Scholes option-pricing model to estimate the fair value of stock options awarded to employees. The Black-Scholes option-pricing model requires several key assumptions. The key assumptions used to apply this pricing model during the years ended December 31, 2017 and 2018, were as follows:

  2017   2018

Risk-free interest rate

  1.93% - 2.34%   1.93% - 3.02%

Expected term (in years)

  6.25   0.25 - 6.25

Expected dividend yield

  0%   0%

Expected volatility of underlying common stock

  65%   65%

          The risk-free interest rate was based on rates associated with U.S. Treasury issues approximating the expected life of the stock options. The expected term of options granted to employees was determined using the simplified method, which represents the midpoint of the contractual term of the option and the weighted-average vesting period of the option. The Company uses the simplified method because it does not have sufficient historical option exercise data to provide a reasonable basis upon which to estimate the expected term. The expected dividend-yield assumption was based on the Company's expectation of no future dividend payments. The expected volatility of the underlying stock was based on the average historical volatility of comparable publicly traded companies based on weekly price returns as reported by a pricing service, as the Company does not have a trading history for its stock.

          The weighted-average grant date fair value of the options granted during the years ended December 31, 2017 and 2018, was $2.42 per share and $1.97 per share, respectively. As of December 31, 2018, there was $9.7 million of unrecognized compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of 3.0 years. Stock-based compensation related to stock options and unvested stock awards are classified as follows (in thousands):

    December 31,
 

    2017     2018
 

Research and development

  $ 604   $ 1,088  

General and administrative

    642     1,690  

  $ 1,246   $ 2,778  

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. STOCKHOLDERS' EQUITY (Continued)

          The following table summarizes the option activity under the 2010 Plan:

    Options     Weighted Average
Exercise Price
    Weighted Average
Remaining Life
(in Years)
    Intrinsic
Value
(in thousands)
 

Outstanding January 1, 2018

    4,834,001   $ 2.94     8.7   $ 2,900  

Granted

    3,330,056     3.18              

Exercised

    (19,375 )   2.34              

Canceled

    (703,946 )   3.46              

Outstanding December 31, 2018

    7,440,736   $ 3.08     8.6        

Options vested or expected to vest as of December 31, 2018

    7,251,632   $ 3.08     8.6   $ 11,328  

Options exercisable as of December 31, 2018

    2,212,500   $ 2.23     6.7   $ 5,331  

          The intrinsic value of options exercised during the years ended December 31, 2017 and 2018 was nominal.

          Common Stock Reserved  — As of December 31, 2018, the Company had authorized 47,000,000 shares of common stock. The number of shares of common stock has been reserved for the potential conversion of Series A, Series B, Series B-1, Series C, Series D and Series E Preferred Stock and exercise of stock options as of December 31, 2018, is as follows:

    As of
December 31, 2018
 

Series A Preferred Stock

    5,874,334  

Series B Preferred Stock

    4,737,041  

Series B-1 Preferred Stock

    1,084,441  

Series C Preferred Stock

    6,969,044  

Series D Preferred Stock

    3,136,531  

Series E Preferred Stock

    5,282,002  

Common Stock Options

    7,440,736  

Total shares reserved for issuance

    34,524,129  

8. INCOME TAXES

          There is no provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation allowance against its deferred tax assets. A

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. INCOME TAXES (Continued)

reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations as of December 31, 2017 and 2018 are as follows:

    December 31,
 

    2017     2018
 

Tax at U.S. statutory rate

    34.0  %   21.0  %

State taxes, net of federal benefit

    5.4  %   6.2  %

Permanent differences

    (2.2 )%   (1.5 )%

Tax credits

    3.3  %   3.8  %

U.S. tax reform impact

    (44.9 )%   0.0  %

Change in valuation allowance

    4.4  %   (29.5 )%

Effective income tax rate

    0.0  %   0.0  %

          With enactment of the Tax Cuts and Jobs Act (the "Act"), which was signed by President Trump on December 22, 2017, Congress substantially amended the Internal Revenue Code, which, among other things, permanently reduced the U.S. corporate income tax rate from 34% to 21% effective for tax years including or commencing January 1, 2018. As such in 2017, the Company remeasured its existing cumulative temporary differences at the enacted rate of 21% as compared to the previous rate of 34%. The remeasurement of the Company's deferred tax balances of $13.9 million was offset by the application of its valuation allowance. The change in the U.S. corporate income tax rate is reflected in the Company's deferred tax table. The Company finalized its assessment of the Act during the fourth quarter of 2018 and did not record any changes from its initial remeasurement.

          Significant components of the Company's deferred tax asset at December 31, 2017 and 2018 are as follows (in thousands):

    December 31,
 

    2017     2018
 

Net operating loss carryforwards

  $ 29,456   $ 38,337  

Research and development tax credit carryforwards

    4,107     5,470  

Start-up costs

    50     43  

Capitalized research and development costs

    384     277  

Depreciation

    457     479  

Accrued expenses

    725     811  

Stock-based compensation

    412     600  

Other items

    499     710  

Total deferred tax assets

    36,090     46,727  

Valuation allowance

    (36,090 )   (46,727 )

Net deferred tax asset

  $   $  

          As of December 31, 2018, the Company had federal and state net operating loss carryforwards of $140.6 million and $139.4 million, respectively, which may be used to offset future taxable income, if any. These amounts begin to expire in 2030. The federal net operating losses

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. INCOME TAXES (Continued)

generated in 2018 can be carried forward indefinitely. As of December 31, 2018, the Company had federal and state research and development tax credit carryforwards of $4.2 million and $1.6 million, respectively. These amounts expire at various dates through 2038. Due to the degree of uncertainty related to the ultimate use of the deferred tax assets, the Company has fully reserved these tax benefits, as the determination of the realization of the deferred tax benefits was not determined to be more likely than not. The valuation allowance increased in 2018 by $10.6 million, due to the increase in deferred tax assets by the same amount (primarily due to net operating loss carryforwards) and the Company's recording of a full valuation allowance. In 2017, the valuation allowance decreased by $1.4 million which was driven by the $13.9 million reduction in the U.S. corporate income tax rate discussed above and partially offset by the current period net operating loss.

          Utilization of the net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. As of December 31, 2018, the Company had not yet completed an analysis of whether its net operating loss and research and development credit carryforwards may be limited.

          At December 31, 2017 and 2018, the Company had no unrecognized tax benefits. As of December 31, 2017 and 2018, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in our consolidated statements of operations. The Company will recognize interest and penalties related to uncertain tax positions in income tax expense.

          For years through December 31, 2018, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company's research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.

          The Company files income tax returns in the U.S. federal and Massachusetts and New Jersey jurisdictions. The statute of limitations for assessment by the Internal Revenue Service, or IRS, and state tax authorities is closed for tax years prior to 2015, although carryforward attributes that were generated prior to tax year 2015 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period. There are no federal or state audits in progress.

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. COMMITMENTS AND CONTINGENCIES

Leases

          The Company entered into a facility lease agreement for laboratory and office space with an expiration date of April 1, 2021. The lease agreement and most recent amendment contained escalating rent payments. Rent expense is recorded on a straight-line basis. The Company had deferred rent of $0.1 million as of both December 31, 2017 and 2018. The Company is obligated to make minimum lease payments under the facility lease as follows (in thousands):

Years Ending December 31,
       

2019

  $ 1,187  

2020

    1,226  

2021

    415  

Total

  $ 2,828  

          Rent expense for the years ended December 31, 2017 and 2018 was $1.1 million and $1.2 million, respectively.

10. RETIREMENT PLAN

          The Company has a 401(k) retirement and savings plan (the "Plan") covering all qualified employees. The Plan allows each participant to contribute a portion of his or her base wages up to an amount not to exceed an annual statutory maximum. The Company is permitted to make discretionary matching contributions to the Plan. The Company has not made any discretionary contributions.

11. NET LOSS AND PRO FORMA NET LOSS PER SHARE

Net Loss Per Share

          Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):

    Year ended December 31,
 

    2017     2018
 

Numerator:

             

Net loss

  $ (30,940 ) $ (36,069 )

Accretion of redeemable convertible preferred stock

    (117 )   (153 )

Net loss attributable to common stockholders

  $ (31,057 ) $ (36,222 )

Denominator:

             

Weighted average common shares outstanding, basic and diluted

    7,758,355     8,374,425  

Net loss per share attributable to common stockholders, basic and diluted

  $ (4.00 ) $ (4.33 )

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. NET LOSS AND PRO FORMA NET LOSS PER SHARE (Continued)

          The Company's potential dilutive securities, which include redeemable convertible preferred stock, warrants to purchase redeemable convertible preferred stock, vested unvested stock purchased with promissory notes and common stock options, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

    Year ended
December 31,
 

    2017     2018
 

Redeemable convertible preferred stock (as converted to common stock)

    21,616,230     26,970,598  

Warrants to purchase redeemable convertible preferred stock (as converted to common stock)

    112,795     112,795  

Options to purchase common stock

    4,834,001     7,440,736  

    26,563,026     34,524,129  

Pro Forma Net Loss Per Share (Unaudited)

          The pro forma basic and diluted net loss per share for the year ended December 31, 2018 has been prepared to give effect to adjustments arising upon the completion of a qualified IPO. The pro forma net loss used in the calculation of pro forma basic and diluted net loss per share attributable to common stockholders does not include the change in the fair value of the warrant liability because the calculation gives effect to all warrants to purchase redeemable convertible preferred stock becoming warrants to purchase common stock as if the proposed IPO had occurred on the later of January 1, 2018 or the date of issuance of the preferred stock. The pro forma basic and diluted weighted average common shares outstanding used in the calculation of pro forma basic and diluted net loss per share for the year ended December 31, 2018 has been prepared to give effect, upon a qualified IPO, to the automatic conversion of all outstanding shares of redeemable convertible preferred stock into common stock as if the proposed IPO had occurred on the later of January 1, 2018 or the issuance date of the redeemable convertible preferred stock.

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AXCELLA HEALTH INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. NET LOSS AND PRO FORMA NET LOSS PER SHARE (Continued)

          Pro forma basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):

    Year ended
December 31, 2018
(unaudited)
 

Numerator:

       

Net loss attributable to common stockholders

  $ (36,222 )

Accretion of redeemable convertible preferred stock

    153  

Net loss

  $ (36,069 )

Change in fair value of preferred stock warrant liability

    14  

Pro forma net loss attributable to common stockholders

  $ (36,055 )

Denominator:

       

Weighted average common shares outstanding, basic and diluted

    8,374,425  

Pro forma adjustment to reflect automatic conversion of redeemable convertible preferred stock into common stock upon the completion of the proposed IPO

    21,997,852  

Pro forma weighted average common shares outstanding, basic and diluted

    30,372,277  

Pro forma net loss per share, basic and diluted

  $ (1.19 )

12. RELATED-PARTY TRANSACTIONS

          In April 2013, the Company entered into a services agreement with Flagship Ventures Management, Inc. ("Flagship"), an affiliate of one of the Company's principal stockholders, to provide various strategic consulting services to the Company. The total expense under the agreement for the years ended December 31, 2017 and 2018 was $0.1 million and $0, respectively. As of December 31, 2017 and 2018, there were no amounts payable to Flagship for costs related to the services agreement.

13. SUBSEQUENT EVENTS

          For the year ended December 31, 2018, the Company evaluated subsequent events as of March 15, 2019, the date the consolidated financial statements were issued.

* * * * * *

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                  Shares

LOGO

Axcella Health Inc.

Common Stock



PRELIMINARY PROSPECTUS



Joint Book-Running Managers

GOLDMAN SACHS & CO. LLC

J.P. MORGAN

SVB LEERINK

           Until                  , 2019 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

   


Table of Contents


PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.     Other Expenses of Issuance and Distribution.

          The following table sets forth the fees and expenses, other than underwriting discounts and commissions, payable in connection with the registration of the common stock hereunder. All amounts are estimates except the SEC registration fee, the FINRA filing fee and the Nasdaq Global Market listing fee.

    Amount to
be Paid
 

SEC registration fee

  $ 10,453.50  

FINRA filing fee

  $ 12,787.50  

Nasdaq Global Market listing fee

                *

Printing and mailing

                *

Legal fees and expenses

                *

Accounting fees and expenses

                *

Transfer agent and registrar fees and expenses

                *

Miscellaneous

                *

Total

  $             *

*
To be completed by amendment.

Item 14.     Indemnification of Directors and Officers.

          Section 145 of the Delaware General Corporation Law, or the DGCL, authorizes a corporation to indemnify its directors and officers against liabilities arising out of actions, suits and proceedings to which they are made or threatened to be made a party by reason of the fact that they have served or are currently serving as a director or officer to a corporation. The indemnity may cover expenses (including attorneys' fees) judgments, fines and amounts paid in settlement actually and reasonably incurred by the director or officer in connection with any such action, suit or proceeding. Section 145 permits corporations to pay expenses (including attorneys' fees) incurred by directors and officers in advance of the final disposition of such action, suit or proceeding. In addition, Section 145 provides that a corporation has the power to purchase and maintain insurance on behalf of its directors and officers against any liability asserted against them and incurred by them in their capacity as a director or officer, or arising out of their status as such, whether or not the corporation would have the power to indemnify the director or officer against such liability under Section 145.

          We have adopted provisions in our restated certificate of incorporation to be in effect upon the completion of this offering and amended and restated bylaws to be in effect upon the effectiveness of this registration statement that limit or eliminate the personal liability of our directors to the fullest extent permitted by the DGCL, as it now exists or may in the future be amended. Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for:

    any breach of the director's duty of loyalty to us or our stockholders; any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; any unlawful payments related to dividends or unlawful stock purchases, redemptions or other distributions; or any transaction from which the director derived an improper personal benefit.

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          These limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies such as an injunction or rescission.

          In addition, our bylaws provide that:

    we will indemnify our directors, officers and, in the discretion of our board of directors, certain employees to the fullest extent permitted by the DGCL, as it now exists or may in the future be amended; and

    we will advance reasonable expenses, including attorneys' fees, to our directors and, in the discretion of our board of directors, to our officers and certain employees, in connection with legal proceedings relating to their service for or on behalf of us, subject to limited exceptions.

          We intend to enter into indemnification agreements with each of our directors and certain of our executive officers. These agreements will provide that we will indemnify each of our directors, certain of our executive officers and, at times, their affiliates to the fullest extent permitted by Delaware law. We will advance expenses, including attorneys' fees (but excluding judgments, fines and settlement amounts), to each indemnified director, executive officer or affiliate in connection with any proceeding in which indemnification is available and we will indemnify our directors and officers for any action or proceeding arising out of that person's services as a director or officer brought on behalf of us or in furtherance of our rights. Additionally, certain of our directors or officers may have certain rights to indemnification, advancement of expenses or insurance provided by their affiliates or other third parties, which indemnification relates to and might apply to the same proceedings arising out of such director's or officer's services as a director referenced herein. Nonetheless, we will agree in the indemnification agreements that our obligations to those same directors or officers are primary and any obligation of such affiliates or other third parties to advance expenses or to provide indemnification for the expenses or liabilities incurred by those directors are secondary.

          We will maintain general liability insurance which covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act of 1933, as amended, or the Securities Act.

          The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification of us and our directors and officers by the underwriters against certain liabilities under the Securities Act and the Securities Exchange Act of 1934.

Item 15.     Recent Sales of Unregistered Securities.

          In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered under the Securities Act:

(a)    Issuances of Capital Stock

          In February 2016, we issued and sold to an investor in a private placement an aggregate of 2,997,179 shares of our Series D Preferred Stock at a purchase price of $14.18 per share, for aggregate consideration of approximately $42,500,000.

          In August 2017, we issued and sold to investors in a private placement an aggregate of 2,572,420 shares of our Series C Preferred Stock at a purchase price of $10.08 per share, for aggregate consideration of approximately $25,930,000.

          In November 2018, we issued we issued and sold to investors in a private placement an aggregate of 5,282,002 shares of our Series E Preferred Stock at a purchase price of $11.17 per share, for aggregate consideration of approximately $59,000,000.

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          No underwriters were involved in the foregoing sales of securities. Unless otherwise stated, the sales of securities described above were deemed to be exempt from registration pursuant to Section 4(a)(2) of the Securities Act, including Regulation D and Rule 506 promulgated thereunder, as transactions by an issuer not involving a public offering. All of the purchasers in these transactions represented to us in connection with their purchase that they were acquiring the securities for investment and not distribution, that they could bear the risks of the investment and could hold the securities for an indefinite period of time. Such purchasers received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration or an available exemption from such registration. All of the foregoing securities are deemed restricted securities for the purposes of the Securities Act.

(b)    Grants and Exercises of Stock Options

          We have granted stock options to purchase an aggregate of 8,203,507 shares of our common stock, with exercise prices ranging from $3.37 to $7.51 per share, to employees, directors and consultants pursuant to the 2010 Plan. Since April 2016, 76,773 shares of common stock have been issued upon the exercise of stock options pursuant to the 2010 Plan.

          The issuances of the securities described above were deemed to be exempt from registration pursuant to Section 4(a)(2) of the Securities Act or Rule 701 promulgated under the Securities Act as transactions pursuant to compensatory benefit plans. The shares of common stock issued upon the exercise of options are deemed to be restricted securities for purposes of the Securities Act.

(c)    Warrants to purchase capital stock

          Since January 2016, we have not issued any warrants to purchase shares of our capital stock.

Item 16.     Exhibits and Financial Statement Schedules.

(a)    Exhibits

  Exhibit
No.
  Exhibit Index
  1.1 * Form of Underwriting Agreement

 

3.1

 

Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect

 

3.2

*

Form of Amended and Restated Certificate of Incorporation of the Registrant (to be effective upon the effectiveness of the registration statement for this offering)

 

3.3

*

Form of Amended and Restated Certificate of Incorporation of the Registrant (to be effective immediately prior to the completion of this offering)

 

3.4

*

Form of Certificate of Retirement of Convertible Preferred Stock of the Registrant (to be effective immediately prior to the completion of this offering)

 

3.5

*

Form of Restated Certificate of Incorporation of the Registrant (to be effective upon the completion of this offering)

 

3.6

 

Bylaws of the Registrant, as currently in effect

 

3.7

*

Form of Amended and Restated Bylaws (to be effective upon the completion of this offering)

 

4.1

*

Specimen Stock Certificate evidencing shares of common stock

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  Exhibit
No.
  Exhibit Index
  4.2   Fifth Amended and Restated Investors' Rights Agreement among the Registrant and certain of its stockholders, dated November 30, 2018

 

4.3

 

Fifth Amended and Restated Voting Agreement among the Registrant and certain of its stockholders, dated November 30, 2018

 

4.4

 

Fifth Amended and Restated Right of First Refusal and Co-Sale Agreement among the Registrant and certain of its stockholders, dated November 30, 2018, as amended

 

5.1

*

Opinion of Goodwin Procter LLP

 

10.1

*

2010 Stock Incentive Plan, as amended

 

10.2

*

2019 Stock Option and Incentive Plan and forms of award agreements thereunder

 

10.3

*

2019 Employee Stock Purchase Plan

 

10.4

*

Senior Executive Cash Incentive Bonus Plan

 

10.5

 

Amended and Restated Employment Agreement between the Registrant and William Hinshaw, dated April 18, 2018

 

10.6

 

Amended and Restated Employment Agreement between the Registrant and Thomas Leggett, dated December 14, 2016

 

10.7

 

Amended and Restated Employment Agreement between the Registrant and Stephen Mitchener, dated July 23, 2018

 

10.8

 

Form of Indemnification Agreement between the Registrant and each of its directors

 

10.9

 

Form of Indemnification Agreement between the Registrant and each of its executive officers

 

10.10

*

Riverside Technology Center Commercial Lease Agreement between Rivertech Associates II, LLC and the Registrant, dated as of December 28, 2010

 

10.11

*

Fifth Lease Extension and Modification Agreement to the Lease Agreement between Rivertech Associates II, LLC and the Registrant, dated as of April 28, 2017

 

10.12

*

Loan and Security Agreement among Solar Capital Ltd. and the Lenders thereto and the Registrant, dated as of January 9, 2018

 

10.13

*

First Amendment to Loan and Security Agreement, dated October 5, 2018

 

10.14

*

Second Amendment to Loan and Security Agreement, dated November 30, 2018

 

10.15

 

Stock Repurchase Agreement between the Registrant and Robert Connelly, effective as of May 31, 2018

 

10.16

*

Separation Agreement between the Registrant and Robert Connelly, effective as of May 31, 2018

 

21.1

 

Subsidiaries of the Registrant

 

23.1

 

Consent of Deloitte and Touche LLP, Independent Registered Public Accounting Firm

 

23.2

*

Consent of Goodwin Procter LLP (included in Exhibit 5.1)

 

24.1

 

Power of Attorney (included on the signature page hereto)

*
To be included by amendment.

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(b)    Financial Statements Schedules:

          Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

Item 17.     Undertakings.

          Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Act, may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

          The Registrant hereby undertakes that:

              (a)     The Registrant will provide to the underwriter at the closing as specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

              (b)     For purposes of determining any liability under the Securities Act of 1933, as amended, the information omitted from a form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended, shall be deemed to be part of this registration statement as of the time it was declared effective.

              (c)     For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

          Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, Massachusetts, on the 12th day of April, 2019.

    AXCELLA HEALTH INC.

 

 

By:

 

/s/ WILLIAM HINSHAW

        Name:   William Hinshaw
        Title:   Chief Executive Officer, President and
Director


POWER OF ATTORNEY AND SIGNATURES

          Each individual whose signature appears below hereby constitutes and appoints each of William Hinshaw and Thomas Leggett as such person's true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person in such person's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement (or any Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission granting unto each said attorney-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 and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that any said attorney-in-fact and agent, or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof.

          Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement and Power of Attorney has been signed by the following person in the capacities and on the date indicated.

Name
 
Title
 
Date

 

 

 

 

 
/s/ WILLIAM HINSHAW

William Hinshaw
  Chief Executive Officer, President and Director (Principal Executive Officer)   April 12, 2019

/s/ THOMAS LEGGETT

Thomas Leggett

 

Senior Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer)

 

April 12, 2019

/s/ DAVID R. EPSTEIN

David R. Epstein

 

Executive Chair

 

April 12, 2019

/s/ GRÉGORY BEHAR

Grégory Behar

 

Director

 

April 12, 2019

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Name
 
Title
 
Date

 

 

 

 

 
/s/ DAVID A. BERRY, M.D., PH.D.

David A. Berry, M.D., Ph.D.
  Director   April 12, 2019

/s/ WILLIAM D. BAIRD III

William D. Baird III

 

Director

 

April 12, 2019

/s/ STEPHEN HOGE, M.D.

Stephen Hoge, M.D.

 

Director

 

April 12, 2019

/s/ GARY PISANO, PH.D.

Gary Pisano, Ph.D.

 

Director

 

April 12, 2019

/s/ CRISTINA M. RONDINONE, PH.D.

Cristina M. Rondinone, Ph.D.

 

Director

 

April 12, 2019

/s/ CHRISTOPHER A. VIEHBACHER

Christopher A. Viehbacher

 

Director

 

April 12, 2019

II-7




Exhibit 3.1

 

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AXCELLA HEALTH INC.

 

(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)

 

Axcella Health Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”),

 

DOES HEREBY CERTIFY:

 

1.              That the name of this corporation is Axcella Health Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on August 27, 2008 under the name Newco LS16, Inc.

 

2.              That the Board of Directors duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:

 

RESOLVED , that the Certificate of Incorporation of this corporation be amended and restated in its entirety to read as follows:

 

FIRST: The name of this corporation is Axcella Health Inc. (the “ Corporation ”).

 

SECOND: The address of the registered office of the Corporation in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, zip code 19801. The name of its registered agent at such address is The Corporation Trust Company.

 

THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law.

 

FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 47,000,000 shares of Common Stock, $0.001 par value per share (“ Common Stock ”), and (ii) 27,928,825 shares of Preferred Stock, $0.001 par value per share (“ Preferred Stock ”).

 

The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.

 


 

A.                                     COMMON STOCK

 

1.             General . The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.

 

2.             Voting. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of the Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.

 

B.                                     PREFERRED STOCK

 

Of the 27,928,825 authorized shares of Preferred Stock, 5,874,334 are hereby designated “ Series A Preferred Stock ”, 4,737,041 are hereby designated “ Series B Preferred Stock ”, 1,084,441 are hereby designated “ Series B-1 Preferred Stock ”, 6,969,044 are hereby designated “ Series C Preferred Stock ”, 2,997,179 are hereby designated “ Series D Preferred Stock ”, and 6,266,786 are hereby designated “ Series E Preferred Stock ” with each series having the respective rights, preferences, powers, privileges and restrictions, qualifications and limitations set forth in this Part B of this Article Fourth. Unless otherwise indicated, references to “Sections” or “Subsections” in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth.

 

1.             Dividends . The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Certificate of Incorporation) the holders of the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock and Series D Preferred Stock then outstanding on a pari passu basis, shall receive, or simultaneously receive, a dividend on each outstanding share of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock or Series D Preferred Stock as the case may be, in an amount at least equal to the greater of (i) $0.1560 per share of Series A Preferred Stock in the case of the Series A Preferred Stock, $0.2069 per share of the Series B Preferred Stock in the case of the Series B Preferred Stock, $0.2213 per share of the Series B-1 Preferred Stock in the case of the Series B-1 Preferred Stock, $0.8064 per share of the Series C Preferred Stock in the case of the Series C Preferred Stock, $1.1344 per share of the Series D Preferred Stock in the case of the Series D Preferred Stock, and $0.8936 per share of the Series E Preferred Stock in the case of the Series E Preferred Stock (in each case, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) per year from and after the date of the issuance of any shares of Series A Preferred Stock in the case of the Series A Preferred Stock (to the extent not previously paid), from and after the date of the issuance of any shares of Series B Preferred Stock in the case

 

2


 

of the Series B Preferred Stock, from and after the date of the issuance of any shares of Series B-1 Preferred Stock in the case of the Series B-1 Preferred Stock (to the extent not previously paid), from and after the date of the issuance of any shares of Series C Preferred Stock in the case of the Series C Preferred Stock (to the extent not previously paid), from and after the date of the issuance of any shares of Series D Preferred Stock in the case of the Series D Preferred Stock (to the extent not previously paid), and from and after the date of the issuance of any shares of Series E Preferred Stock in the case of the Series E Preferred Stock (to the extent not previously paid) and (ii) (A) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred Stock, as the case may be, as would equal the product of (1) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (2) the number of shares of Common Stock issuable upon conversion of a share of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred Stock as the case may be, in each case calculated on the record date for determination of holders entitled to receive such dividend or (B) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred Stock, as the case may be, determined by (1) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) and (2) multiplying such fraction by an amount equal to, in the case of the Series A Preferred Stock, the Series A Original Issue Price (as defined below), in the case of the Series B Preferred Stock, the Series B Original Issue Price (as defined below), in the case of the Series B-1 Preferred Stock, the Series B-1 Original Issue Price (as defined below), in the case of the Series C Preferred Stock, the Series C Original Issue Price (as defined below), in the case of the Series D Preferred Stock, the Series D Original Issue Price (as defined below), and in the case of the Series E Preferred Stock, the Series E Original Issue Price (as defined below); provided that, if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock pursuant to this Section 1 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest dividend for the Series A Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, and the Series E Preferred Stock. The foregoing dividend shall not be cumulative. The “ Series A Original Issue Price ” shall mean $1.95 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock. The “ Series B Original Issue Price ” shall mean $2.586 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B Preferred Stock. The “ Series B-1 Original Issue Price ” shall mean $2.7664 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B-1 Preferred Stock. The “ Series C Original Issue Price ” shall mean $10.08 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series C

 

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Preferred Stock. The “ Series D Original Issue Price ” shall mean $14.18 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series D Preferred Stock. The “ Series E Original Issue Price ” shall mean $11.17 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series E Preferred Stock.

 

2.             Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales .

 

2.1              Preferential Payments to Holders of Preferred Stock .

 

2.1.1           In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the holders of shares of Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock then outstanding shall be entitled on a pari passu basis to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to (a) in the case of the Series C Preferred Stock, the greater of (i) the Series C Original Issue Price, plus any dividends declared but unpaid thereon or (ii) such amount per share as would have been payable had all shares of Series C Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the “ Series C Liquidation Amount ”), (b) in the case of the Series D Preferred Stock, the greater of (i) the Series D Original Issue Price, plus any dividends declared but unpaid thereon or (ii) such amount per share as would have been payable had all shares of Series D Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the “ Series D Liquidation Amount ”), and (c) in the case of the Series E Preferred Stock, the greater of (i) the Series E Original Issue Price, plus any dividends declared but unpaid thereon or (ii) such amount per share as would have been payable had all shares of Series E Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the “ Series E Liquidation Amount ”). If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock the full amount to which they shall be entitled under this Subsection 2.1.1 , the holders of shares of Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

 

2.1.2           Following the payment of the Series C Liquidation Amount, the Series D Liquidation Amount, and the Series E Liquidation Amount, the holders of shares of Series A Preferred Stock, Series B Preferred Stock, and Series B-1 Preferred Stock then

 

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outstanding shall be entitled on a pari passu basis to be paid out of the assets of the Corporation available for distribution to its stockholders before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to (a) in the case of the Series A Preferred Stock, the greater of (i) the Series A Original Issue Price, plus any dividends declared but unpaid thereon or (ii) such amount per share as would have been payable had all shares of Series A Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this clause (a)  is hereinafter referred to as the “ Series A Liquidation Amount ”), (b) in the case of the Series B Preferred Stock, the greater of (i) the Series B Original Issue Price, plus any dividends declared but unpaid thereon or (ii) such amount per share as would have been payable had all shares of Series B Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this clause (b)  is hereinafter referred to as the “ Series B Liquidation Amount ”), and (c) in the case of the Series B-1 Preferred Stock, the greater of (i) the Series B-1 Original Issue Price, plus any dividends declared but unpaid thereon or (ii) such amount per share as would have been payable had all shares of Series B-1 Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this clause (c)  is hereinafter referred to as the “ Series B-1 Liquidation Amount ”). If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series A Preferred Stock, Series B Preferred Stock, and Series B-1 Preferred Stock the full amount to which they shall be entitled under this Subsection 2.1.2 , the holders of shares of Series A Preferred Stock, Series B Preferred Stock, and Series B-1 Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

 

2.2              Payments to Holders of Common Stock . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, after the payment of all preferential amounts required to be paid to the holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares held by each such holder.

 

2.3              Deemed Liquidation Events .

 

2.3.1           Definition . Each of the following events shall be considered a “ Deemed Liquidation Event ” unless (A) the holders of at least a majority of the outstanding shares of Preferred Stock, voting or consenting together as a single class on an as-converted basis, and (B) the holders of at least a majority of the outstanding shares of Series C Preferred Stock, voting or consenting separately as a single class (the votes and consents described in clauses (A) and (B) together, the “ Requisite Vote ”), elect otherwise by written notice sent to the Corporation at least 20 days prior to the effective date of any such event:

 

(a)           a merger or consolidation in which

 

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(i)                                      the Corporation is a constituent party or

 

(ii)                                   a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation,

 

except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation (provided that, for the purpose of this Subsection 2.3.1 , all shares of Common Stock issuable upon exercise of Options (as defined below) outstanding immediately prior to such merger or consolidation or upon conversion of Convertible Securities (as defined below) outstanding immediately prior to such merger or consolidation shall be deemed to be outstanding immediately prior to such merger or consolidation and, if applicable, converted or exchanged in such merger or consolidation on the same terms as the actual outstanding shares of Common Stock are converted or exchanged); or

 

(b)           the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger, consolidation or otherwise) of one or more subsidiaries of the Corporation if all or substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly-owned subsidiary of the Corporation.

 

2.3.2           Effecting a Deemed Liquidation Event .

 

(a)           The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2.3.1(a)(i)  unless the agreement or plan of merger or consolidation for such transaction (the “ Merger Agreement ”) provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 .

 

(b)           In the event of a Deemed Liquidation Event referred to in Subsection 2.3.1(a)(ii)  or 2.3.1(b) , if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within 90 days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock no later than the 90th day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (ii)  to require the redemption of such shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C

 

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Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock and (ii) if the holders of the Requisite Vote so request in a written instrument delivered to the Corporation not later than 120 days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation), together with any other assets of the Corporation available for distribution to its stockholders (the “ Available Proceeds ”), to the extent legally available therefor, on or before the 150th day after such Deemed Liquidation Event, to redeem all outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock at a price per share equal to the Series A Liquidation Amount, the Series B Liquidation Amount, the Series B-1 Liquidation Amount, the Series C Liquidation Amount, the Series D Liquidation Amount, and the Series E Liquidation Amount, respectively. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Available Proceeds are not sufficient to redeem all outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock, the Corporation shall redeem first a pro rata portion on a pari passu basis of each holder’s shares of Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock to the fullest extent of such Available Proceeds, based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the Available Proceeds were sufficient to redeem all such shares, and shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor; and second , after all of the shares of Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock have been redeemed, a pro rata portion on a pari passu basis of each holder’s shares of Series A Preferred Stock, Series B Preferred Stock and Series B-1 Preferred Stock to the fullest extent of such Available Proceeds, based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the Available Proceeds were sufficient to redeem all such shares, and shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor. The provisions of Subsections 6.2 through 6.4 shall apply, with such necessary changes in the details thereof as are necessitated by the context, to the redemption of the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock pursuant to this Subsection 2.3.2(b) . Prior to the distribution or redemption provided for in this Subsection 2.3.2(b) , the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business.

 

2.3.3           Amount Deemed Paid or Distributed . If the amount deemed paid or distributed under this Subsection 2.3.3 is made in property other than in cash, the value of such distribution shall be the fair market value of such property, determined as follows:

 

(a)           For securities not subject to investment letters or other similar restrictions on free marketability,

 

(i)                                      if traded on a securities exchange, the value shall be deemed to be the average of the closing prices of the securities on such exchange or market over

 

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the 30-day period ending three days prior to the closing of such transaction;

 

(ii)                                   if actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three days prior to the closing of such transaction; or

 

(iii)                                if there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.

 

(b)           The method of valuation of securities subject to investment letters or other similar restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder’s status as an affiliate or former affiliate) shall take into account an appropriate discount (as determined in good faith by the Board of Directors of the Corporation) from the market value as determined pursuant to clause (a) above so as to reflect the approximate fair market value thereof.

 

(c)           For other assets, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors of the Corporation.

 

2.3.4           Allocation of Escrow . In the event of a Deemed Liquidation Event pursuant to Subsections 2.3.1(a)(i)  or 2.3.1(b) , if any portion of the consideration payable to the stockholders of the Corporation is placed into escrow and/or is payable to the stockholders of the Corporation subject to contingencies, the Merger Agreement shall provide that (a) the portion of such consideration that is not placed in escrow and not subject to any contingencies (the “ Initial Consideration ”) shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event and (b) any additional consideration which becomes payable to the stockholders of the Corporation upon release from escrow or satisfaction of contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction.

 

3.             Voting .

 

3.1              General . On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Series A Preferred Stock, Series B

 

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Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock shall vote together with the holders of Common Stock as a single class.

 

3.2              Election of Directors . So long as any shares of Preferred Stock are outstanding, the holders of record of the shares of Preferred Stock, exclusively and voting together as a single, separate class on an as-converted to Common Stock basis, shall be entitled to elect one (1) director of the Corporation (the “ Preferred Director ”). The Preferred Director may be removed without cause by, and only by, the affirmative vote of the holders of shares of Preferred Stock, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the holders of shares of Preferred Stock, voting exclusively and as a separate class, fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, pursuant to the first sentence of this Subsection 3.2 , then any directorship not so filled shall remain vacant until such time as the holders of the Preferred Stock elect a person to fill such directorship by vote or written consent in lieu of a meeting; and such directorship may not be filled by stockholders of the Corporation other than by the holders of shares of Preferred Stock, voting exclusively and as a separate class. The holders of record of the shares of Common Stock and of any other class or series of voting stock (including the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock), exclusively and voting together as a single class on an as-converted basis, shall be entitled to elect the balance of the total number of directors of the Corporation. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Subsection 3.2 , a vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Subsection 3.2 .

 

3.3              Protective Provisions .

 

3.3.1           Preferred Stock Protective Provisions . At any time when any shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of at least a majority of the outstanding shares of Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) as a single class on an as-converted basis:

 

(a)           liquidate, dissolve or wind-up the business and affairs of the Corporation, effect any Deemed Liquidation Event, or consent to any of the foregoing;

 

(b)           amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation;

 

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(c)           create, or authorize the creation of, or issue or obligate itself to issue shares of, any additional class or series of capital stock unless the same ranks junior to the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption, or increase the authorized number of shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock or increase the authorized number of shares of any additional class or series of capital stock unless the same ranks junior to the Series A Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, and the Series E Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends and rights of redemption;

 

(d)           (i) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred Stock in respect of any such right, preference or privilege, or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred Stock in respect of any such right, preference or privilege;

 

(e)           purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation other than (i) redemptions of or dividends or distributions on the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;

 

(f)            create, or authorize the creation of, or issue, or authorize the issuance of any debt security, or permit any subsidiary to take any such action with respect to any debt security if the aggregate indebtedness of the Corporation and its subsidiaries for borrowed money following such action would exceed $250,000, unless such debt security has

 

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received the prior approval of the Board of Directors of the Corporation, including the Preferred Director;

 

(g)                                   create or hold capital stock in any subsidiary that is not a wholly-owned subsidiary or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary of the Corporation, or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary;

 

(h)                                  increase or decrease the authorized number of directors constituting the Board of Directors of the Corporation; or

 

(i)                                      create or establish any new employee stock option plan, employee stock purchase plan, employee restricted stock plan or other similar equity incentive plan or increase the number of shares of capital stock of the Corporation reserved for issuance under any current or new employee stock option plan, employee stock purchase plan, employee restricted stock plan or other similar equity incentive plan.

 

3.3.2                                  Series C Preferred Stock Protective Provisions . At any time when any shares of Series C Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly, by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of at least a majority of the Series C Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) as a single, separate class:

 

(a)                                  amend, alter, or repeal the rights, preferences or privileges of the shares of the Series C Preferred Stock in a manner that is adverse to the Series C Preferred Stock;

 

(b)                                  purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation other than (i) redemptions of or dividends or distributions on the Series C Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;

 

(c)                                   (i) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Series C Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Series C Preferred Stock in respect of any such right, preference or privilege, or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to the Series C Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification,

 

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alteration or amendment would render such other security senior to or pari passu with the Series C Preferred Stock in respect of any such right, preference or privilege; or

 

(d)                                  increase or decrease the authorized number of shares of the Series C Preferred Stock.

 

For the avoidance of doubt, the authorization or issuance of any other series or class of capital stock ranking junior, pari passu, or senior to the Series C Preferred Stock with respect to one or more rights, preferences or privileges shall not, in and of itself, be deemed to constitute an amendment, alteration or repeal of the rights, preferences or privileges of the Series C Preferred Stock that is in a manner adverse to the Series C Preferred Stock.

 

3.3.3                                  Series A/B/B-1 Preferred Stock Protective Provisions . At any time when any shares of Series A Preferred Stock, Series B Preferred Stock or Series B-1 Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly, by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of at least a majority of the Series A Preferred Stock, Series B Preferred Stock and Series B-1 Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) as a single, separate class, on an as-converted basis:

 

(a)                                  amend, alter, or repeal the rights, preferences or privileges of the shares of the Series A Preferred Stock, the Series B Preferred Stock or the Series B-1 Preferred Stock in a manner that is adverse to the Series A Preferred Stock, the Series B Preferred Stock or the Series B-1 Preferred Stock;

 

(b)                                  purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation other than (i) redemptions of or dividends or distributions on the Series A Preferred Stock, the Series B Preferred Stock or the Series B-1 Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;

 

(c)                                   (i) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Series A Preferred Stock, the Series B Preferred Stock or the Series B-1 Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Series A Preferred Stock, the Series B Preferred Stock or the Series B-1 Preferred Stock in respect of any such right, preference or privilege, or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to the Series A Preferred Stock, the Series B Preferred Stock or the Series B-1 Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Series A Preferred Stock, the Series B Preferred Stock or the Series B-1 Preferred Stock in

 

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respect of any such right, preference or privilege; or

 

(d)                                  increase or decrease the authorized number of shares of the Series A Preferred Stock, the Series B Preferred Stock or the Series B-1 Preferred Stock.

 

For the avoidance of doubt, the authorization or issuance of any other series or class of capital stock ranking junior, pari passu, or senior to the Series A Preferred Stock, the Series B Preferred Stock, or the Series B-1 Preferred Stock with respect to one or more rights, preferences or privileges shall not, in and of itself, be deemed to constitute an amendment, alteration or repeal of the rights, preferences or privileges of the Series A Preferred Stock, the Series B Preferred Stock, or the Series B-1 Preferred Stock that is in a manner adverse to any such series of Preferred Stock.

 

3.3.4                                  Series D Preferred Stock Protective Provisions . At any time when any shares of Series D Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly, by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of at least a majority of the Series D Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) as a single, separate class:

 

(a)                                  amend, alter, or repeal the rights, preferences or privileges of the shares of the Series D Preferred Stock in a manner that is adverse to the Series D Preferred Stock;

 

(b)                                  purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation other than (i) redemptions of or dividends or distributions on the Series D Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;

 

(c)                                   (i) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Series D Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Series D Preferred Stock in respect of any such right, preference or privilege, or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to the Series D Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Series D Preferred Stock in respect of any such right, preference or privilege; or

 

(d)                                  increase or decrease the authorized number of shares of the Series D Preferred Stock.

 

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For the avoidance of doubt, the authorization or issuance of any other series or class of capital stock ranking junior, pari passu, or senior to the Series D Preferred Stock with respect to one or more rights, preferences or privileges shall not, in and of itself, be deemed to constitute an amendment, alteration or repeal of the rights, preferences or privileges of the Series D Preferred Stock that is in a manner adverse to the Series D Preferred Stock.

 

3.3.5                                  Series E Preferred Stock Protective Provisions . At any time when any shares of Series E Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly, by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of at least a majority of the Series E Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) as a single, separate class:

 

(a)                                  amend, alter, or repeal the rights, preferences or privileges of the shares of the Series E Preferred Stock in a manner that is adverse to the Series E Preferred Stock;

 

(b)                                  purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation other than (i) redemptions of or dividends or distributions on the Series E Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock and (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;

 

(c)                                   (i) reclassify, alter or amend any existing security of the Corporation that is pari passu with the Series E Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to the Series E Preferred Stock in respect of any such right, preference or privilege, or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to the Series E Preferred Stock in respect of the distribution of assets on the liquidation, dissolution or winding up of the Corporation, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with the Series E Preferred Stock in respect of any such right, preference or privilege; or

 

(d)                                  increase or decrease the authorized number of shares of the Series E Preferred Stock.

 

For the avoidance of doubt, the authorization or issuance of any other series or class of capital stock ranking junior, pari passu, or senior to the Series E Preferred Stock with respect to one or more rights, preferences or privileges shall not, in and of itself, be deemed to constitute an amendment, alteration or repeal of the rights, preferences or privileges of the Series E Preferred Stock that is in a manner adverse to the Series E Preferred Stock.

 

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4.                                       Optional Conversion . The holders of the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

 

4.1                                            Right to Convert .

 

4.1.1                                  Conversion Ratio . Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series A Original Issue Price by the Series A Conversion Price (as defined below) in effect at the time of conversion. The “ Series A Conversion Price ” shall initially be equal to $1.95. Such initial Series A Conversion Price, and the rate at which shares of Series A Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below. Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series B Original Issue Price by the Series B Conversion Price (as defined below) in effect at the time of conversion. The “ Series B Conversion Price ” shall initially be equal to $2.586. Such initial Series B Conversion Price, and the rate at which shares of Series B Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below. Each share of Series B-1 Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series B-1 Original Issue Price by the Series B-1 Conversion Price (as defined below) in effect at the time of conversion. The “ Series B-1 Conversion Price ” shall initially be equal to $2.7664. Such initial Series B-1 Conversion Price, and the rate at which shares of Series B-1 Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below. Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series C Original Issue Price by the Series C Conversion Price (as defined below) in effect at the time of conversion. The “ Series C Conversion Price ” shall initially be equal to $10.08. Such initial Series C Conversion Price, and the rate at which shares of Series C Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below. Each share of Series D Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series D Original Issue Price by the Series D Conversion Price (as defined below) in effect at the time of conversion. The “ Series D Conversion Price ” shall initially be equal to $13.87. Such initial Series D Conversion Price, and the rate at which shares of Series D Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below. Each share of Series E Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series E Original Issue Price by the Series E Conversion Price (as defined below) in effect at the time of

 

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conversion. The “ Series E Conversion Price ” shall initially be equal to $11.17. Such initial Series E Conversion Price, and the rate at which shares of Series E Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below.

 

4.1.2                                  Termination of Conversion Rights . In the event of a notice of redemption of any shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock pursuant to Section 6 , the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the last full day preceding the date fixed for redemption, unless the redemption price is not fully paid on such redemption date, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock.

 

4.2                                            Fractional Shares . No fractional shares of Common Stock shall be issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock, as the case may be, the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.

 

4.3                                            Mechanics of Conversion .

 

4.3.1                                  Notice of Conversion . In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if

 

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the Corporation serves as its own transfer agent) of such certificates (or lost certificate affidavit and agreement) and notice shall be the time of conversion (the “ Conversion Time ”), and the shares of Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time, (i) issue and deliver to such holder of Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (iii) pay all declared but unpaid dividends on the shares of Preferred Stock converted.

 

4.3.2                                  Reservation of Shares . The Corporation shall at all times when the Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price.

 

4.3.3                                  Effect of Conversion . All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 4.2 and to receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.

 

4.3.4                                  No Further Adjustment . Upon any such conversion, no adjustment to the Conversion Price shall be made for any declared but unpaid dividends on the Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.

 

4.3.5                                  Taxes . The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Preferred Stock pursuant to this Section 4 . The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer

 

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involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

 

4.4                                            Adjustments to Conversion Price for Diluting Issues .

 

4.4.1                                  Special Definitions . For purposes of this Article Fourth, the following definitions shall apply:

 

(a)                                  Option ” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

 

(b)                                  Original Issue Date ” shall mean the date on which the first share of Series E Preferred Stock was issued.

 

(c)                                   Convertible Securities ” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options.

 

(d)                                  Additional Shares of Common Stock ” shall mean all shares of Common Stock issued (or, pursuant to Subsection 4.4.2 below, deemed to be issued) by the Corporation after the Original Issue Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (1) and (2), collectively, “ Exempted Securities ”):

 

(i)                                      shares of Common Stock, Options or Convertible Securities issued upon the conversion of Preferred Stock or as a dividend or distribution on Preferred Stock;

 

(ii)                                   shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Subsection 4.5 , 4.6 , 4.7 or 4.8 ;

 

(iii)                                shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation, including the Preferred Director;

 

(iv)                               shares of Common Stock or Convertible Securities actually issued upon the exercise of

 

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Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;

 

(v)                                  shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board of Directors of the Corporation, including the Preferred Director;

 

(vi)                               shares of Common Stock, Options or Convertible Securities issued to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board of Directors of the Corporation, including the Preferred Director;

 

(vii)                            shares of Common Stock, Options or Convertible Securities issued in connection with sponsored research, collaboration, technology license, development, marketing or other similar agreements or strategic partnerships approved by the Board of Directors of the Corporation, including the Preferred Director; or

 

(viii)                         shares of Common Stock issued or issuable in or in connection with an initial public offering.

 

4.4.2                                  Deemed Issue of Additional Shares of Common Stock .

 

(a)                                  If the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.

 

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(b)                                  If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the Conversion Price of any series of Preferred Stock pursuant to the terms of Subsection 4.4.3 , are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Conversion Price of such series of Preferred Stock computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to the Conversion Price of such series of Preferred Stock as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing the Conversion Price of any series of Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price of such series of Preferred Stock in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Conversion Price of such series of Preferred Stock that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.

 

(c)                                   If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the Conversion Price of any series of Preferred Stock pursuant to the terms of Subsection 4.4.3 (either because the consideration per share (determined pursuant to Subsection 4.4.4 ) of the Additional Shares of Common Stock subject thereto was equal to or greater than the Conversion Price of such series of Preferred Stock then in effect, or because such Option or Convertible Security was issued before the Original Issue Date), are revised after the Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4.4.2(a) ) shall be deemed to have been issued effective upon such increase or decrease becoming effective.

 

(d)                                  Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Conversion Price of any series of Preferred Stock pursuant to the terms of Subsection 4.4.3 , the Conversion Price of such series of Preferred Stock shall be readjusted to such Conversion Price as

 

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would have obtained had such Option or Convertible Security (or portion thereof) never been issued.

 

(e)           If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the Conversion Price of each series of Preferred Stock provided for in this Subsection 4.4.2 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Subsection 4.4.2 ). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the Conversion Price of each series of Preferred Stock that would result under the terms of this Subsection 4.4.2 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to such Conversion Price that such issuance or amendment took place at the time such calculation can first be made.

 

4.4.3           Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock . In the event the Corporation shall at any time after the Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 4.4.2 ), without consideration or for a consideration per share less than the Conversion Price of any series of Preferred Stock in effect immediately prior to such issue, then the Conversion Price of such series of Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:

 

CP 2  = CP 1 * (A + B) ÷ (A + C).

 

For purposes of the foregoing formula, the following definitions shall apply:

 

(a)           “CP 2 ” shall mean the Conversion Price of such series of Preferred Stock in effect immediately after such issue of Additional Shares of Common Stock

 

(b)           “CP 1 ” shall mean the Conversion Price of such series of Preferred Stock in effect immediately prior to such issue of Additional Shares of Common Stock;

 

(c)           “A” shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion or exchange of Convertible Securities (including the Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue);

 

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(d)           “B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CP 1  (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP 1 ); and

 

(e)           “C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.

 

4.4.4           Determination of Consideration . For purposes of this Subsection 4.4 , the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

 

(a)           Cash and Property : Such consideration shall:

 

(i)                                      insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;

 

(ii)                                   insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and

 

(iii)                                in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Corporation.

 

(b)           Options and Convertible Securities . The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 4.4. 2, relating to Options and Convertible Securities, shall be determined by dividing:

 

(i)                                      the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the

 

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conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by

 

(ii)                                   the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.

 

4.4.5           Multiple Closing Dates . In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the Conversion Price of any series of Preferred Stock pursuant to the terms of Subsection 4.4.3 , then, upon the final such issuance, the Conversion Price of such series of Preferred Stock shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period).

 

4.5              Adjustment for Stock Splits and Combinations . If the Corporation shall at any time or from time to time after the Original Issue Date effect a subdivision of the outstanding Common Stock, the Conversion Price of each series of Preferred Stock in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Conversion Price of each series of Preferred Stock in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

4.6              Adjustment for Certain Dividends and Distributions . In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the Conversion Price of each series of Preferred Stock in effect immediately

 

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before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price of such series of Preferred Stock then in effect by a fraction:

 

(1)                                  the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

 

(2)                                  the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

 

Notwithstanding the foregoing, (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price of such series of Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price of such series of Preferred Stock shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) that no such adjustment shall be made if the holders of such series of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of such series of Preferred Stock had been converted into Common Stock on the date of such event.

 

4.7              Adjustments for Other Dividends and Distributions . In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of each series of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of such series of Preferred Stock had been converted into Common Stock on the date of such event.

 

4.8              Adjustment for Merger or Reorganization, etc. Subject to the provisions of Subsection 2.3 , if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not any series of Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections 4.4 , 4.6 or 4.7 ), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of such series of Preferred

 

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Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of such series of Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the such series of Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Conversion Price of such series of Preferred Stock) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of such series of Preferred Stock.

 

4.9              Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of the Conversion Price of any series of Preferred Stock pursuant to this Section 4 , the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than 10 days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of such series of Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which such series of Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of any series of Preferred Stock (but in any event not later than 10 days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Conversion Price of such series of Preferred Stock then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of such series of Preferred Stock.

 

4.10            Notice of Record Date . In the event:

 

(a)           the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or

 

(b)           of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or

 

(c)           of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation,

 

then, and in each such case, the Corporation will send or cause to be sent to the holders of the each series of Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or

 

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securities at the time issuable upon the conversion of the such series of Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the such series of Preferred Stock and the Common Stock. Such notice shall be sent at least 10 days prior to the record date or effective date for the event specified in such notice.

 

5.             Mandatory Conversion .

 

5.1              Trigger Events . Upon either (a) the closing of the sale of shares of Common Stock to the public in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $35,000,000 of gross proceeds to the Corporation or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the Requisite Vote (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the “ Mandatory Conversion Time ”), (i) all outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock shall automatically be converted into shares of Common Stock, at the applicable then effective conversion rate and (ii) such shares may not be reissued by the Corporation.

 

5.2              Procedural Requirements . All holders of record of shares of the relevant series of Preferred Stock shall be sent written notice of the Mandatory Conversion Time applicable to them and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section 5 . Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each such holder of shares of Preferred Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Preferred Stock converted pursuant to Section 5.1 , including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the applicable Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender the certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this Subsection 5. 2. As soon as practicable after the applicable Mandatory Conversion Time and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for the relevant series of the Preferred Stock, the Corporation shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof, together with cash as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion

 

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and the payment of any declared but unpaid dividends on the shares of such series of Preferred Stock converted. Such converted Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of the applicable series of Preferred Stock accordingly.

 

6.             Redemption .

 

6.1              Redemption . Shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock shall be redeemed by the Corporation on a pari passu basis out of funds lawfully available therefor at a price equal to (a) in the case of the Series A Preferred Stock, the Series A Original Issue Price per share, plus all declared but unpaid dividends thereon (the “ Series A Redemption Price ”), (b) in the case of the Series B Preferred Stock, the Series B Original Issue Price per share, plus all declared but unpaid dividends thereon (the “ Series B Redemption Price ”), (c) in the case of the Series B-1 Preferred Stock, the Series B-1 Original Issue Price per share, plus all declared but unpaid dividends thereon (the “ Series B-1 Redemption Price ”), (d) in the case of the Series C Preferred Stock, the Series C Original Issue Price per share, plus all declared but unpaid dividends thereon (the “ Series C Redemption Price ”), (e) in the case of the Series D Preferred Stock, the Series D Original Issue Price per share, plus all declared but unpaid dividends thereon (the “ Series D Redemption Price ”), and (f) in the case of the Series E Preferred Stock, the Series E Original Issue Price per share, plus all declared but unpaid dividends thereon (the “ Series E Redemption Price ”) in three annual installments commencing not more than 60 days after receipt by the Corporation at any time on or after the date five (5) years after the Original Issue Date, from the holders of the Requisite Vote, of written notice requesting redemption of all shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock. The date of each such installment shall be referred to as a “ Redemption Date .” On each Redemption Date, the Corporation shall redeem, on a pro rata basis in accordance with the number of shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock owned by each holder, (A) that number of outstanding shares of Series A Preferred Stock determined by dividing (i) the total number of shares of Series A Preferred Stock outstanding immediately prior to such Redemption Date by (ii) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies), (B) that number of outstanding shares of Series B Preferred Stock determined by dividing (i) the total number of Series B Preferred Stock outstanding immediately prior to such Redemption Date by (ii) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies), (C) that number of outstanding shares of Series B-1 Preferred Stock determined by dividing (i) the total number of Series B-1 Preferred Stock outstanding immediately prior to such Redemption Date by (ii) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies), (D) that number of outstanding shares of Series C Preferred Stock determined by dividing (i) the total number of Series C Preferred Stock outstanding immediately prior to such Redemption Date by (ii) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies), (E) that number of outstanding shares of Series D Preferred Stock determined by dividing (i) the total number of Series D Preferred Stock outstanding immediately prior to such Redemption Date by (ii) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies), and (F) that number of outstanding shares of Series E Preferred Stock determined by dividing (i) the total number of Series E Preferred Stock outstanding immediately prior to such Redemption Date by (ii) the number of remaining Redemption Dates (including the Redemption

 

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Date to which such calculation applies); provided, however, that Excluded Shares (as such term is defined in Subsection 6.2 ) shall not be redeemed and shall be excluded from the calculations set forth in this sentence. Notwithstanding the foregoing, if the Corporation does not have sufficient funds legally available to redeem on any Redemption Date all shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock to be redeemed on such Redemption Date, the Corporation shall redeem first a pro rata portion on a pari passu basis of each holder’s redeemable shares of Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock out of funds legally available therefor, based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the legally available funds were sufficient to redeem all such shares, and shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor; and second , after all of the redeemable shares of Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock have been redeemed, a pro rata portion on a pari passu basis of each holder’s redeemable shares of Series A Preferred Stock, Series B Preferred Stock and Series B-1 Preferred Stock out of funds legally available therefor, based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the legally available funds were sufficient to redeem all such shares, and shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor.

 

6.2              Redemption Notice . The Corporation shall send written notice of the mandatory redemption (the “ Redemption Notice ”) to each holder of record of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock not less than 40 days prior to each Redemption Date. Each Redemption Notice shall state:

 

(a)           the number of shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock held by the holder that the Corporation shall redeem on the Redemption Date specified in the Redemption Notice;

 

(b)           the Redemption Date, the Series A Redemption Price, the Series B Redemption Price, the Series B-1 Redemption Price, the Series C Redemption Price, the Series D Redemption Price, and the Series E Redemption Price;

 

(c)           the date upon which the holder’s right to convert such shares terminates (as determined in accordance with Subsection 4.1 ); and

 

(d)           that the holder is to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock to be redeemed.

 

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If the Corporation receives, on or prior to the 20th day after the date of delivery of the Redemption Notice to a holder of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock, written notice from such holder that such holder elects to be excluded from the redemption provided in this Section 6 , then the shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock registered on the books of the Corporation in the name of such holder at the time of the Corporation’s receipt of such notice shall thereafter be “ Excluded Shares .” Excluded Shares shall not be redeemed or redeemable pursuant to this Section 6 , whether on such Redemption Date or thereafter.

 

6.3              Surrender of Certificates; Payment . On or before the applicable Redemption Date, each holder of shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock to be redeemed on such Redemption Date, unless such holder has exercised his, her or its right to convert such shares as provided in Section 4 , shall surrender the certificate or certificates representing such shares (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof. In the event less than all of the shares of Preferred Stock represented by a certificate are redeemed, a new certificate representing the unredeemed shares of Preferred Stock shall promptly be issued to such holder.

 

6.4              Rights Subsequent to Redemption . If the Redemption Notice shall have been duly given, and if on the applicable Redemption Date the Redemption Price payable upon redemption of the shares of Preferred Stock to be redeemed on such Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor in a timely manner, then notwithstanding that the certificates evidencing any of the shares of Preferred Stock so called for redemption shall not have been surrendered, dividends with respect to such shares of Preferred Stock shall cease to accrue after such Redemption Date and all rights with respect to such shares shall forthwith after the Redemption Date terminate, except only the right of the holders to receive the Redemption Price without interest upon surrender of their certificate or certificates therefor.

 

7.             Redeemed or Otherwise Acquired Shares . Any shares of Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Preferred Stock following redemption.

 

8.             Waiver . Except as required by law or as otherwise provided herein, any of the rights, powers, preferences and other terms of the Preferred Stock set forth herein may be waived on behalf of all holders of Preferred Stock by the affirmative written consent or vote of the holders of a majority of the then outstanding shares of Preferred Stock, voting together as a single class on

 

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an as-converted basis.  Except as required by law or as otherwise provided herein, any of the rights, powers, preferences and other terms of the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock and/or Series D Preferred Stock set forth herein may be waived on behalf of all holders of the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock and Series D Preferred Stock only by the affirmative written consent or vote of the holders of at least a majority of the outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock and Series D Preferred Stock voting or consenting together as a single class on an as-converted basis; provided that, (a) any waiver of an adjustment to be made to the Series D Conversion Price resulting from the issuance or deemed issuance of Additional Shares of Common Stock, and (b) any waiver with respect to Section 3.3.4 of Article FOURTH Part B, in each case, may be waived on behalf of all holders of the Series D Preferred Stock only by the affirmative written consent or vote of the holders of at least a majority of the outstanding shares Series D Preferred Stock voting or consenting together as a single class.  Except as required by law or as otherwise provided herein, any of the rights, powers, preferences and other terms of the Series C Preferred Stock set forth herein may be waived on behalf of all holders of Series C Preferred Stock only by the affirmative written consent or vote of the holders of a majority of the then outstanding shares of Series C Preferred Stock, voting separately as a single class. Except as required by law or as otherwise provided herein, any of the rights, powers, preferences and other terms of the Series E Preferred Stock set forth herein may be waived on behalf of all holders of Series E Preferred Stock only by the affirmative written consent or vote of the holders of a majority of the then outstanding shares of Series E Preferred Stock, voting separately as a single class.

 

9.             Notices . Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.

 

FIFTH: Subject to any additional vote required by the Certificate of Incorporation or Bylaws, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.

 

SIXTH: Subject to any additional vote required by the Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation.

 

SEVENTH: Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

 

EIGHTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

 

NINTH: To the fullest extent permitted by law, each director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of

 

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fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.

 

Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.

 

TENTH: The following indemnification provisions shall apply to the persons enumerated below.

 

1.             Right to Indemnification of Directors and Officers . The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an “ Indemnified Person ”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”), by reason of the fact that such person, or a person for whom such person is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Indemnified Person in such Proceeding. Notwithstanding the preceding sentence, except as otherwise provided in Section 3 of this Article Tenth, the Corporation shall be required to indemnify an Indemnified Person in connection with a Proceeding (or part thereof) commenced by such Indemnified Person only if the commencement of such Proceeding (or part thereof) by the Indemnified Person was authorized in advance by the Board of Directors.

 

2.             Prepayment of Expenses of Directors and Officers . The Corporation shall pay the expenses (including attorneys’ fees) incurred by an Indemnified Person in defending any Proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the Indemnified Person to repay all amounts advanced if it should be ultimately determined that the Indemnified Person is not entitled to be indemnified under this Article Tenth or otherwise.

 

3.             Claims by Directors and Officers . If a claim for indemnification or advancement of expenses under this Article Tenth is not paid in full within 30 days after a written claim therefor by the Indemnified Person has been received by the Corporation, the Indemnified Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the Indemnified Person is not entitled to the requested indemnification or advancement of expenses under applicable law.

 

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4.             Indemnification of Employees and Agents . The Corporation may indemnify and advance expenses to any person who was or is made or is threatened to be made or is otherwise involved in any Proceeding by reason of the fact that such person, or a person for whom such person is the legal representative, is or was an employee or agent of the Corporation or, while an employee or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, limited liability company, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorney’s fees) reasonably incurred by such person in connection with such Proceeding. The ultimate determination of entitlement to indemnification of persons who are non-director or officer employees or agents shall be made in such manner as is determined by the Board of Directors in its sole discretion. Notwithstanding the foregoing sentence, the Corporation shall not be required to indemnify a person in connection with a Proceeding initiated by such person if the Proceeding was not authorized in advance by the Board of Directors.

 

5.             Advancement of Expenses of Employees and Agents . The Corporation may pay the expenses (including attorneys’ fees) incurred by an employee or agent in defending any Proceeding in advance of its final disposition on such terms and conditions as may be determined by the Board of Directors.

 

6.             Non-Exclusivity of Rights . The rights conferred on any person by this Article Tenth shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaws of the Corporation, agreement, vote of stockholders or disinterested directors or otherwise.

 

7.             Other Indemnification . The Corporation’s obligation, if any, to indemnify any person who was or is serving at its request as a director, officer or employee of another corporation, partnership, limited liability company, joint venture, trust, organization or other enterprise shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, limited liability company, joint venture, trust, organization or other enterprise.

 

8.             Insurance . The Board of Directors may, to the full extent permitted by applicable law as it presently exists, or may hereafter be amended from time to time, authorize an appropriate officer or officers to purchase and maintain at the Corporation’s expense insurance: (a) to indemnify the Corporation for any obligation which it incurs as a result of the indemnification of directors, officers and employees under the provisions of this Article Tenth; and (b) to indemnify or insure directors, officers and employees against liability in instances in which they may not otherwise be indemnified by the Corporation under the provisions of this Article Tenth.

 

9.             Amendment or Repeal . Any repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. The rights provided hereunder shall inure to the benefit of any Indemnified Person and such person’s heirs, executors and administrators.

 

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Any amendment, repeal or modification of the foregoing provisions of this Article Tenth shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification.

 

ELEVENTH: To the fullest extent permitted by law, the Corporation renounces any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity; provided, that nothing herein is intended to diminish the fiduciary duties of any director of the Corporation. An “ Excluded Opportunity ” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, “ Covered Persons ”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Corporation.

 

*  *  *

 

3.              That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation in accordance with Section 228 of the General Corporation Law.

 

4.              That this Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this corporation’s Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.

 

[SIGNATURE PAGE FOLLOWS.]

 

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IN WITNESS WHEREOF , this Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 30 th  day of November, 2018.

 

 

 

By:

/s/ William R. Hinshaw, Jr.

 

Name: William R. Hinshaw, Jr.

 

Title: President and Chief Executive Officer

 

[Signature Page to Axcella Health Inc. Amended and Restated Certificate of Incorporation]

 




Exhibit 3.6

 

AMENDED AND RESTATED

 

BYLAWS

 

of

 

Essentient, Inc. (f/k/a Newco LS16, Inc.)

(the “Corporation”)

 

Article I - Stockholders

 

1.                                       Annual Meeting .  The annual meeting of stockholders shall be held for the election of directors each year at such place, date and time as shall be designated by the Board of Directors of the Corporation (the “Board of Directors”).  Any other proper business may be transacted at the annual meeting.  If no date for the annual meeting is established or said meeting is not held on the date established as provided above, a special meeting in lieu thereof may be held or there may be action by written consent of the stockholders on matters to be voted on at the annual meeting, and such special meeting or written consent shall have for the purposes of these By-laws or otherwise all the force and effect of an annual meeting.

 

2.                                       Special Meetings .  Special meetings of stockholders may be called by the Chief Executive Officer, if one is elected, or, if there is no Chief Executive Officer, a President, or by the Board of Directors, but such special meetings may not be called by any other person or persons.  The call for the meeting shall state the place, date, hour and purposes of the meeting.  Only the purposes specified in the notice of special meeting shall be considered or dealt with at such special meeting.

 

3.                                       Notice of Meetings .  Whenever stockholders are required or permitted to take any action at a meeting, a notice stating the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such meeting, and, in the case of a special meeting, the purpose or purposes of the meeting, shall be given by the Secretary (or other person authorized by these By-laws or by law) not less than ten (10) nor more than sixty (60) days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, under the Certificate of Incorporation or under these By-laws is entitled to such notice.  If mailed, notice is given when deposited in the mail, postage prepaid, directed to such stockholder at such stockholder’s address as it appears in the records of the Corporation.  Without limiting the manner by which notice otherwise may be effectively given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (the “DGCL”).

 

If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place, if any, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such

 


 

adjourned meeting are announced at the meeting at which the adjournment is taken, except that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

 

4.                                       Quorum .  The holders of a majority in interest of all stock issued, outstanding and entitled to vote at a meeting, present in person or represented by proxy, shall constitute a quorum.  Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present.  The stockholders present at a duly constituted meeting may continue to transact business until adjournment notwithstanding the withdrawal of enough stockholders to reduce the voting shares below a quorum.

 

5.                                       Voting and Proxies .  Except as otherwise provided by the Certificate of Incorporation or by law, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question.  Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by either written proxy or by a transmission permitted by Section 212(c) of the DGCL, but no proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period or is irrevocable and coupled with an interest.  Proxies shall be filed with the Secretary of the meeting, or of any adjournment thereof.  Except as otherwise limited therein, proxies shall entitle the persons authorized thereby to vote at any adjournment of such meeting.

 

6.                                       Action at Meeting .  When a quorum is present, any matter before the meeting shall be decided by vote of the holders of a majority of the shares of stock voting on such matter except where a larger vote is required by law, by the Certificate of Incorporation or by these By-laws.  Any election of directors by stockholders shall be determined by a plurality of the votes cast, except where a larger vote is required by law, by the Certificate of Incorporation or by these By-laws.  The Corporation shall not directly or indirectly vote any share of its own stock; provided, however, that the Corporation may vote shares which it holds in a fiduciary capacity to the extent permitted by law.

 

7.                                       Presiding Officer .  Meetings of stockholders shall be presided over by the Chairman of the Board, if one is elected, or in his or her absence, the Vice Chairman of the Board, if one is elected, or if neither is elected or in their absence, a President.  The Board of Directors shall have the authority to appoint a temporary presiding officer to serve at any meeting of the stockholders if the Chairman of the Board, the Vice Chairman of the Board or a President is unable to do so for any reason.

 

8.                                       Conduct of Meetings .  The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate.  Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the presiding officer of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting.  Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding officer of

 

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the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants.  Unless and to the extent determined by the Board of Directors or the presiding officer of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

 

9.                                       Action without a Meeting .  Unless otherwise provided in the Certificate of Incorporation, any action required or permitted by law to be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office, by hand or by certified mail, return receipt requested, or to the Corporation’s principal place of business or to the officer of the Corporation having custody of the minute book.  Every written consent shall bear the date of signature and no written consent shall be effective unless, within sixty (60) days of the earliest dated consent delivered pursuant to these By-laws, written consents signed by a sufficient number of stockholders entitled to take action are delivered to the Corporation in the manner set forth in these By-laws.  Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

 

10.                                Stockholder Lists .  The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Nothing contained in this Section 10 shall require the Corporation to include electronic mail addresses or other electronic contact information on such list.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting in the manner provided by law.  The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.

 

Article II - Directors

 

1.                                       Powers .  The business of the Corporation shall be managed by or under the direction of a Board of Directors who may exercise all the powers of the Corporation except as otherwise provided by law, by the Certificate of Incorporation or by these By-laws.  In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board of Directors until the vacancy is filled.

 

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2.                                       Number and Qualification .  Unless otherwise provided in the Certificate of Incorporation or in these By-laws, the number of directors which shall constitute the whole board shall be determined from time to time by resolution of the Board of Directors.  Directors need not be stockholders.

 

3.                                       Vacancies; Reduction of Board .  A majority of the directors then in office, although less than a quorum, or a sole remaining Director, may fill vacancies in the Board of Directors occurring for any reason and newly created directorships resulting from any increase in the authorized number of directors.  In lieu of filling any vacancy, the Board of Directors may reduce the number of directors.

 

4.                                       Tenure .  Except as otherwise provided by law, by the Certificate of Incorporation or by these By-laws, directors shall hold office until their successors are elected and qualified or until their earlier resignation or removal.  Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation.  Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

 

5.                                       Removal .  To the extent permitted by law, a director may be removed from office with or without cause by vote of the holders of a majority of the shares of stock entitled to vote in the election of directors.

 

6.                                       Meetings .  Regular meetings of the Board of Directors may be held without notice at such time, date and place as the Board of Directors may from time to time determine.  Special meetings of the Board of Directors may be called, orally or in writing, by the Chief Executive Officer, if one is elected, or, if there is no Chief Executive Officer, the President, or by two or more Directors, designating the time, date and place thereof.  Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting.

 

7.                                       Notice of Meetings .  Notice of the time, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary, or Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the directors calling the meeting.  Notice shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communications, sent to such director’s business or home address at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to such director’s business or home address at least forty-eight (48) hours in advance of the meeting.

 

8.                                       Quorum .  At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business.  Less than a quorum may adjourn any meeting from time to time and the meeting may be held as adjourned without further notice.

 

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9.                                       Action at Meeting .  At any meeting of the Board of Directors at which a quorum is present, unless otherwise provided in the following sentence, a majority of the directors present may take any action on behalf of the Board of Directors, unless a larger number is required by law, by the Certificate of Incorporation or by these By-laws.  So long as there are two (2) or fewer Directors, any action to be taken by the Board of Directors shall require the approval of all Directors.

 

10.                                Action by Consent .  Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors.  Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

11.                                Committees .  The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, establish one or more committees, each committee to consist of one or more directors.  The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.  In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

 

Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval or (ii) adopting, amending or repealing any provision of these By-laws.

 

Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but in the absence of such rules its business shall be conducted so far as possible in the same manner as is provided in these By-laws for the Board of Directors.  All members of such committees shall hold their committee offices at the pleasure of the Board of Directors, and the Board of Directors may abolish any committee at any time.

 

Article III - Officers

 

1.                                       Enumeration .  The officers of the Corporation shall consist of one or more Presidents (who, if there is more than one, shall be referred to as Co-Presidents), a Treasurer, a Secretary, and such other officers, including, without limitation, a Chief Executive Officer and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of

 

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Directors may determine.  The Board of Directors may elect from among its members a Chairman of the Board and a Vice Chairman of the Board.

 

2.                                       Election .  The Presidents, Treasurer and Secretary shall be elected annually by the Board of Directors at their first meeting following the annual meeting of stockholders.  Other officers may be chosen by the Board of Directors at such meeting or at any other meeting.

 

3.                                       Qualification .  No officer need be a stockholder or Director.  Any two or more offices may be held by the same person.  Any officer may be required by the Board of Directors to give bond for the faithful performance of such officer’s duties in such amount and with such sureties as the Board of Directors may determine.

 

4.                                       Tenure .  Except as otherwise provided by the Certificate of Incorporation or by these By-laws, each of the officers of the Corporation shall hold office until the first meeting of the Board of Directors following the next annual meeting of stockholders and until such officer’s successor is elected and qualified or until such officer’s earlier resignation or removal.  Any officer may resign by delivering his or her written resignation to the Corporation, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

 

5.                                       Removal .  The Board of Directors may remove any officer with or without cause by a vote of a majority of the directors then in office.

 

6.                                       Vacancies .  Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.

 

7.                                       Chairman of the Board and Vice Chairman .  Unless otherwise provided by the Board of Directors, the Chairman of the Board of Directors, if one is elected, shall preside, when present, at all meetings of the stockholders and the Board of Directors.  The Chairman of the Board shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

Unless otherwise provided by the Board of Directors, in the absence of the Chairman of the Board, the Vice Chairman of the Board, if one is elected, shall preside, when present, at all meetings of the stockholders and the Board of Directors.  The Vice Chairman of the Board shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

8.                                       Chief Executive Officer .  The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

 

9.                                       Presidents .  The Presidents shall, subject to the direction of the Board of Directors, each have general supervision and control of the Corporation’s business and any action that would typically be taken by a President may be taken by any Co-President.  If there is no Chairman of the Board or Vice Chairman of the Board, a President shall preside, when present, at all meetings of stockholders and the Board of Directors.  The Presidents shall have

 

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such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

10.                                Vice Presidents and Assistant Vice Presidents .  Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

 

11.                                Treasurer and Assistant Treasurers .  The Treasurer shall, subject to the direction of the Board of Directors, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account.  The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation, except as the Board of Directors may otherwise provide.  The Treasurer shall have  such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors may from time to time designate.

 

12.                                Secretary and Assistant Secretaries .  The Secretary shall record the proceedings of all meetings of the stockholders and the Board of Directors (including committees of the Board of Directors) in books kept for that purpose.  In the absence of the Secretary from any such meeting an Assistant Secretary, or if such person is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof.  The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation) and shall have such other duties and powers as may be designated from time to time by the Board of Directors.

 

Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors may from time to time designate.

 

13.                                Other Powers and Duties .  Subject to these By-laws, each officer of the Corporation shall have in addition to the duties and powers specifically set forth in these By-laws, such duties and powers as are customarily incident to such officer’s office, and such duties and powers as may be designated from time to time by the Board of Directors.

 

Article IV - Capital Stock

 

1.                                       Certificates of Stock .  Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors.  Such certificate shall be signed by a President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary.  Such signatures may be a facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the time of its issue.  Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one

 

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class or series of stock shall contain such legend with respect thereto as is required by law.  The Corporation shall be permitted to issue fractional shares.

 

2.                                       Transfers .  Subject to any restrictions on transfer, shares of stock may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require.

 

3.                                       Record Holders .  Except as may otherwise be required by law, by the Certificate of Incorporation or by these By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.

 

It shall be the duty of each stockholder to notify the Corporation of such stockholder’s post office address.

 

4.                                       Record Date .  In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not precede the date on which it is established, and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, more than ten (10) days after the date on which the record date for stockholder consent without a meeting is established, nor more than sixty (60) days prior to any other action.  In such case only stockholders of record on such record date shall be so entitled notwithstanding any transfer of stock on the books of the Corporation after the record date.

 

If no record date is fixed, (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, (b) the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in this state, to its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded, and (c) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

 

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5.                                       Lost Certificates .  The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

 

Article V - Indemnification

 

1.                                       Definitions .  For purposes of this Article V:

 

(a)                                  “Corporate Status” describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, or (iii) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Corporation.  For purposes of this Section 1(a), an Officer or Director of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation.  Notwithstanding the foregoing, “Corporate Status” shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such person’s activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;

 

(b)                                  “Director” means any person who serves or has served the Corporation as a director on the Board of Directors;

 

(c)                                   “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;

 

(d)                                  “Expenses” means all reasonable attorneys fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;

 

(e)                                   “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;

 

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(f)                                    “Officer” means any person who serves or has served the Corporation as an officer appointed by the Board of Directors;

 

(g)                                   “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and

 

(h)                                  “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) 50% or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) 50% or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.

 

2.                                       Indemnification of Directors and Officers .  Subject to the operation of Section 4 of this Article V of these By-laws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment) against any and all Expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any threatened, pending or completed Proceeding or any claim, issue or matter therein, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.  The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives.  Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding was authorized by the Board of Directors, unless such Proceeding was brought to enforce an Officer or Director’s rights to indemnification or, in the case of Directors, advancement of Expenses under these By-laws in accordance with the provisions set forth herein.

 

3.                                       Indemnification of Non-Officer Employees .  Subject to the operation of Section 4 of this Article V of these By-laws, each Non-Officer Employee may, in the discretion of the Board of Directors, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer

 

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Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.  The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators.  Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized by the Board of Directors.

 

4.                                       Good Faith .  Unless ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that 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 Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful.  Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.

 

5.                                       Advancement of Expenses to Directors Prior to Final Disposition .

 

(a)                                  The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Director’s Corporate Status within ten (10) days after the receipt by the Corporation of a written statement from such Director requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified against such Expenses.

 

(b)                                  If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within 10 days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim.  The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to the action and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of expenses shall be on the Corporation.

 

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(c)                                   In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director has not met any applicable standard for indemnification set forth in the DGCL.

 

6.                                       Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition .

 

(a)                                  The Corporation may, at the discretion of the Board of Directors, advance any or all Expenses incurred by or on behalf of any Officer and Non-Officer Employee in connection with any Proceeding in which such is involved by reason of the Corporate Status of such Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by such Officer and Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.

 

(b)                                  In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.

 

7.                                       Contractual Nature of Rights .

 

(a)                                  The foregoing provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any Proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts.

 

(b)                                  If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within 60 days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim.  The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Article V shall not be a defense to the action and shall not create a presumption that such indemnification is not permissible.  The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.

 

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(c)                                   In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.

 

8.                                       Non-Exclusivity of Rights .  The rights to indemnification and advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise.

 

9.                                       Insurance .  The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.

 

10.                                Other Indemnification .  The Corporation’s obligation, if any, to indemnify any person under this Article V as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise.

 

Article VI - Miscellaneous Provisions

 

1.                                       Fiscal Year .  Except as otherwise determined by the Board of Directors, the fiscal year of the Corporation shall end on December 31 of each year.

 

2.                                       Seal .  The Board of Directors shall have power to adopt and alter the seal of the Corporation.

 

3.                                       Execution of Instruments .  Subject to any limitations which may be set forth in a resolution of the Board of Directors, all deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by, a President, or by any other officer, employee or agent of the Corporation as the Board of Directors may authorize.

 

4.                                       Voting of Securities .  Unless the Board of Directors otherwise provides, a President, any Vice President or the Treasurer may waive notice of and act on behalf of this Corporation, or appoint another person or persons to act as proxy or attorney in fact for this Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by this Corporation.

 

5.                                       Resident Agent .  The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.

 

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6.                                       Corporate Records .  The original or attested copies of the Certificate of Incorporation, By-laws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock and transfer records, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, shall be kept at the principal office of the Corporation, at the office of its counsel, or at an office of its transfer agent.

 

7.                                       Certificate of Incorporation .  All references in these By-laws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and in effect from time to time.

 

8.                                       Amendments .  These By-laws may be altered, amended or repealed, and new By-laws may be adopted, by the stockholders or by the Board of Directors; provided, that (a) the Board of Directors may not alter, amend or repeal any provision of these By-laws which by law, by the Certificate of Incorporation or by these By-laws requires action by the stockholders and (b) any alteration, amendment or repeal of these By-laws by the Board of Directors and any new By-law adopted by the Board of Directors may be altered, amended or repealed by the stockholders.

 

9.                                       Waiver of Notice .  Whenever notice is required to be given under any provision of these By-laws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice.  Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any meeting needs to be specified in any written waiver or any waiver by electronic transmission.

 

 

Adopted by Board of Directors:

 

Adopted by Stockholders of the Corporation:

 

Amendment adopted by Board of Directors and Stockholders of the Corporation: April 8, 2011.

 

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Exhibit 4.2

 

AXCELLA HEALTH INC.

FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

THIS FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT is made as of the 30 th  day of November, 2018, by and among Axcella Health Inc., a Delaware corporation (the “ Company ”), and each of the investors listed on Schedule A hereto and any subsequent purchasers of Preferred Stock who become parties hereto as “Investor” pursuant to Section 6.10 below, each of which is referred to in this Agreement as an “ Investor ”.

 

RECITALS

 

WHEREAS, the Company and certain of the Investors are parties to the Fourth Amended and Restated Investors’ Rights Agreement (the “ Prior Agreement ”) dated as of February 10, 2016, as amended on August 11, 2017;

 

WHEREAS, the Company and certain of the Investors are parties to the Series E Preferred Stock Purchase Agreement of even date herewith, as may be amended or restated from time to time (the “ Purchase Agreement ”); and

 

WHEREAS, in order to induce the Company to enter into the Purchase Agreement and to induce those certain Investor(s) to invest funds in the Company pursuant to the Purchase Agreement, the Investors and the Company, constituting the required votes pursuant to Section 6.6 of the Prior Agreement, hereby agree that the Prior Agreement shall be amended and restated to govern the rights of the Investors;

 

NOW, THEREFORE, the parties hereby agree as follows:

 

1.                                       Definitions . For purposes of this Agreement:

 

1.1                                Affiliate ” means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer or director of such Person or any venture capital or other investment fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company or investment adviser with, such Person. Without limiting the foregoing, Flagship Ventures Fund IV, L.P., Flagship Ventures Fund IV-Rx, L.P., Flagship Ventures Fund 2007, L.P., Flagship Ventures Management, Inc., Flagship VentureLabs IV LLC, and Flagship Venture Opportunities Fund I, L.P. shall be deemed Affiliates of one another for purposes hereof.

 

1.2                                Common Stock ” means shares of the Company’s common stock, par value $0.001 per share.

 

1.3                                Damages ” means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary

 


 

prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.

 

1.4                                Derivative Securities ” means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock, including options and warrants.

 

1.5                                Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

1.6                                Excluded Registration ” means (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.

 

1.7                                Fidelity Investors ” any of (i) Fidelity Select Portfolios: Biotechnology Portfolio, (ii) Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund, (iii) Fidelity Securities Fund: Fidelity Blue Chip Growth Fund, (iv) Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund, (v) FIAM Target Date Blue Chip Growth Commingled Pool, (vi) Fidelity Growth Company Commingled Pool, (vii) Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund and (viii) Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund.

 

1.8                                Flagship Investors ” means Flagship Ventures Fund IV, L.P. and its Affiliates.

 

1.9                                Form S-1 ” means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.

 

1.10                         Form S-3 ” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.

 

1.11                         GAAP ” means generally accepted accounting principles in the United States.

 

1.12                         Holder ” means any holder of Registrable Securities who is a party to this Agreement.

 

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1.13                         Immediate Family Member ” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of a natural person referred to herein.

 

1.14                         Initiating Holders ” means, collectively, Holders who properly initiate a registration request under this Agreement.

 

1.15                         IPO ” means the Company’s first underwritten public offering of its Common Stock under the Securities Act.

 

1.16                         Key Employee ” means any executive-level employee (including division director and vice president-level positions) as well as any employee who, either alone or in concert with others, develops, invents, programs, or designs any Company Intellectual Property (as defined in the Purchase Agreement).

 

1.17                         Major Investor ” means any (i) any Fidelity Investor, (ii) any Flagship Investor, (iii) any Gurnet Point Investor, and (v) any Investor that, individually or together with such Investor’s Affiliates, holds at least 350,000 shares of Registrable Securities (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof). For purposes of this definition, “ Gurnet Point Investor ” shall mean Gurnet Point L.P. and its Affiliates.

 

1.18                         New Securities ” means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities.

 

1.19                         Person ” means any individual, corporation, partnership, trust, limited liability company, association or other entity.

 

1.20                         Preferred Director ” means the director of the Company that the holders of record of the Preferred Stock are entitled exclusively to elect pursuant to the Company’s Certificate of Incorporation.

 

1.21                         Preferred Stock ” means the Series A Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, and the Series E Preferred Stock.

 

1.22                         Registrable Securities ” means (i) the Common Stock issuable or issued upon conversion of the Preferred Stock; (ii) any Common Stock, or any Common Stock issued or issuable (directly or indirectly) upon conversion and/or exercise of any other securities of the Company, acquired by the Investors or their Affiliates, whether prior to or after the date hereof; and (iii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clauses (i) and (ii) above; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Section 6.1, and

 

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excluding for purposes of Section 2 any shares for which registration rights have terminated pursuant to Section 2.13 of this Agreement.

 

1.23                         Registrable Securities then outstanding ” means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that are Registrable Securities.

 

1.24                         Restricted Securities ” means the securities of the Company required to bear the legend set forth in Section 2.12(b) hereof.

 

1.25                         SEC ” means the Securities and Exchange Commission.

 

1.26                         SEC Rule 144 ” means Rule 144 promulgated by the SEC under the Securities Act.

 

1.27                         SEC Rule 145 ” means Rule 145 promulgated by the SEC under the Securities Act.

 

1.28                         Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

1.29                         Selling Expenses ” means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Section 2.6.

 

1.30                         Series A Preferred Stock ” means shares of the Company’s Series A Preferred Stock, par value $0.001 per share.

 

1.31                         Series B Preferred Stock ” means shares of the Company’s Series B Preferred Stock, par value $0.001 per share.

 

1.32                         Series B-1 Preferred Stock ” means shares of the Company’s Series B-1 Preferred Stock, par value $0.001 per share.

 

1.33                         Series C Preferred Stock ” means shares of the Company’s Series C Preferred Stock, par value $0.001 per share.

 

1.34                         Series D Preferred Stock ” means shares of the Company’s Series D Preferred Stock, par value $0.001 per share.

 

1.35                         Series E Preferred Stock ” means shares of the Company’s Series E Preferred Stock, par value $0.001 per share.

 

2.                                       Registration Rights . The Company covenants and agrees as follows:

 

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2.1                                Demand Registration .

 

(a)                                  Form S-1 Demand . If at any time after the earlier of (i) five (5) years after the date of this Agreement or (ii) one hundred eighty (180) days after the effective date of the registration statement for the IPO, the Company receives a request from Holders of a majority of the Registrable Securities then outstanding that the Company file a Form S-1 registration statement with respect to Registrable Securities then outstanding having an anticipated aggregate offering price of at least $5,000,000, then the Company shall (i) within ten (10) days after the date such request is given, give notice thereof (the “ Demand Notice ”) to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within sixty (60) days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days after the date the Demand Notice is given, and in each case, subject to the limitations of Section 2.1(c) and Section 2.3.

 

(b)                                  Form S-3 Demand . If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders of at least twenty percent (20%) of the Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to outstanding Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least $2,500,000, then the Company shall (i) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within forty-five (45) days after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days after the date the Demand Notice is given, and in each case, subject to the limitations of Section 2.1(c) and Section 2.3.

 

(c)                                   Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Section 2.1 a certificate signed by the Company’s chief executive officer or other most senior executive officer stating that in the good faith judgment of the Company’s Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than one hundred twenty (120) days after the request of the Initiating Holders is given; provided, however , that the Company may not invoke this right more than once in any twelve (12) month period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such one hundred twenty (120) day period other than an Excluded Registration.

 

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(d)                                  The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2.1(a) (i) during the period that is sixty (60) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is one hundred eighty (180) days after the effective date of, a Company-initiated registration; provided , that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; (ii) after the Company has effected two registrations pursuant to Section 2.1(a); or (iii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.1(b). The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2.1(b) (i) during the period that is thirty (30) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration; provided , that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company has effected two registrations pursuant to Section 2.1(b) within the twelve (12) month period immediately preceding the date of such request. A registration shall not be counted as “effected” for purposes of this Section 2.1(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration, elect not to pay the registration expenses therefor, and forfeit their right to one demand registration statement pursuant to Section 2.6, in which case such withdrawn registration statement shall be counted as “effected” for purposes of this Section 2.1(d).

 

2.2                                Company Registration . If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration or IPO), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within twenty (20) days after such notice is given by the Company, the Company shall, subject to the provisions of Section 2.3, cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Section 2.6.

 

2.3                                Underwriting Requirements .

 

(a)                                  If, pursuant to Section 2.1, the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 2.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 2.4(e)) enter into an

 

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underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Section 2.3, if the managing underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated among such Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities owned by each Holder or in such other proportion as shall mutually be agreed to by all such selling Holders; provided, however, that the number of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities of the Company are first entirely excluded from the underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares.

 

(b)                                  In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Section 2.2, the Company shall not be required to include any of the Holders’ Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned by each selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest 100 shares. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering or (ii) the number of Registrable Securities included in the offering be reduced below thirty percent (30%) of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriters make the determination described above and no other stockholder’s securities are included in such offering. For purposes of the provision in this Section 2.3(b) concerning apportionment, for any selling Holder that is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder”

 

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shall be based upon the aggregate number of Registrable Securities owned by all Persons included in such “selling Holder,” as defined in this sentence.

 

(c)                                   For purposes of Section 2.1, a registration shall not be counted as “effected” if, as a result of an exercise of the underwriter’s cutback provisions in Section 2.3(a), fewer than fifty percent (50%) of the total number of Registrable Securities that Holders have requested to be included in such registration statement are actually included.

 

2.4                                Obligations of the Company . Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

 

(a)                                  prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided, however , that (i) such one hundred twenty (120) day period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration, and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such one hundred twenty (120) day period shall be extended for up to sixty (60) days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;

 

(b)                                  prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;

 

(c)                                   furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;

 

(d)                                  use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided , that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

 

(e)                                   in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;

 

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(f)                                    use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;

 

(g)                                   provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;

 

(h)                                  promptly make available for inspection by the selling Holders, any managing underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Company’s officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;

 

(i)                                      notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and

 

(j)                                     after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.

 

2.5                                Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holder’s Registrable Securities.

 

2.6                                Expenses of Registration . All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2, including all registration, filing, and qualification fees; printers’ and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements, not to exceed $35,000, of one counsel for the selling Holders (“ Selling Holder Counsel ”), shall be borne and paid by the Company; provided, however , that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Section 2.1(a) or Section 2.1(b), as the case may be; provided, further that if, at the time of such withdrawal, the Holders shall have learned of a

 

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material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one registration pursuant to Section 2.1(a) or Section 2.1(b). All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.

 

2.7                                Delay of Registration . No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.

 

2.8                                Indemnification . If any Registrable Securities are included in a registration statement under this Section 2:

 

(a)                                  To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors, and stockholders of each such Holder; legal counsel, accountants and investment advisers for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however , that the indemnity agreement contained in this Section 2.8(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration.

 

(b)                                  To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however , that the indemnity agreement contained in this Section 2.8(b) shall not apply to amounts paid in settlement of any such claim or proceeding if

 

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such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided, further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Sections 2.8(b) and 2.8(d) exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.

 

(c)                                   Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however , that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.8, to the extent that such failure materially prejudices the indemnifying party’s ability to defend such action. The failure to give notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.8.

 

(d)                                  To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Section 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Section 2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Section 2.8, then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however , that, in any such case, (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement,

 

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and (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided, further, that in no event shall a Holder’s liability pursuant to this Section 2.8(d), when combined with the amounts paid or payable by such Holder pursuant to Section 2.8(b), exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.

 

(e)                                   Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

 

(f)                                    Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Section 2.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section 2, and otherwise shall survive the termination of this Agreement.

 

2.9                                Reports Under Exchange Act . With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:

 

(a)                                  make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;

 

(b)                                  use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and

 

(c)                                   furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies); (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).

 

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2.10                         Limitations on Subsequent Registration Rights . From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would (i) provide to such holder the right to include securities in any registration on other than on a subordinate basis after all Holders have had the opportunity to include in the registration and offering all shares of Registrable Securities that they wish to so include or (ii) allow such holder or prospective holder to initiate a demand for registration of any securities held by such holder or prospective holder.

 

2.11                         “Market Stand-off” Agreement . Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the registration by the Company of shares of Common Stock in its IPO, and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days, which period may be extended upon the request of the managing underwriter, to the extent required by any FINRA rules, for an additional period of up to fifteen (15) days if the Company issues or proposes to issue an earnings or other public release within fifteen (15) days of the expiration of the 180-day lockup period), (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right, or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock held immediately before the effective date of the registration statement for the IPO or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise. The foregoing provisions of this Section 2.11 shall not apply to (i) the sale of any shares to an underwriter pursuant to an underwriting agreement, (ii) any shares purchased in the IPO, or (iii) any shares purchased in open market transactions following the IPO, and shall be applicable to the Holders only if all officers and directors and all stockholders individually owning more than one percent (1%) of the Company’s outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding shares of the Company’s preferred stock) are subject to the same restrictions. The underwriters in connection with the IPO are intended third-party beneficiaries of this Section 2.11 and shall have the right, power, and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with the IPO that are consistent with this Section 2.11 or that are necessary to give further effect thereto. If any of the obligations described in this Section 2.11 are waived or terminated with respect to any of the securities of any such Holder, officer, director or greater than one-percent stockholder (in any such case, the “ Released Securities ”), the foregoing provisions shall be waived or terminated, as applicable, to the same extent and with respect to the same percentage of securities of each Holder as the percentage of Released Securities represent with respect to the securities held by the applicable Holder, officer, director or greater than one-percent stockholder.

 

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2.12                         Restrictions on Transfer .

 

(a)                                  The Preferred Stock and the Registrable Securities shall not be sold, pledged, or otherwise transferred, and the Company shall not recognize and shall issue stop-transfer instructions to its transfer agent with respect to any such sale, pledge, or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Holder will cause any proposed purchaser, pledgee, or transferee of the Preferred Stock and the Registrable Securities held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement.  Notwithstanding the foregoing, the Company shall not require any transferee of shares pursuant to an effective registration statement or, following the IPO, SEC Rule 144, in each case, to be bound by the terms of this Agreement.

 

(b)                                  Each certificate or instrument representing (i) the Preferred Stock, (ii) the Registrable Securities, and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii), upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of Section 2.12(c)) be stamped or otherwise imprinted with a legend substantially in the following form:

 

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.

 

THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

 

The Holders consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Section 2.12.

 

(c)                                   The holder of each certificate representing Restricted Securities, by acceptance thereof, agrees to comply in all respects with the provisions of this Section 2. Before any proposed sale, pledge, or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction or, following the IPO, the transfer is made pursuant to SEC Rule 144, the Holder thereof shall give notice to the Company of such Holder’s intention to effect such sale, pledge, or transfer. Each such notice shall describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such Holder’s expense by either (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (ii) a “no action” letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the

 

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SEC that action be taken with respect thereto; or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the Holder of such Restricted Securities shall be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the Holder to the Company. The Company will not require such a legal opinion or “no action” letter (x) in any transaction in compliance with SEC Rule 144 or (y) in any transaction in which such Holder distributes Restricted Securities to an Affiliate of such Holder for no consideration; provided that, other than with respect to transfers under the foregoing clause (x) following the IPO, each transferee agrees in writing to be subject to the terms of this Section 2.12. Each certificate or instrument evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Section 2.12(b), except that such certificate shall not bear such restrictive legend if, in the opinion of counsel for such Holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act.

 

2.13                         Termination of Registration Rights . The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Section 2.1 or Section 2.2 shall terminate upon the earliest to occur of:

 

(a)                                  the closing of a Deemed Liquidation Event, as such term is defined in the Company’s Certificate of Incorporation, and the distribution of proceeds to or escrow for the benefit of the Company’s stockholders in accordance with the Certificate of Incorporation;

 

(b)                                  as to such Holder, such earlier time after the IPO at which such Holder (i) can sell all shares held by it in compliance with Rule 144(b)(1)(i) or (ii) holds one percent (1%) or less of the Company’s outstanding Common Stock and all Registrable Securities held by such Holder (together with any affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144) can be sold in any three (3)-month period without registration in compliance with Rule 144; or

 

(c)                                   the fifth (5 th ) anniversary of the consummation of the IPO.

 

3.                                       Information Rights .

 

3.1                                Delivery of Financial Statements . The Company shall deliver to each Major Investor, provided that the Board of Directors has not reasonably determined that such Investor is a competitor of the Company:

 

(a)                                  as soon as practicable, but in any event within one hundred fifty (150) days after the end of each fiscal year of the Company, (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and a comparison between (x) the actual amounts as of and for such fiscal year and (y) the comparable amounts for the prior year and as included in the Budget (as defined in Section 3.1(e)) for such year, with an explanation of any material differences between such amounts and a schedule as to the sources and applications of funds for such year, and (iii) a statement of stockholders’ equity as of the end

 

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of such year, all such financial statements audited and certified by independent public accountants of nationally recognized standing selected by the Company;

 

(b)                                  as soon as practicable, but in any event within forty five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, unaudited statements of income and of cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders’ equity as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);

 

(c)                                   as soon as practicable, but in any event within forty-five (45) days after the end of each quarter of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the Common Stock issuable upon conversion or exercise of any outstanding securities convertible or exercisable for Common Stock and the exchange ratio or exercise price applicable thereto, and the number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit the Major Investors to calculate their respective percentage equity ownership in the Company;

 

(d)                                  as soon as practicable, but in any event within thirty (30) days after the end of each month, unaudited statements of income and of cash flows for such month, and an unaudited balance sheet as of the end of such month, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);

 

(e)                                   as soon as practicable, but in any event thirty (30) days before the end of each fiscal year, a budget and business plan for the next fiscal year (collectively, the “ Budget ”), approved by the Board of Directors (including the Preferred Director) and prepared on a monthly basis, including balance sheets, income statements, and statements of cash flow for such months and, promptly after prepared, any other budgets or revised budgets prepared by the Company; and

 

(f)                                    such other information relating to the financial condition, business, prospects, or corporate affairs of the Company as any Major Investor may from time to time reasonably request; provided, however , that the Company shall not be obligated under this Section 3.1 to provide information (i) that the Company reasonably determines in good faith to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the Company) or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.

 

If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.

 

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Notwithstanding anything else in this Section 3.1 to the contrary, the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date thirty (30) days before the Company’s good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Company’s covenants under this Section 3.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective. The Company hereby agrees that Nestlé Health Science US Holdings, Inc. and its Affiliates, the Flagship Investors, and the Fidelity Investors shall not be deemed to be a “competitor of the Company” for any purposes under this Agreement, including, without limitation, for the purposes of this Section 3.1 and Section 3.2.

 

3.2                                Inspection; Notice of Certain Events . The Company shall permit each Major Investor (provided that the Board of Directors has not reasonably determined that such Major Investor is a competitor of the Company), at such Major Investor’s expense, to visit and inspect the Company’s properties; examine its books of account and records; and discuss the Company’s affairs, finances, and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Major Investor; provided, however , that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information that it reasonably and in good faith considers to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel. The Company shall provide the Gurnet Point Investor with 30 days’ prior written notice of any dividend or other distribution by the Company to the Company’s stockholders.

 

3.3                                Termination of Information Rights . The covenants set forth in Sections 3.1 and 3.2 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event, as such term is defined in the Company’s Certificate of Incorporation, and the distribution of proceeds to or escrow for the benefit of the Company’s stockholders in accordance with the Certificate of Incorporation, whichever event described in clauses (i) — (iii) occurs first.

 

3.4                                Confidentiality . Each Investor agrees that such Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement or otherwise (including confidential information received prior to the date hereof and notice of the Company’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.4 by such Investor), (b) is or has been independently developed or conceived by the Investor without use of the Company’s confidential information, or (c) is or has been made known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however , that an Investor may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any prospective purchaser of any

 

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Registrable Securities from such Investor, if such prospective purchaser agrees to be bound by the provisions of this Section 3.4; (iii) to any Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; or (iv) as may otherwise be required by law, provided that the Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.

 

4.                                       Rights to Future Stock Issuances .

 

4.1                                Right of First Offer . Subject to the terms and conditions of this Section 4.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company shall first offer such New Securities to each Major Investor. A Major Investor shall be entitled to apportion the right of first offer hereby granted to it among itself and its Affiliates in such proportions as it deems appropriate.

 

(a)                                  The Company shall give notice (the “ Offer Notice ”) to each Major Investor, stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.

 

(b)                                  By notification to the Company within twenty (20) days after the Offer Notice is given, each Major Investor may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held, by such Major Investor bears to the total Common Stock of the Company then outstanding (assuming full conversion and/or exercise, as applicable, of all Preferred Stock and other Derivative Securities). At the expiration of such twenty (20) day period, the Company shall promptly notify each Major Investor that elects to purchase or acquire all the shares available to it (each, a “ Fully Exercising Investor ”) of any other Major Investor’s failure to do likewise. During the ten (10) day period commencing after the Company has given such notice, each Fully Exercising Investor may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of the New Securities for which Major Investors were entitled to subscribe but that were not subscribed for by the Major Investors which is equal to the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of Preferred Stock and any other Derivative Securities then held, by such Fully Exercising Investor bears to the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held, by all Fully Exercising Investors who wish to purchase such unsubscribed shares. The closing of any sale pursuant to this Section 4.1(b) shall occur within the later of one hundred and twenty (120) days after the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Section 4.1(c).

 

(c)                                   If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Section 4.1(b), the Company may, during the ninety

 

18


 

(90) day period following the expiration of the periods provided in Section 4.1(b), offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within thirty (30) days after the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Major Investors in accordance with this Section 4.1.

 

(d)                                  The right of first offer in this Section 4.1 shall not be applicable to (i) Exempted Securities (as defined in the Company’s Certificate of Incorporation); (ii) shares of Common Stock issued in the IPO; and (iii) the issuance of additional shares of Series D Preferred Stock.

 

4.2                                Termination . The covenants set forth in Section 4.1 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO or (ii) upon a Deemed Liquidation Event, as such term is defined in the Company’s Certificate of Incorporation, and the distribution of proceeds to or escrow for the benefit of the Company’s stockholders in accordance with the Certificate of Incorporation, whichever event described in clauses (i) and (ii) occurs first.

 

5.                                       Additional Covenants .

 

5.1                                Insurance . The Company shall use its commercially reasonable efforts to maintain from financially sound and reputable insurers Directors and Officers liability insurance in an amount and on terms and conditions satisfactory to the Board of Directors until such time as the Board of Directors determines that such insurance should be discontinued. The policy shall not be cancelable by the Company without prior approval by the Board of Directors, including the Preferred Director.

 

5.2                                Employee Agreements . The Company will cause (i) each person now or hereafter employed by it or by any subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a nondisclosure and proprietary rights assignment agreement and (ii) each Key Employee to enter into a noncompetition and nonsolicitation agreement, substantially in the form approved by the Board of Directors. In addition, the Company shall not amend, modify, terminate, waive, or otherwise alter, in whole or in part, any of the above-referenced agreements or any restricted stock agreement between the Company and any employee, without the approval of the Board of Directors, including the Preferred Director.

 

5.3                                Employee Stock . Unless otherwise approved by the Board of Directors , including the Preferred Director, all future employees and consultants of the Company who purchase, receive options to purchase, or receive awards of shares of the Company’s capital stock after the date hereof shall be required to execute restricted stock or option agreements, as applicable, providing for (i) vesting of shares over a four (4) year period, with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or service, and the remaining shares vesting in equal quarterly installments over the

 

19


 

remaining three (3) year period, and (ii) a market stand-off provision substantially similar to that in Section 2.11. In addition, unless otherwise approved by the Board of Directors, including the Preferred Director , the Company shall retain a “right of first refusal” on employee transfers until the Company’s IPO and shall have the right to repurchase unvested shares at cost upon termination of employment of a holder of restricted stock.

 

5.4                                Matters Requiring Investor Director Approval . So long as the holders of Preferred Stock are entitled, exclusively as a separate class, to elect one or more Preferred Directors, the Company hereby covenants and agrees with each of the Investors that it shall not, without approval of the Board of Directors, which approval must include the affirmative vote of the Preferred Director:

 

(a)                                  make, or permit any subsidiary to make, any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Company;

 

(b)                                  make, or permit any subsidiary to make, any loan or advance to any Person, including, without limitation, any employee or director of the Company or any subsidiary, except advances and similar expenditures in the ordinary course of business or under the terms of an employee stock or option plan approved by the Board of Directors;

 

(c)                                   guarantee, directly or indirectly, or permit any subsidiary to guarantee, directly or indirectly, any indebtedness except for trade accounts of the Company or any subsidiary arising in the ordinary course of business;

 

(d)                                  make any investment inconsistent with any investment policy approved by the Board of Directors;

 

(e)                                   incur any aggregate indebtedness in excess of $250,000 that is not already included in a budget approved by the Board of Directors, other than trade credit incurred in the ordinary course of business;

 

(f)                                    otherwise enter into or be a party to any transaction with any director, officer, or employee of the Company or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any such Person, except for transactions (i) contemplated by this Agreement and the Purchase Agreement; (ii) resulting in payments to or by the Company in amounts less than $100,000 per year; or (iii) made in the ordinary course of business, pursuant to the reasonable requirements of the Company’s business and upon fair and reasonable terms approved by a majority of the disinterested directors of the Board of Directors;

 

(g)                                   hire, terminate, or change the compensation of any director or executive officer of the Company, including approving or amending the terms of any option grants, stock awards or other equity-based compensation to directors or executive officers;

 

(h)                                  grant or amend the terms of any stock options, stock awards or other equity-based compensation to any employee or consultant of the Company;

 

20


 

(i)                                      change the principal business of the Company, enter new lines of business, or exit the current line of business;

 

(j)                                     sell, assign, license, pledge, or encumber material technology or intellectual property, other than licenses granted in the ordinary course of business;

 

(k)                                  enter into any agreement for the in-license of any material technology or intellectual property; or

 

(l)                                      enter into any corporate strategic relationship involving the payment contribution or assignment by the Company or to the Company of assets with a value in excess of $250,000; or

 

(m)                              amend the Series E Preferred Stock Purchase Agreement, dated as of November 30, 2018, by and among the Company and certain of the Investors listed therein as Purchasers.

 

5.5                                Board Matters; Committees . Unless otherwise determined by the vote of a majority of the directors then in office, the Board of Directors shall meet at least six (6) times per year in accordance with an agreed-upon schedule. The Company shall reimburse the nonemployee directors for all reasonable out-of-pocket travel expenses incurred (consistent with the Company’s travel policy, if any) in connection with attending meetings of the Board of Directors. The Company shall cause to be established, as soon as practicable after such request, and will maintain, an audit and compensation committee, each of which shall consist solely of non-management directors and shall include at least the Preferred Director; provided, that the Preferred Director shall not be required to serve on any such committee to the extent such director is not willing or able to so serve.

 

5.6                                Successor Indemnification . If the Company or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board of Directors as in effect immediately before such transaction, whether such obligations are contained in the Company’s Bylaws, its Certificate of Incorporation, or elsewhere, as the case may be.

 

5.7                                Assignment of Right of First Refusal . In the event the Company elects not to exercise any right of first refusal or right of first offer the Company may have on a proposed transfer of any of the Company’s outstanding capital stock, by contract or otherwise, the Company shall, to the extent it may do so, assign such right of first refusal or right of first offer to each Major Investor. In the event of such assignment, each Major Investor shall have the right, but not the obligation, to purchase up to its pro rata portion of the capital stock proposed to be transferred. For purposes of this Section 5.7, each Major Investor’s pro rata portion shall be determined based on the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held, by such Major Investor bears to the total Common Stock of

 

21


 

the Company then outstanding and held by all Major Investors (assuming full conversion and/or exercise, as applicable, of all Preferred Stock and other Derivative Securities).

 

5.8                                Termination of Covenants . The covenants set forth in this Section 5, except for Section 5.6, shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO or (ii) upon a Deemed Liquidation Event, as such term is defined in the Company’s Certificate of Incorporation, and the distribution of proceeds to or escrow for the benefit of the Company’s stockholders in accordance with the Certificate of Incorporation , whichever event described in clauses (i) and (ii) occurs first.

 

6.                                       Miscellaneous .

 

6.1                                Successors and Assigns . The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that (i) is an Affiliate of a Holder; (ii) is a Holder’s Immediate Family Member or trust for the benefit of an individual Holder or one or more of such Holder’s Immediate Family Members; or (iii) after such transfer, holds at least 150,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations); provided, however, that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Section 2.11. For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (1) that is an Affiliate or stockholder of a Holder; (2) who is a Holder’s Immediate Family Member; or (3) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member shall be aggregated together and with those of the transferring Holder; provided further that all transferees who would not qualify individually for assignment of rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.

 

6.2                                Governing Law . This Agreement and any controversy arising out of or relating to this Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

 

6.3                                Counterparts; Facsimile . This Agreement may be executed and delivered by facsimile transmission or electronic mail (including in .pdf format) and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

22


 

6.4                                Titles and Subtitles . The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.

 

6.5                                Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (i) personal delivery to the party to be notified; (ii) when sent, if sent by electronic mail or facsimile during the recipient’s normal business hours, and if not sent during normal business hours, then on the recipient’s next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth on Schedule A hereto, or to the principal office of the Company and to the attention of the President or Chief Executive Officer, in the case of the Company, or to such email address, facsimile number, or address as subsequently modified by written notice given in accordance with this Section 6.5. If notice is given to the Company, a copy (which shall not constitute notice) shall also be sent to Goodwin Procter LLP, 100 Northern Avenue, Boston, MA 02210, Attn: Kingsley Taft, Fax: (617) 523-1231.

 

6.6                                Amendments and Waivers . Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding; provided that the Company may in its sole discretion waive compliance with Section 2.12(c) (and the Company’s failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Section 2.12(c) shall be deemed to be a waiver); provided further that the definitions of “Fidelity Investor” and “Major Investor”, Sections 2.11, 3 and 4 and this sentence of Section 6.6 of this Agreement may not be amended to reduce or terminate the rights of the Fidelity Investors or their Affiliates thereunder, and the observance of any term of Section 3 may not be waived with respect to the Fidelity Investors or their Affiliates without the prior written consent of the Fidelity Investors; provided further that the definitions of “Flagship Investor” and “Major Investor”, Sections 2.11, 3 and 4 and this sentence of Section 6.6 of this Agreement may not be amended to reduce or terminate the rights of the Flagship Investors or their Affiliates thereunder, and the observance of any term of Section 3 may not be waived with respect to the Flagship Investors or their Affiliates without the prior written consent of the Flagship Investors; provided further that the definitions of “Gurnet Point Investor” and “Major Investor”, Sections 2.11, 3 and 4 and this sentence of Section 6.6 of this Agreement may not be amended to reduce or terminate the rights of the Gurnet Point Investor or its Affiliates thereunder, and the observance of any term of Section 3 may not be waived with respect to the Gurnet Point Investor or its Affiliate without the prior written consent of the Gurnet Point Investor; provided further that the definition of “Major Investor”, Sections 2.11, 3 and 4, and this sentence of Section 6.6 of this Agreement may not be amended to reduce or terminate the rights of Nestlé Health Science US Holdings, Inc. or its Affiliates thereunder, and the observance of any term of Section 3 may not be waived with respect to Nestlé Health Science US Holdings, Inc. or its Affiliates without the prior written consent of Nestlé Health Science US Holdings, Inc.; and provided further that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party. Notwithstanding the foregoing, this

 

23


 

Agreement may not be amended or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, termination, or waiver applies to all Investors in the same fashion (it being agreed that a waiver of the provisions of Section 4 with respect to a particular transaction shall be deemed to apply to all Investors in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Investors may nonetheless, by agreement with the Company, purchase securities in such transaction). The Company shall give prompt notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination, or waiver. Any amendment, termination, or waiver effected in accordance with this Section 6.6 shall be binding on all parties hereto, regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.

 

6.7                                Severability . In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.

 

6.8                                Aggregation of Stock . All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.

 

6.9                                Entire Agreement . This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled. Upon the effectiveness of this Agreement, the Prior Agreement shall be amended, restated superseded and replaced in its entirety by this Agreement.

 

6.10                         Additional Investors . Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of Preferred Stock after the date hereof, any purchaser of such shares of Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed an “Investor” for all purposes hereunder. No action or consent by the Investors shall be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all the obligations as an “Investor” hereunder.

 

6.11                         Dispute Resolution . The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the federal and state courts located within the geographical boundaries of the United States District Court for the District of Massachusetts for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the federal and state courts located within the geographical boundaries of

 

24


 

the United States District Court for the District of Massachusetts, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Each party will bear its own costs in respect of any disputes arising under this Agreement. Each of the parties to this Agreement consents to personal jurisdiction for any equitable action sought in the U.S. District Court for the District of Massachusetts or any court of the Commonwealth of Massachusetts having subject matter jurisdiction.

 

WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION AGREEMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

 

6.12                         Delays or Omissions . No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

 

6.13                         Acknowledgment . The Company acknowledges that the Investors are in the business of venture capital investing and therefore review the business plans and related proprietary information of many enterprises, including enterprises which may have products or services which compete directly or indirectly with those of the Company. Nothing in this Agreement shall preclude or in any way restrict such Investors from investing or participating in any particular enterprise whether or not such enterprise has products or services which compete with those of the Company.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first written above.

 

COMPANY:

AXCELLA HEALTH INC.

 

 

 

 

 

By:

/s/ William R. Hinshaw, Jr.

 

Name:

William R. Hinshaw, Jr.

 

Title:

President and Chief Executive Officer

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

 


 

INVESTORS:

FLAGSHIP VENTURES FUND IV, L.P.

 

 

 

By:

its General Partner

 

 

Flagship Ventures Fund IV General Partner LLC

 

 

 

 

 

By:

/s/ Noubar B. Afeyan, Ph.D.

 

 

Name:

Noubar B. Afeyan, Ph.D.

 

 

Title:

Manager

 

 

FLAGSHIP VENTURES OPPORTUNITIES FUND I, L.P.

 

 

 

By:

its General Partner

 

 

Flagship Ventures Opportunities Fund I General Partner LLC

 

 

 

 

 

By:

/s/ Noubar B. Afeyan, Ph.D.

 

 

Name:

Noubar B. Afeyan, Ph.D.

 

 

Title:

Manager

 

 

FLAGSHIP VENTURES FUND IV-RX, L.P.

 

 

 

By:

its General Partner

 

 

Flagship Ventures Fund IV General Partner LLC

 

 

 

 

 

By:

/s/ Noubar B. Afeyan, Ph.D.

 

 

Name:

Noubar B. Afeyan, Ph.D.

 

 

Title:

Manager

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

 


 

INVESTORS:

FIDELITY SELECT PORTFOLIOS: BIOTECHNOLOGY PORTFOLIO

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY ADVISOR SERIES VII: FIDELITY ADVISOR BIOTECHNOLOGY FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY SECURITIES FUND: FIDELITY BLUE CHIP GROWTH FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY SECURITIES FUND: FIDELITY SERIES BLUE CHIP GROWTH FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIAM TARGET DATE BLUE CHIP GROWTH COMMINGLED POOL

 

 

 

By: Fidelity Institutional Asset Management Trust Company, as Trustee

 

 

 

By:

/s/ Adrien Deberghes

 

Name:

Adrien Deberghes

 

Title:

Authorized Signatory

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

 


 

INVESTORS:

FIDELITY GROWTH COMPANY COMMINGLED POOL

 

 

 

By: Fidelity Management & Trust Co.

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY MT. VERNON STREET TRUST: FIDELITY SERIES GROWTH COMPANY FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY MT. VERNON STREET TRUST: FIDELITY GROWTH COMPANY FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

 


 

INVESTORS:

SMRS-TOPE LLC

 

 

 

By: HVST-TOPE LLC

 

Its Managing Member

 

 

 

By: HarbourVest Partners L.P.

 

Its Manager

 

 

 

By: HarbourVest Partners, LLC

 

Its General Partner

 

 

 

By:

/s/ Ian C. Lane

 

Name:

Ian C. Lane

 

Title:

Managing Director

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

 


 

INVESTORS:

GURNET POINT L.P.

 

 

 

By: Waypoint International GP LLC, its General Partner

 

 

 

By:

/s/ James Singleton

 

Name:

James Singleton

 

Title:

A Manager

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

 


 

INVESTORS:

NESTLÉ HEALTH SCIENCE US HOLDINGS, INC.

 

 

 

By:

/s/ James Pepin

 

Name:

James Pepin

 

Title:

President

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

 


 

INVESTORS:

ALEXANDRIA VENTURE INVESTMENTS, LLC, A DELAWARE LIMITED LIABILITY COMPANY

 

 

 

By: ALEXANDRIA REAL ESTATE EQUITIES, INC, a Maryland corporation, managing member

 

 

 

By:

/s/ Aaron Jacobson

 

Name:

Aaron Jacobson

 

Title:

SVP-Venture Counsel

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

 


 

INVESTORS:

CONTROL EMPRESARIAL DE CAPITALES, S.A. DE C.V.

 

 

 

By:

/s/ Victor Manuel Gutierrez Lopez

 

Name:

Victor Manuel Gutierrez Lopez

 

Title:

Attorney-in-Fact

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT]

 


 

SCHEDULE A

 

INVESTORS

 

Flagship Ventures Fund IV, L.P.

55 Cambridge Pwky, Suite 800e

Cambridge, MA 02142

 

Flagship Ventures Fund 2007, L.P.

55 Cambridge Pwky, Suite 800e

Cambridge, MA 02142

 

Flagship Ventures Fund IV-Rx, L.P.

55 Cambridge Pwky, Suite 800e

Cambridge, MA 02142

 

Flagship Ventures Opportunities Fund I, L.P.

55 Cambridge Pwky, Suite 800e

Cambridge, MA 02142

 

Infoseek Services Limited

Trident Chambers

P.O. Box 146

Road Town, Tortola

British Virgin Islands

 

GHF Inc.

Walkers SPV Limited

Walker House

87 Mary Street

George Town, Grand Cayman KY 1-9002

Cayman Islands

 

Alexandria Venture Investments, LLC

385 E. Colorado Blvd., Ste 299

Pasadena, CA 91101

 

Graham Allison

69 Pinehurst Rd

Belmont, MA 02478

 

Garo H. Armen IRA

c/o Merrill Lynch

2200 Fletcher Avenue

Fort Lee, NJ 07024

Attn: Greg Amerkanian

 

Control Empresarial de Capitales, S.A. de C.V.

Paseo de las Palmas 750

Lomas de Chapultepec

Mexico, D.F., 11000

 

Fidelity Select Portfolios: Biotechnology Portfolio

Brown Brothers Harriman & Co.
525 Washington Blvd

Jersey City NJ 07310

 


 

Attn: Michael Lerman 15th Floor
Corporate Actions

 

Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund

State Street Bank & Trust
PO Box 5756
Boston, Massachusetts 02206
Attn: Bangle & Co fbo Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund

 

Fidelity Securities Fund: Fidelity Blue Chip Growth Fund

M. Gardiner & Co.
C/o JPMorgan Chase Bank, N.A.
PO Box 35308
Newark, N.J. 07101-8006

 

Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund

State Street Bank & Trust
PO Box 5756  
Boston, Massachusetts 02206
Attn: Wavechart & Co fbo Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund

 

FIAM Target Date Blue Chip Growth Commingled Pool

Pyramis Global Advisors Trust Company, as Trustee

State Street Bank & Trust
PO Box 5756  
Boston, Massachusetts 02206
Attn: FLAPPER CO fbo Pyramis Lifecycle Blue Chip Growth Commingled Pool

 

Gurnet Point L.P.

Waypoint Capital Inc.

55 Cambridge Parkway

Suite 401

Cambridge, MA 02142

 

Nestlé Health Science US Holdings, Inc.

 

383 Main Ave 5th Floor

Norwalk, CT 06851

 

AFOS, LLC

55 E 52nd Street

New York, New York 10022”

 

Enso Ventures 2 Limited

Suite C1

Hirzel Court

St. Peter Port

Guernsey

GY1 2 NH

UK

 


 

Fidelity Growth Company Commingled Pool

Fidelity Management & Trust Co.

Mag & Co.

c/o Brown Brothers Harriman & Co.

Attn: Corporate Actions /Vault

140 Broadway

New York, NY 10005

 

Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund

State Street Bank & Trust

PO Box 5756

Boston, Massachusetts 02206

Attn: WAVELENGTH + CO Fidelity Mt. Vernon Street Trust: Fidelity

Series Growth Company Fund

 

Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund

BNY Mellon

Attn: Stacey Wolfe

525 William Penn Place Rm 0400

Pittsburgh, PA 15259

 

SMRS-TOPE LLC

c/o HarbourVest Partners, LLC

One Financial Center, 44th Floor

Boston, MA 02111

Attention: Jackie Peradotto; Alex Brown

Email: jPeradotto@harbourvest.com; abrown@harbourvest.com

 

with copy to:

 

Debevoise & Plimpton LLP

919 Third Avenue

New York, New York 10022

Attention: Edward Drew Dutton

Email: eddutton@debevoise.com

 




Exhibit 4.3

 

AXCELLA HEALTH INC.

 

FIFTH AMENDED AND RESTATED VOTING AGREEMENT

 

This FIFTH AMENDED AND RESTATED VOTING AGREEMENT is made and entered into as of this 30 th  day of November, 2018 by and among Axcella Health Inc., a Delaware corporation (the “ Company ”), each holder of the Company’s Series A Preferred Stock, $0.001 par value per share (“ Series A Preferred Stock ”), each holder of the Company’s Series B Preferred Stock, $0.001 par value per share (“ Series B Preferred Stock ”), each holder of the Company’s Series B-1 Preferred Stock, $0.001 par value per share (“ Series B-1 Preferred Stock ”), each holder of the Company’s Series C Preferred Stock, $0.001 par value per share (‘ Series C Preferred Stock ”), each holder of the Company’s Series D Preferred Stock, $0.001 par value per share (“ Series D Preferred Stock ”), and each holder of the Company’s Series E Preferred Stock, $0.001 par value per share (“ Series E Preferred Stock ” and together with the Series A Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock, and the Series D Preferred Stock, the “ Preferred Stock ”) listed on Schedule A (together with any subsequent transferees who become parties hereto as “Investors” pursuant to Section 7.2 below and any subsequent purchasers of Preferred Stock who become parties hereto as “Investor” pursuant to Section 7.1(a) below, the “ Investors ”) and those certain stockholders of the Company listed on Schedule B (together with any subsequent stockholders, or any transferees, who become parties hereto as “ Key Holders ” pursuant to Sections 7.1 or 7.2 below, the “ Key Holders ”, and together collectively with the Investors, the “ Stockholders ”).

 

RECITALS

 

WHEREAS, the Company, certain of the Investors, and certain of the Key Holders are parties to the Fourth Amended and Restated Voting Agreement, dated as of February 10, 2016, as amended on August 11, 2017 and September 18, 2018 (the “ Prior Agreement ”);

 

WHEREAS, concurrently with the execution of this Agreement, the Company and certain of the Investor(s) are entering into a Series E Preferred Stock Purchase Agreement (as may be amended or restated from time to time, the “ Purchase Agreement ”) providing for the sale of shares of the Company’s Series E Preferred Stock, and in connection with the execution of the Purchase Agreement, the undersigned, constituting the required votes pursuant to Section 7.8 of the Prior Agreement, desire to amend and restate the Prior Agreement to provide the Investors with the right, among other rights, to designate the election of certain members of the board of directors of the Company (the “ Board ”) in accordance with the terms of this Agreement;

 

WHEREAS, the Amended and Restated Certificate of Incorporation of the Company (the “ Restated Certificate ”) provides that (a) the holders of record of the shares of the Company’s Preferred Stock, exclusively and as a single, separate class on an as-converted basis, shall be entitled to elect one (1) director of the Company and (b) the holders of record of the shares of Common Stock and of any other class or series of voting stock (including the Preferred Stock), exclusively and voting together as a single class, shall be entitled to elect the balance of the total number of directors of the Company; and

 

WHEREAS, the parties also desire to enter into this Agreement to set forth their agreements and understandings with respect to voting on an increase in the number of shares of

 


 

the Company’s Common Stock, $0.001 par value per share (“ Common Stock ”), required to provide for the conversion of the Company’s Preferred Stock and how shares of the Company’s capital stock held by them will be voted on, or tendered in connection with, an acquisition of the Company.

 

NOW, THEREFORE, the parties agree as follows:

 

1.                                       Voting Provisions Regarding Board of Directors .

 

1.1                                Size of the Board . Each Stockholder agrees to vote, or cause to be voted, all Shares (as defined below) owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that the size of the Board shall be set and remain at nine (9) directors. For purposes of this Agreement, the term “ Shares ” shall mean and include any securities of the Company the holders of which are entitled to vote for members of the Board, including without limitation, all shares of Common Stock and Preferred Stock, by whatever name called, now owned or subsequently acquired by a Stockholder, however acquired, whether through stock splits, stock dividends, reclassifications, recapitalizations, similar events or otherwise.

 

1.2                                Board Composition . Each Stockholder agrees to vote, or cause to be voted, all Shares owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times in whatever manner as shall be necessary to ensure that at each annual or special meeting of stockholders at which an election of directors is held or pursuant to any written consent of the stockholders, the following persons shall be elected to the Board:

 

(a)                                  For so long as Flagship Ventures Fund IV, L.P. (“ Flagship ”) and its Affiliates continue to own beneficially any shares of Preferred Stock, one (1) individual designated by Flagship (the “ Preferred Director ”), which individual shall initially be David Epstein, to fill the directorship reserved for election by the holders of Preferred Stock, exclusively and as a separate class, pursuant to the Restated Certificate;

 

(b)                               The individual, if any, then serving as the Company’s Chief Executive Officer (the “ CEO Director ”), initially William R. Hinshaw, Jr., provided that if for any reason the CEO Director shall cease to serve as the Chief Executive Officer of the Company, each of the Stockholders shall promptly vote their respective Shares (i) to remove the former Chief Executive Officer from the Board if such person has not resigned as a member of the Board and (ii) to elect such person’s replacement as Chief Executive Officer of the Company as the new CEO Director;

 

(c)                                   Four (4) individuals not otherwise Affiliates (defined below) of the Company or of any Investor (provided, that an individual shall not be deemed to be an Affiliate of the Company or of any Investor solely by virtue of such individual’s ownership of capital stock of the Company), initially Gary Pisano, Dr. Cristina Rondinone, William Baird III, and Stephen Hoge, who possess relevant industry experience and are acceptable to the holders of a majority of the Shares held by the Investors;

 

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(d)                                  For so long as Flagship and its Affiliates continue to own beneficially any shares of capital stock of the Company, one (1) individual designated by Flagship, which individual shall initially be David Berry;

 

(e)                                   One (1) individual acceptable to a majority of the other members of the Board, initially Chris Viehbacher; and

 

(f)                                    For so long as Nestlé Health Science US Holdings, Inc. (“ Nestlé ”) and its Affiliates continues to own at least 1,498,590 shares of Series D Preferred Stock (as adjusted for any stock split, stock dividend, recapitalization, reorganization, or the like), one (1) individual designated by Nestlé and reasonably acceptable to a majority of the other members of the Board (including the Preferred Director), initially Gregory Behar.

 

To the extent that any of clauses (a) through (f) above shall not be applicable, any member of the Board who would otherwise have been designated in accordance with the terms thereof shall instead be voted upon by all the stockholders of the Company entitled to vote thereon in accordance with, and pursuant to, the Company’s Restated Certificate.

 

For purposes of this Agreement, an individual, firm, corporation, partnership, association, limited liability company, trust or any other entity (collectively, a “ Person ”) shall be deemed an “ Affiliate ” of another Person who, directly or indirectly, controls, is controlled by or is under common control with such Person, including, without limitation, any general partner, managing member, officer, director or employee of such Person or any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person. Without limiting the foregoing, Flagship Ventures Fund IV, L.P., Flagship Ventures Fund IV-Rx, L.P., Flagship Ventures Fund 2007, L.P., Flagship Ventures Management, Inc., Flagship VentureLabs IV LLC, and Flagship Ventures Opportunities Fund I, L.P. shall be deemed Affiliates of one another for purposes hereof.

 

1.3                                Failure to Designate a Board Member . In the absence of any designation from the Persons or groups with the right to designate a director as specified above, the director previously designated by them and then serving shall be reelected if still eligible to serve as provided herein.

 

1.4                                Removal of Board Members . Each Stockholder also agrees to vote, or cause to be voted, all Shares owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that:

 

(a)                                  no director elected pursuant to Sections 1.2 or 1.3 of this Agreement may be removed from office other than for cause unless (i) such removal is directed or approved by the affirmative vote of the Person(s), or of the holders of the requisite number and class or series of the shares of stock entitled under Section 1.2 to designate that director or (ii) the Person(s) originally entitled to designate or approve such director pursuant to Section 1.2 is no longer so entitled to designate or approve such director;

 

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(b)                                  any vacancies created by the resignation, removal or death of a director elected pursuant to Sections 1.2 or 1.3 shall be filled pursuant to the provisions of this Section 1; and

 

(c)                                   upon the request of any party or parties entitled to designate a director as provided in Sections 1.2(a), 1.2(c), 1.2(d), 1.2(e), or 1.2(f) to remove such director, such director shall be removed.

 

All Stockholders agree to execute any written consents required to perform the obligations of this Agreement, and the Company agrees at the request of any party entitled to designate directors to call a special meeting of stockholders for the purpose of electing directors.

 

1.5                                No Liability for Election of Recommended Directors . No Stockholder, nor any Affiliate of any Stockholder, shall have any liability as a result of designating a person for election as a director for any act or omission by such designated person in his or her capacity as a director of the Company, nor shall any Stockholder have any liability as a result of voting for any such designee in accordance with the provisions of this Agreement.

 

2.                                       Vote to Increase Authorized Common Stock. Each Stockholder agrees to vote or cause to be voted all Shares owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to increase the number of authorized shares of Common Stock from time to time to ensure that there will be sufficient shares of Common Stock available for conversion of all of the shares of Preferred Stock outstanding at any given time.

 

3.                                       Drag-Along Right .

 

3.1                                Definitions . A “ Sale of the Company ” shall mean either: (a) a transaction or series of related transactions in which a Person, or a group of related Persons (other than Affiliates of stockholders of the Company), acquires from stockholders of the Company shares representing more than fifty percent (50%) of the outstanding voting power of the Company (a “ Stock Sale ”) ; or (b) a transaction that qualifies as a “Deemed Liquidation Event” as defined in the Restated Certificate.

 

3.2                                Actions to be Taken . In the event that (i) the holders of a majority of the outstanding shares of Preferred Stock voting or consenting together as a single class on an as-converted basis (the “ Selling Investors ”) and (ii) the Board of Directors approve a Sale of the Company in writing, specifying that this Section 3 shall apply to such transaction, then each Stockholder hereby agrees:

 

(a)                                  if such transaction requires stockholder approval, with respect to all Shares that such Stockholder owns or over which such Stockholder otherwise exercises voting power, to vote (in person, by proxy or by action by written consent, as applicable) all Shares in favor of, and adopt, such Sale of the Company (together with any related amendment to the Restated Certificate required in order to implement such Sale of the Company) and to vote in opposition to any and all other proposals that could reasonably be expected to delay or impair the ability of the Company to consummate such Sale of the Company;

 

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(b)                                  if such transaction is a Stock Sale, to sell the same proportion of shares of capital stock of the Company beneficially held by such Stockholder as is being sold by the Selling Investors to the Person to whom the Selling Investors propose to sell their Shares, and, except as permitted in Section 3.3 below, on the same terms and conditions as the Selling Investors;

 

(c)                                   to execute and deliver all related documentation and take such other action in support of the Sale of the Company as shall reasonably be requested by the Company or the Selling Investors in order to carry out the terms and provision of this Section 3, including without limitation executing and delivering instruments of conveyance and transfer, and any purchase agreement, merger agreement, indemnity agreement, escrow agreement, consent, waiver, governmental filing, share certificates duly endorsed for transfer (free and clear of impermissible liens, claims and encumbrances) and any similar or related documents;

 

(d)                                  not to deposit, and to cause their Affiliates not to deposit, except as provided in this Agreement, any Shares of the Company owned by such party or Affiliate in a voting trust or subject any Shares to any arrangement or agreement with respect to the voting of such Shares, unless specifically requested to do so by the acquiror in connection with the Sale of the Company;

 

(e)                                   to refrain from exercising any dissenters’ rights or rights of appraisal under applicable law at any time with respect to such Sale of the Company; and

 

(f)                                    if the consideration to be paid in exchange for the Shares pursuant to this Section 3 includes any securities and due receipt thereof by any Stockholder would require under applicable law (i) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities or (ii) the provision to any Stockholder of any information other than such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors” as defined in Regulation D promulgated under the Securities Act of 1933, as amended (the “ Securities Act ”), the Company may cause to be paid to any such Stockholder in lieu thereof, against surrender of the Shares which would have otherwise been sold by such Stockholder, an amount in cash equal to the fair value (as determined in good faith by the Company) of the securities which such Stockholder would otherwise receive as of the date of the issuance of such securities in exchange for the Shares.

 

3.3                                Exceptions . Notwithstanding the foregoing, a Stockholder will not be required to comply with Section 3.2 above in connection with any proposed Sale of the Company (the “ Proposed Sale ”) unless:

 

(a)                                  any representations and warranties to be made by such Stockholder in connection with the Proposed Sale are limited to representations and warranties related to authority, ownership and the ability to convey title to such Shares, including but not limited to representations and warranties that (1) the Stockholder holds all right, title and interest in and to the Shares such Stockholder purports to hold, free and clear of all liens and encumbrances, (2) the obligations of the Stockholder in connection with the transaction have been duly authorized, if applicable, (3) the documents to be entered into by the Stockholder have been duly executed by the Stockholder and delivered to the acquirer and are enforceable against the

 

5


 

Stockholder in accordance with their respective terms and (4) neither the execution and delivery of documents to be entered into in connection with the transaction, nor the performance of the Stockholder’s obligations thereunder, will cause a breach or violation of the terms of any agreement, law or judgment, order or decree of any court or governmental agency applicable to the Stockholder;

 

(b)                                  the Stockholder shall not be liable for the inaccuracy of any representation or warranty made by any other Person in connection with the Proposed Sale, other than the Company (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any stockholder of any of identical representations, warranties and covenants provided by all stockholders);

 

(c)                                   the liability for indemnification, if any, of such Stockholder in the Proposed Sale and for the inaccuracy of any representations and warranties made by the Company or its Stockholders in connection with such Proposed Sale, is several and not joint with any other Person (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any stockholder of any of identical representations, warranties and covenants provided by all stockholders), and is pro rata in proportion to, and does not exceed, the amount of consideration paid to such Stockholder in connection with such Proposed Sale (in accordance with the provisions of the Restated Certificate);

 

(d)                                  liability shall be limited to such Stockholder’s applicable share (determined based on the respective proceeds payable to each Stockholder in connection with such Proposed Sale in accordance with the provisions of the Restated Certificate) of a negotiated aggregate indemnification amount that applies equally to all Stockholders but that in no event exceeds the amount of consideration otherwise payable to such Stockholder in connection with such Proposed Sale, except with respect to claims related to fraud by such Stockholder, the liability for which need not be limited as to such Stockholder;

 

(e)                                   upon the consummation of the Proposed Sale, (1) each holder of each class or series of the Company’s stock will receive the same form of consideration for their shares of such class or series as is received by other holders in respect of their shares of such same class or series of stock, (2) each holder of a series of Preferred Stock will receive the same amount of consideration per share of such series of Preferred Stock as is received by other holders in respect of their shares of such same series, (3) each holder of Common Stock will receive the same amount of consideration per share of Common Stock as is received by other holders in respect of their shares of Common Stock, and (4) unless (A) the Selling Investors elect otherwise with respect to a Proposed Sale for a bona fide business purpose in the interest of the stockholders in which all holders of Preferred Stock are treated fairly (and the holders of any series of Preferred Stock are not treated in a manner disproportionately adverse as compared to the holders of other series of Preferred Stock), including the retention by the Company of some existing assets in a continuing or separate entity that is not transferred to the acquirer and (B) the holders of a majority of the outstanding shares of Series C Preferred Stock elect otherwise respect to such Proposed Sale, the aggregate consideration receivable by all holders of the Preferred Stock and Common Stock shall be allocated among the holders of Preferred Stock and Common Stock on the basis of the relative liquidation preferences to which the holders of each

 

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respective series of Preferred Stock and the holders of Common Stock are entitled in a Deemed Liquidation Event (assuming for this purpose that the Proposed Sale is a Deemed Liquidation Event) in accordance with the Company’s Certificate of Incorporation in effect immediately prior to the Proposed Sale; and

 

(f)                                    subject to clause (e) above, requiring the same form of consideration to be available to the holders of any single class or series of capital stock, if any holders of any capital stock of the Company are given an option as to the form and amount of consideration to be received as a result of the Proposed Sale, all holders of such capital stock will be given the same option.

 

3.4                                Restrictions on Sales of Control of the Company . No Stockholder shall be a party to any Stock Sale unless all holders of Preferred Stock are allowed to participate in such transaction and the consideration received pursuant to such transaction is allocated among the parties thereto in the manner specified in the Company’s Certificate of Incorporation in effect immediately prior to the Stock Sale (as if such transaction were a Deemed Liquidation Event), unless (i) the Selling Investors and (ii) the holders of a majority of the outstanding shares of Series C Preferred Stock elect otherwise by written notice given to the Company at least ten (10) days prior to the effective date of any such transaction or series of related transactions.

 

4.                                       Remedies .

 

4.1                                Covenants of the Company . The Company agrees to use its best efforts, within the requirements of applicable law, to ensure that the rights granted under this Agreement are effective and that the parties enjoy the benefits of this Agreement. Such actions include, without limitation, the use of the Company’s best efforts to cause the nomination and election of the directors as provided in this Agreement.

 

4.2                                Irrevocable Proxy . Except as otherwise provided in this Section 4.2, each party to this Agreement hereby constitutes and appoints the President and Secretary of the Company, and a designee of the Selling Investors, and each of them, with full power of substitution, as the proxies of the party with respect to the matters set forth herein, including without limitation, election of persons as members of the Board in accordance with Section 1 hereto and votes regarding any Sale of the Company pursuant to Section 3 hereof, and hereby authorizes each of them to represent and to vote, if and only if the party (i) fails to vote or (ii) attempts to vote (whether by proxy, in person or by written consent) in a manner which is inconsistent with the terms of this Agreement, all of such party’s Shares in favor of the election of persons as members of the Board determined pursuant to and in accordance with the terms and provisions of this Agreement or of any Sale of the Company pursuant to and in accordance with the terms and provisions of Section 3 of this Agreement. The proxy granted pursuant to the immediately preceding sentence is given in consideration of the agreements and covenants of the Company and the parties in connection with the transactions contemplated by this Agreement and, as such, is coupled with an interest and shall be irrevocable unless and until this Agreement terminates or expires pursuant to Section 6 hereof. Each party hereto hereby revokes any and all previous proxies with respect to the Shares and shall not hereafter, unless and until this Agreement terminates or expires pursuant to Section 6 hereof, purport to grant any other proxy or power of attorney with respect to any of the Shares, deposit any of the Shares into a voting trust or enter into any agreement (other than this Agreement), arrangement or understanding with

 

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any person, directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of any of the Shares, in each case, with respect to any of the matters set forth herein. Notwithstanding anything to the contrary contained herein, this Section 4.2 shall not apply to any of (i) Fidelity Select Portfolios: Biotechnology Portfolio, (ii) Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund, (iii) Fidelity Securities Fund: Fidelity Blue Chip Growth Fund, (iv) Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund, (v) FIAM Target Date Blue Chip Growth Commingled Pool, (vi) Fidelity Growth Company Commingled Pool, (vii) Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund and (viii) Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund (collectively, the “ Fidelity Investors ”), or their Affiliates or related parties, and under no circumstances shall the Fidelity Investors or their Affiliates or related parties be deemed to have granted a proxy pursuant to this Agreement.

 

4.3                                Specific Enforcement . Each party acknowledges and agrees that each party hereto will be irreparably damaged in the event any of the provisions of this Agreement are not performed by the parties in accordance with their specific terms or are otherwise breached. Accordingly, it is agreed that each of the Company and the Stockholders shall be entitled to an injunction to prevent breaches of this Agreement, and to specific enforcement of this Agreement and its terms and provisions in any action instituted in any court of the United States or any state having subject matter jurisdiction.

 

4.4                                Remedies Cumulative . All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

 

5.                                       “Bad Actor” Voting Restrictions . In the event the Company proposes an offering of its securities in reliance on Rule 506 of the Securities Act, the Company intends to conduct an inquiry of all Stockholders that beneficially own 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power (each, a “ 20% Holder ”) as to whether any 20% Holder or any Rule 506(d) Related Party of such 20% Holder is a “bad actor” within the meaning of Rule 506(d) promulgated under the Securities Act (a “ Bad Actor ”). If (a) any 20% Holder fails to provide any requested information to the Company within ten (10) business days of the date of the request therefor or (b) any 20% Holder indicates that it or any Rule 506(d) Related Party of such 20% Holder is a Bad Actor, then, other than in connection with any vote arising under Section 242(b)(2) of the Delaware General Corporation Law, such 20% Holder agrees that it shall not cast any vote in respect of shares of the Company’s capital stock beneficially owned by such 20% Holder that are equal to or in excess of 20% of the Company’s outstanding voting equity securities, calculated on the basis of voting power. Notwithstanding the foregoing, the voting restrictions under this Section 5 shall cease as to a 20% Holder at such time as such 20% Holder certifies or recertifies to the Company that neither it nor any of its Rule 506(d) Related Parties is a Bad Actor. For purposes of this Agreement, “Rule 506(d) Related Party” shall mean a person or entity covered by the “Bad Actor disqualification” provision of Rule 506(d) of the Securities Act.

 

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6.             Term . This Agreement shall be effective as of the date hereof and shall continue in effect until and shall terminate upon the earliest to occur of (a) the consummation of the Company’s first underwritten public offering of its Common Stock (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or an SEC Rule 145 transaction); (b) the consummation of a Sale of the Company and distribution of proceeds to or escrow for the benefit of the Stockholders in accordance with the Restated Certificate, provided that the provisions of Section 3 hereof will continue after the closing of any Sale of the Company to the extent necessary to enforce the provisions of Section 3 with respect to such Sale of the Company; and (c) termination of this Agreement in accordance with Section 7.8 below.

 

7.             Miscellaneous .

 

7.1          Additional Parties .

 

(a)           Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of Preferred Stock after the date hereof, as a condition to the issuance of such shares the Company shall require that any purchaser of such shares of Preferred Stock become a party to this Agreement by executing and delivering (i) the Adoption Agreement attached to this Agreement as Exhibit A , or (ii) a counterpart signature page hereto agreeing to be bound by and subject to the terms of this Agreement as an Investor and Stockholder hereunder. In either event, each such person thereafter shall be deemed an Investor and Stockholder for all purposes under this Agreement. No action or consent by any other Stockholder shall be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all of the obligations as an “Investor” and “Stockholder” hereunder.

 

(b)           In the event that after the date of this Agreement, the Company enters into an agreement with any Person to issue shares of capital stock to such Person, following which such Person shall hold Shares constituting one percent (1%) or more of the Company’s then outstanding capital stock (treating for this purpose all shares of Common Stock issuable upon exercise of or conversion of outstanding options, warrants or convertible securities, as if exercised and/or converted or exchanged), then, the Company shall cause such Person, as a condition precedent to entering into such agreement, to become a party to this Agreement by executing an Adoption Agreement in the form attached hereto as Exhibit A , agreeing to be bound by and subject to the terms of this Agreement as a Stockholder and thereafter such person shall be deemed a Stockholder for all purposes under this Agreement.

 

7.2          Transfers . Each transferee or assignee of any Shares subject to this Agreement shall continue to be subject to the terms hereof, and, as a condition precedent to the Company’s recognizing such transfer, each transferee or assignee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an Adoption Agreement substantially in the form attached hereto as Exhibit A . Upon the execution and delivery of an Adoption Agreement by any transferee, such transferee shall be deemed to be a party hereto as if such transferee were the transferor and such transferee’s signature appeared on the signature pages of this Agreement and shall be deemed to be an Investor and Stockholder, or Key Holder and Stockholder, as applicable. The Company shall not permit the transfer of the Shares subject to this Agreement on its books or issue a new certificate representing any such

 

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Shares unless and until such transferee shall have complied with the terms of this Section 7.2. Each certificate representing the Shares subject to this Agreement if issued on or after the date of this Agreement shall be endorsed by the Company with the legend set forth in Section 7.12.

 

7.3          Successors and Assigns . The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

7.4          Governing Law . This Agreement and any controversy arising out of or relating to this Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

 

7.5          Counterparts; Facsimile . This Agreement may be executed and delivered by facsimile transmission or electronic mail (including in .pdf format) and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

7.6          Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

7.7          Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on Schedule A or Schedule B hereto, or to the principal office of the Company and to the attention of the President or Chief Executive Officer, in the case of the Company, or to such email address, facsimile number, or address as subsequently modified by written notice given in accordance with this Section 7.7. If notice is given to the Company, a copy (which shall not constitute notice) shall also be sent to Goodwin Procter LLP, 100 Northern Avenue, Boston, MA 02210, Attn: Kingsley Taft, Fax: (617) 523-1231.

 

7.8          Consent Required to Amend, Terminate or Waive . This Agreement may be amended or terminated and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument executed by (i) the Company; (ii) the Key Holders holding a majority of the Shares then held by the Key Holders who are then providing services to the Company as officers,

 

10


 

employees or consultants; and (iii) the holders of a majority of the shares of Common Stock issued or issuable upon conversion of the shares of Preferred Stock held by the Investors (voting as a single class and on an as-converted basis). Notwithstanding the foregoing:

 

(a)           this Agreement may not be amended or terminated and the observance of any term of this Agreement may not be waived with respect to any Investor or Key Holder without the written consent of such Investor or Key Holder unless such amendment, termination or waiver applies to all Investors or Key Holders, as the case may be, in the same fashion;

 

(b)           no consent of the Key Holders shall be required for any amendment or waiver if such amendment or waiver either (i) is not directly applicable to the rights of the Key Holders hereunder or (ii) does not adversely affect the rights of the Key Holders in a manner that is different from the effect on the rights of the other parties hereto, it being understood that the addition of new parties as Investors or Key Holders hereunder shall not, in itself, be deemed to be directly applicable to the rights of the Key Holders hereunder or to adversely affect the rights of the Key Holders in a manner that is different from the effect on the rights of the other parties hereto;

 

(c)           any provision hereof may be waived by the waiving party on such party’s own behalf, without the consent of any other party;

 

(d)           Section 1.2(a) and Section 1.2(d) of this Agreement may not be amended or waived without the written consent of Flagship so long as Flagship or its Affiliates continue to hold any shares of Preferred Stock;

 

(e)           Section 4.2 and Section 5 of this Agreement, as they may apply to the Fidelity Investors or their Affiliates or related parties, may not be modified or amended without the prior written consent of the Fidelity Investors, as applicable;

 

(f)            Section 1.2(f) of this Agreement may not be amended or waived without the written consent of Nestlé so long as Nestlé and its Affiliates continue to hold at least 1,498,590 shares of Series D Preferred Stock (as adjusted for any stock split, stock dividend, recapitalization, reorganization, or the like); and

 

(g)           this Agreement shall not be amended in a manner that limits or reduces the exceptions set forth in Section 3.3 hereof to an Investor’s obligations to comply with its obligations in respect of any Proposed Sale, or to otherwise increase its obligations with respect to a Proposed Sale, without the consent of such Investor.

 

The Company shall give prompt written notice of any amendment, termination or waiver hereunder to any party that did not consent in writing thereto. Any amendment, termination or waiver effected in accordance with this Section 7.8 shall be binding on each party and all of such party’s successors and permitted assigns, whether or not any such party, successor or assignee entered into or approved such amendment, termination or waiver.

 

7.9          Delays or Omissions . No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other

 

11


 

party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default previously or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

 

7.10        Severability . The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

 

7.11        Entire Agreement . This Agreement (including the Exhibits hereto), the Restated Certificate and the other Transaction Agreements (as defined in the Purchase Agreement) constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled. Upon the effectiveness of this Agreement, the Prior Agreement shall be amended, restated superseded and replaced in its entirety by this Agreement.

 

7.12        Legend on Share Certificates . Each certificate representing any Shares issued after the date hereof shall be endorsed by the Company with a legend reading substantially as follows:

 

“THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT, AS MAY BE AMENDED OR RESTATED FROM TIME TO TIME, (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF THAT VOTING AGREEMENT, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER AND OWNERSHIP SET FORTH THEREIN.”

 

The Company, by its execution of this Agreement, agrees that it will cause the certificates evidencing the Shares issued after the date hereof to bear the legend required by this Section 7.12, and it shall supply, free of charge, a copy of this Agreement to any holder of a certificate evidencing Shares upon written request from such holder to the Company at its principal office. The parties to this Agreement do hereby agree that the failure to cause the certificates evidencing the Shares to bear the legend required by this Section 7.12 herein and/or the failure of the Company to supply, free of charge, a copy of this Agreement as provided hereunder shall not affect the validity or enforcement of this Agreement.

 

7.13        Stock Splits, Stock Dividends, etc . In the event of any issuance of Shares of the Company’s voting securities hereafter to any of the Stockholders (including, without limitation, in connection with any stock split, stock dividend, recapitalization, reorganization, or

 

12


 

the like), such Shares shall become subject to this Agreement and shall be endorsed with the legend set forth in Section 7.12.

 

7.14        Manner of Voting . The voting of Shares pursuant to this Agreement may be effected in person, by proxy, by written consent or in any other manner permitted by applicable law.

 

7.15        Further Assurances . At any time or from time to time after the date hereof, the parties agree to cooperate with each other, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated hereby and to otherwise carry out the intent of the parties hereunder.

 

7.16        Dispute Resolution . The parties hereby irrevocably and unconditionally submit to the jurisdiction of the federal and state courts located within the geographical boundaries of the United States District Court for the District of Massachusetts for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the federal and state courts located within the geographical boundaries of the United States District Court for the District of Massachusetts, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Each party will bear its own costs in respect of any disputes arising under this Agreement. Each of the parties to this Agreement consents to personal jurisdiction for any equitable action sought in the U.S. District Court for the District of Massachusetts or any court of the Commonwealth of Massachusetts having subject matter jurisdiction.

 

WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION AGREEMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

 

7.17        Costs of Enforcement . If any party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings, the non-prevailing party shall pay all costs and

 

13


 

expenses incurred by the prevailing party, including, without limitation, all reasonable attorneys’ fees.

 

7.18        Aggregation of Stock . All Shares held or acquired by a Stockholder and/or its Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement, and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.

 

7.19        Spousal Consent . If any individual Stockholder is married on the date on which it enters into this Agreement and resides in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin, or the Commonwealth of Puerto Rico, such Stockholder’s spouse shall execute and deliver to the Company a consent of spouse in the form of Exhibit B hereto (“ Consent of Spouse ”), effective on the date on which such Stockholder becomes a party to this Agreement. Notwithstanding the execution and delivery thereof, such consent shall not be deemed to confer or convey to the spouse any rights in such Stockholder’s Shares that do not otherwise exist by operation of law or the agreement of the parties. If any individual Stockholder should marry or remarry subsequent to the date of this Agreement, such Stockholder shall within thirty (30) days thereafter obtain his/her new spouse’s acknowledgement of and consent to the existence and binding effect of all restrictions contained in this Agreement by causing such spouse to execute and deliver a Consent of Spouse acknowledging the restrictions and obligations contained in this Agreement and agreeing and consenting to the same.

 

[Signature Page Follows]

 

14


 

IN WITNESS WHEREOF, the parties have executed this Fifth Amended and Restated Voting Agreement as of the date first written above.

 

COMPANY:

AXCELLA HEALTH INC.

 

 

 

 

 

By:

/s/ William R. Hinshaw, Jr.

 

Name:

William R. Hinshaw, Jr.

 

Title:

President and Chief Executive Officer

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED VOTING AGREEMENT]

 


 

INVESTORS:

FLAGSHIP VENTURES FUND IV, L.P.

 

 

 

By:

its General Partner

 

 

Flagship Ventures Fund IV General Partner LLC

 

 

 

 

 

By:

/s/ Noubar B. Afeyan, Ph.D.

 

 

Name:

Noubar B. Afeyan, Ph.D.

 

 

Title:

Manager

 

 

FLAGSHIP VENTURES OPPORTUNITIES FUND I, L.P.

 

 

 

By:

its General Partner

 

 

Flagship Ventures Opportunities Fund I General Partner LLC

 

 

 

 

 

By:

/s/ Noubar B. Afeyan, Ph.D.

 

 

Name:

Noubar B. Afeyan, Ph.D.

 

 

Title:

Manager

 

 

FLAGSHIP VENTURES FUND IV-RX, L.P.

 

 

 

By:

its General Partner

 

 

Flagship Ventures Fund IV General Partner LLC

 

 

 

 

 

By:

/s/ Noubar B. Afeyan, Ph.D.

 

 

Name:

Noubar B. Afeyan, Ph.D.

 

 

Title:

Manager

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED VOTING AGREEMENT]

 


 

INVESTORS:

FIDELITY SELECT PORTFOLIOS: BIOTECHNOLOGY PORTFOLIO

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY ADVISOR SERIES VII: FIDELITY ADVISOR BIOTECHNOLOGY FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY SECURITIES FUND: FIDELITY BLUE CHIP GROWTH FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY SECURITIES FUND: FIDELITY SERIES BLUE CHIP GROWTH FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIAM TARGET DATE BLUE CHIP GROWTH COMMINGLED POOL

 

 

 

By: Fidelity Institutional Asset Management Trust Company, as Trustee

 

 

 

By:

/s/ Adrien Deberghes

 

Name:

Adrien Deberghes

 

Title:

Authorized Signatory

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED VOTING AGREEMENT]

 


 

INVESTORS:

FIDELITY GROWTH COMPANY COMMINGLED POOL

 

 

 

By: Fidelity Management & Trust Co.

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY MT. VERNON STREET TRUST: FIDELITY SERIES GROWTH COMPANY FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY MT. VERNON STREET TRUST: FIDELITY GROWTH COMPANY FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED VOTING AGREEMENT]

 


 

INVESTORS:

SMRS-TOPE LLC

 

 

 

By: HVST-TOPE LLC

 

Its Managing Member

 

 

 

By: HarbourVest Partners L.P.

 

Its Manager

 

 

 

By: HarbourVest Partners, LLC

 

Its General Partner

 

 

 

By:

/s/ Ian C. Lane

 

Name:

Ian C. Lane

 

Title:

Managing Director

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED VOTING AGREEMENT]

 


 

INVESTORS:

GURNET POINT L.P.

 

 

 

By: Waypoint International GP LLC, its General Partner

 

 

 

By:

/s/ James Singleton

 

Name:

James Singleton

 

Title:

A Manager

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED VOTING AGREEMENT]

 


 

INVESTORS:

NESTLÉ HEALTH SCIENCE US HOLDINGS, INC.

 

 

 

By:

/s/ James Pepin

 

Name:

James Pepin

 

Title:

President

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED VOTING AGREEMENT]

 


 

INVESTORS:

ALEXANDRIA VENTURE INVESTMENTS, LLC, A DELAWARE LIMITED LIABILITY COMPANY

 

 

 

By: ALEXANDRIA REAL ESTATE EQUITIES, INC, a Maryland corporation, managing member

 

 

 

By:

/s/ Aaron Jacobson

 

Name:

Aaron Jacobson

 

Title:

SVP-Venture Counsel

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED VOTING AGREEMENT]

 


 

INVESTORS:

CONTROL EMPRESARIAL DE CAPITALES, S.A. DE C.V.

 

 

 

By:

/s/ Victor Manuel Gutierrez Lopez

 

Name:

Victor Manuel Gutierrez Lopez

 

Title:

Attorney-in-Fact

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED VOTING AGREEMENT]

 


 

SCHEDULE A

 

INVESTORS

 

Flagship Ventures Fund IV, L.P.

55 Cambridge Pwky, Suite 800e

Cambridge, MA 02142

 

Flagship Ventures Fund 2007, L.P.

55 Cambridge Pwky, Suite 800e

Cambridge, MA 02142

 

Flagship Ventures Fund IV-Rx, L.P.

55 Cambridge Pwky, Suite 800e

Cambridge, MA 02142

 

Flagship Ventures Opportunities Fund I, L.P.

55 Cambridge Pwky, Suite 800e

Cambridge, MA 02142

 

Infoseek Services Limited

Trident Chambers

P.O. Box 146

Road Town, Tortola

British Virgin Islands

 

GHF Inc.

Walkers SPV Limited

Walker House

87 Mary Street

George Town, Grand Cayman KY 1-9002

Cayman Islands

 

Alexandria Venture Investments, LLC

385 E. Colorado Blvd., Ste 299

Pasadena, CA 91101

 

Graham Allison

69 Pinehurst Rd

Belmont, MA 02478

 

Garo H. Armen IRA

c/o Merrill Lynch

2200 Fletcher Avenue

Fort Lee, NJ 07024

Attn: Greg Amerkanian

 

Control Empresarial de Capitales, S.A. de C.V.

Paseo de las Palmas 750

Lomas de Chapultepec

Mexico, D.F., 11000

 

Fidelity Select Portfolios: Biotechnology Portfolio

Brown Brothers Harriman & Co.
525 Washington Blvd
Jersey City NJ 07310
Attn: Michael Lerman 15th Floor

 


 

Corporate Actions

 

Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund

State Street Bank & Trust
PO Box 5756
Boston, Massachusetts 02206
Attn: Bangle & Co fbo Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund

 

Fidelity Securities Fund: Fidelity Blue Chip Growth Fund

M. Gardiner & Co.
C/o JPMorgan Chase Bank, N.A.
PO Box 35308
Newark, N.J. 07101-8006

 

Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund

State Street Bank & Trust
PO Box 5756  
Boston, Massachusetts 02206
Attn: Wavechart & Co fbo Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund

 

FIAM Target Date Blue Chip Growth Commingled Pool

Pyramis Global Advisors Trust Company, as Trustee

State Street Bank & Trust
PO Box 5756  
Boston, Massachusetts 02206
Attn: FLAPPER CO fbo Pyramis Lifecycle Blue Chip Growth Commingled Pool

 

Gurnet Point L.P.

Waypoint Capital Inc.

55 Cambridge Parkway

Suite 401

Cambridge, MA 02142

 

Nestlé Health Science US Holdings, Inc.

383 Main Ave 5th Floor

Norwalk, CT 06851

 

AFOS, LLC

55 E 52nd Street

New York, New York 10022”

 

Enso Ventures 2 Limited

Suite C1

Hirzel Court

St. Peter Port

Guernsey

GY1 2 NH

UK

 

Fidelity Growth Company Commingled Pool

Fidelity Management & Trust Co.

Mag & Co.

c/o Brown Brothers Harriman & Co.

Attn: Corporate Actions /Vault

140 Broadway

 


 

New York, NY 10005

 

Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund

State Street Bank & Trust

PO Box 5756

Boston, Massachusetts 02206

Attn: WAVELENGTH + CO Fidelity Mt. Vernon Street Trust: Fidelity

Series Growth Company Fund

 

Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund

BNY Mellon

Attn: Stacey Wolfe

525 William Penn Place Rm 0400

Pittsburgh, PA 15259

 

SMRS-TOPE LLC

c/o HarbourVest Partners, LLC

One Financial Center, 44th Floor

Boston, MA 02111

Attention: Jackie Peradotto; Alex Brown

Email: jPeradotto@harbourvest.com; abrown@harbourvest.com

 

with copy to:

 

Debevoise & Plimpton LLP

919 Third Avenue

New York, New York 10022

Attention: Edward Drew Dutton

Email: eddutton@debevoise.com

 


 

SCHEDULE B

 

KEY HOLDERS

 

Bruce Bistrian

George Church

Robert Connelly

Charles L. Cooney

Peter Hutt

David Berry

Jerry Hjelle Advisor, LLC

Geoff von Maltzahn

Harold McGee

Garry E. Menzel

Jeff Moore

Peter Mueller

Thomas Leggett

Tony Tramontin

Manu Chakravarthy

David Epstein

William Hinshaw

Stephen Mitchener

Paul Fehlner

 


 

EXHIBIT A

 

ADOPTION AGREEMENT

 

This Adoption Agreement (“ Adoption Agreement ”) is executed on                    , 20  , by the undersigned (the “ Holder ”) pursuant to the terms of that certain Fifth Amended and Restated Voting Agreement dated as of November 30, 2018 (the “ Agreement ”), by and among the Company and certain of its Stockholders, as such Agreement may be amended or amended and restated hereafter. Capitalized terms used but not defined in this Adoption Agreement shall have the respective meanings ascribed to such terms in the Agreement. By the execution of this Adoption Agreement, the Holder agrees as follows.

 

1.1                                Acknowledgement . Holder acknowledges that Holder is acquiring certain shares of the capital stock of the Company (the “ Stock ”)[ or options, warrants or other rights to purchase such Stock (the “ Options ”)], for one of the following reasons (Check the correct box):

 

o                                     as a transferee of Shares from a party in such party’s capacity as an “Investor” bound by the Agreement, and after such transfer, Holder shall be considered an “Investor” and a “Stockholder” for all purposes of the Agreement.

 

o                                     as a transferee of Shares from a party in such party’s capacity as a “Key Holder” bound by the Agreement, and after such transfer, Holder shall be considered a “Key Holder” and a “Stockholder” for all purposes of the Agreement.

 

o                                     as a new Investor in accordance with Section 7.1(a)  of the Agreement, in which case Holder will be an “Investor” and a “Stockholder” for all purposes of the Agreement.

 

o                                     in accordance with Section 7.1(b)  of the Agreement, as a new party who is not a new Investor, in which case Holder will be a “Stockholder” for all purposes of the Agreement.

 

1.2                                Agreement . Holder hereby (a) agrees that the Stock [Options], and any other shares of capital stock or securities required by the Agreement to be bound thereby, shall be bound by and subject to the terms of the Agreement and (b) adopts the Agreement with the same force and effect as if Holder were originally a party thereto.

 

1.3                                Notice . Any notice required or permitted by the Agreement shall be given to Holder at the address or facsimile number listed below Holder’s signature hereto.

 

HOLDER:

 

 

ACCEPTED AND AGREED:

 

 

 

By:

 

 

AXCELLA HEALTH INC.

Name and Title of Signatory

 

 

 

 

 

 

Address:

 

 

By:

 

 

 

 

 

 

 

Title:

 

 

 

 

 

Facsimile Number:

 

 

 

 


 

EXHIBIT B

 

CONSENT OF SPOUSE

 

I, [                    ], spouse of [              ], acknowledge that I have read the Fifth Amended and Restated Voting Agreement, dated as of November 30, 2018, to which this Consent is attached as Exhibit B (the “ Agreement ”), and that I know the contents of the Agreement. I am aware that the Agreement contains provisions regarding the voting and transfer of shares of capital stock of the Company that my spouse may own, including any interest I might have therein.

 

I hereby agree that my interest, if any, in any shares of capital stock of the Company subject to the Agreement shall be irrevocably bound by the Agreement and further understand and agree that any community property interest I may have in such shares of capital stock of the Company shall be similarly bound by the Agreement.

 

I am aware that the legal, financial and related matters contained in the Agreement are complex and that I am free to seek independent professional guidance or counsel with respect to this Consent. I have either sought such guidance or counsel or determined after reviewing the Agreement carefully that I will waive such right.

 

Dated:

 

 

 

 

 

 

 

 

[ Name of Key Holder’s Spouse, if any ]

 




Exhibit 4.4

 

AXCELLA HEALTH INC.

 

FIFTH AMENDED AND RESTATED
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 

This FIFTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT is made as of November 30, 2018 by and among Axcella Health Inc., a Delaware corporation (the “ Company ”), the Investors listed on Schedule A and any subsequent purchasers of Preferred Stock who become parties hereto as “Investors” pursuant to Section 6.16 below and the Key Holders listed on Schedule B .

 

WHEREAS, each Key Holder is the beneficial owner of shares of Capital Stock, or of options to purchase Common Stock;

 

WHEREAS, the Company, certain of the Investors, and certain of the Key Holders are parties to the Fourth Amended and Restated Right of First Refusal and Co-Sale Agreement, dated as of February 10, 2016, as amended on August 11, 2017 (the “ Prior Agreement ”);

 

WHEREAS, the Company and certain of the Investor(s) are parties to the Series E Preferred Stock Purchase Agreement, of even date herewith (as may be amended or restated from time to time, the “ Purchase Agreement ”), pursuant to which certain of the Investor(s) have agreed to purchase shares of the Series E Preferred Stock of the Company, par value $0.001 per share (“ Series E Preferred Stock ”); and

 

WHEREAS, the undersigned, constituting the required votes pursuant to Section 6.8 of the Prior Agreement, desire to further induce such Investor(s) to purchase the Series E Preferred Stock by amending and restating the Prior Agreement.

 

NOW, THEREFORE, the Company, the Key Holders and the Investors agree as follows:

 

1.                                       Definitions .

 

Affiliate ” means, with respect to any specified Investor, any other Person who directly or indirectly, controls, is controlled by or is under common control with such Investor, including without limitation any general partner, managing member, officer or director of such Investor, or any venture capital or other investment fund now or hereafter existing which is controlled by one or more general partners or managing members of, or shares the same management company or investment adviser with, such Investor. Without limiting the foregoing, Flagship Ventures Fund IV, L.P., Flagship Ventures Fund IV-Rx, L.P., Flagship Ventures Fund 2007, L.P., Flagship Ventures Management, Inc., Flagship VentureLabs IV LLC, and Flagship Ventures Opportunities Fund I, L.P. shall be deemed Affiliates of one another for purposes hereof.

 

Capital Stock ” means (a) shares of Common Stock and Preferred Stock (whether now outstanding or hereafter issued in any context), (b) shares of Common Stock issued or issuable upon conversion of Preferred Stock and (c) shares of Common Stock issued or issuable upon exercise or conversion, as applicable, of stock options, warrants or other convertible securities of the Company, in each case now owned or subsequently acquired by any Key Holder, any

 


 

Investor, or their respective successors or permitted transferees or assigns. For purposes of the number of shares of Capital Stock held by an Investor or Key Holder (or any other calculation based thereon), all shares of Preferred Stock shall be deemed to have been converted into Common Stock at the then applicable conversion ratio.

 

Common Stock ” means shares of Common Stock of the Company, $0.001 par value per share.

 

Fidelity Investors ” means (i) Fidelity Select Portfolios: Biotechnology Portfolio, (ii) Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund, (iii) Fidelity Securities Fund: Fidelity Blue Chip Growth Fund, (iv) Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund, (v) FIAM Target Date Blue Chip Growth Comingled Pool, (vi) Fidelity Growth Company Comingled Pool, (vii) Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Fund and (viii) Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund.

 

Investor Notice ” means written notice from an Investor notifying the Company and the selling Key Holder that such Investor intends to exercise its Right of First Refusal as to a portion of the Transfer Stock with respect to any Proposed Key Holder Transfer.

 

Investors ” means the Persons named on Schedule A hereto, each Person to whom the rights of an Investor are assigned pursuant to Section 6.9, any Person deemed an Investor pursuant to Section 6.16, and any one of them, as the context may require; provided, however , that any such Person shall cease to be considered an Investor for purposes of this Agreement at any time such Person and his, her or its Affiliates collectively, or, with respect to the Fidelity Investors, the Fidelity Investors collectively, hold fewer than 150,000 shares of Capital Stock (as adjusted for any stock combination, stock split, stock dividend, recapitalization or other similar transaction).

 

Key Holders ” means the Persons named on Schedule B hereto, each Person to whom the rights of a Key Holder are assigned pursuant to Section 3.1, each Person who hereafter becomes a signatory to this Agreement pursuant to Section 6.9 or 6.17 and any one of them, as the context may require.

 

Person ” means an individual, firm, corporation, partnership, association, limited liability company, trust or any other entity.

 

Preferred Stock ” means collectively, all shares of Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock.

 

Proposed Key Holder Transfer ” means any assignment, sale, offer to sell, pledge, mortgage, hypothecation, encumbrance, disposition of or any other like transfer or encumbering of any Transfer Stock (or any interest therein) proposed by any of the Key Holders.

 

Proposed Transfer Notice ” means written notice from a Key Holder setting forth the terms and conditions of a Proposed Key Holder Transfer.

 


 

Prospective Transferee ” means any Person to whom a Key Holder proposes to make a Proposed Key Holder Transfer.

 

Right of Co-Sale ” means the right, but not an obligation, of an Investor to participate in a Proposed Key Holder Transfer on the terms and conditions specified in the Proposed Transfer Notice.

 

Right of First Refusal ” means the right, but not an obligation, of each Investor to purchase up to its pro rata portion (based upon the total number of shares of Capital Stock then held by all Investors) of any Transfer Stock, on the terms and conditions specified in the Proposed Transfer Notice.

 

Series A Preferred Stock ” means Series A Preferred Stock of the Company, $0.001 par value per share.

 

Series B Preferred Stock ” means Series B Preferred Stock of the Company, $0.001 par value per share.

 

Series B-1 Preferred Stock ” means Series B-1 Preferred Stock of the Company, $0.001 par value per share.

 

Series C Preferred Stock ” means Series C Preferred Stock of the Company, $0.001 par value per share.

 

Series D Preferred Stock ” means Series D Preferred Stock of the Company, $0.001 par value per share.

 

Transfer Stock ” means shares of Capital Stock owned by a Key Holder, or issued to a Key Holder after the date hereof (including, without limitation, in connection with any stock split, stock dividend, recapitalization, reorganization, or the like), but does not include any shares of Preferred Stock or Common Stock issued or issuable upon conversion of Preferred Stock.

 

Undersubscription Notice ” means written notice from an Investor notifying the Company and the selling Key Holder that such Investor intends to exercise its option to purchase all or any portion of the Transfer Stock not purchased pursuant to the Right of First Refusal.

 

2.                                       Agreement among the Company, the Investors and the Key Holders .

 

2.1                                Right of First Refusal .

 

(a)                                  Grant of Right of First Refusal to Investors . Subject to the terms of Section 3 below, each Key Holder hereby unconditionally and irrevocably grants to the Investors a Right of First Refusal to purchase all or any portion of the Transfer Stock that such Key Holder may propose to transfer in a Proposed Key Holder Transfer, at the same price and on the same terms and conditions as those offered to the Prospective Transferee.

 

(b)                                  Notice . Each Key Holder proposing to make a Proposed Key Holder Transfer must deliver a Proposed Transfer Notice to the Company and each Investor not

 


 

later than forty-five (45) days prior to the consummation of such Proposed Key Holder Transfer. Such Proposed Transfer Notice shall contain the material terms and conditions (including price and form of consideration) of the Proposed Key Holder Transfer and the identity of the Prospective Transferee and the intended date of the Proposed Key Holder Transfer. To exercise its Right of First Refusal under this Section 2, an Investor must deliver an Investor Notice to the selling Key Holder and the Company within fifteen (15) days after delivery of the Proposed Transfer Notice. In the event of a conflict between this Agreement and any other agreement that may have been entered into by a Key Holder with the Company that contains a preexisting right of first refusal, the Company and the Key Holder acknowledge and agree that the terms of this Agreement shall control, and the Company shall not exercise any preexisting right of first refusal of the Company without the prior written consent of the Investors holding a majority of the shares of Capital Stock (other than Transfer Stock) then held by the Investors.

 

(c)                                   Undersubscription of Transfer Stock . If options to purchase have been exercised by the Investors with respect to some but not all of the Transfer Stock by the end of the 15-day period specified in Section 2.1(b) ) (the “ Investor Notice Period ”), then the Company shall, immediately after the expiration of the Investor Notice Period, send written notice (the “ Company Undersubscription Notice ”) to those Investors who fully exercised their Right of First Refusal within the Investor Notice Period (the “ Exercising Investors ”). Each Exercising Investor shall, subject to the provisions of this Section 2.1(c) , have an additional option to purchase all or any part of the balance of any such remaining unsubscribed shares of Transfer Stock on the terms and conditions set forth in the Proposed Transfer Notice. To exercise such option, an Exercising Investor must deliver an Undersubscription Notice to the selling Key Holder and the Company within ten (10) days after the expiration of the Investor Notice Period. In the event there are two or more such Exercising Investors that choose to exercise the last-mentioned option for a total number of remaining shares in excess of the number available, the remaining shares available for purchase under this Section 2.1(c)  shall be allocated to such Exercising Investors pro rata based on the number of shares of Transfer Stock such Exercising Investors have elected to purchase pursuant to the Right of First Refusal (without giving effect to any shares of Transfer Stock that any such Exercising Investor has elected to purchase pursuant to the Company Undersubscription Notice). If the options to purchase the remaining shares are exercised in full by the Exercising Investors, the Company shall immediately notify all of the Exercising Investors and the selling Key Holder of that fact.

 

(d)                                  Consideration; Closing . If the consideration proposed to be paid for the Transfer Stock is in property, services or other non-cash consideration, the fair market value of the consideration shall be as determined in good faith by the Company’s Board of Directors. If any Investor cannot for any reason pay for the Transfer Stock in the same form of non-cash consideration, such Investor may pay the cash value equivalent thereof, as determined in good faith by the Board of Directors. The closing of the purchase of Transfer Stock by the Investors shall take place, and all payments from the Investors shall have been delivered to the selling Key Holder, by the later of (i) the date specified in the Proposed Transfer Notice as the intended date of the Proposed Key Holder Transfer and (ii) forty-five (45) days after delivery of the Proposed Transfer Notice.

 


 

2.2                                Right of Co-Sale .

 

(a)                                  Exercise of Right . If any Transfer Stock subject to a Proposed Key Holder Transfer is not purchased pursuant to Section 2.1 above and thereafter is to be sold to a Prospective Transferee, each respective Investor may elect to exercise its Right of Co-Sale and participate on a pro rata basis in the Proposed Key Holder Transfer as set forth in Section 2.2(b) below and otherwise on the same terms and conditions specified in the Proposed Transfer Notice ( provided that if an Investor wishes to sell Preferred Stock, the price set forth in the Proposed Transfer Notice shall be appropriately adjusted based on the conversion ratio of the Preferred Stock into Common Stock). Each Investor who desires to exercise its Right of Co-Sale must give the selling Key Holder written notice to that effect within fifteen (15) days after the expiration of the Investor Notice Period described above, and upon giving such notice such Investor shall be deemed to have effectively exercised the Right of Co-Sale.

 

(b)                                  Shares Includable . Each Investor who timely exercises such Investor’s Right of Co-Sale by delivering the written notice provided for above in Section 2.2(a) may include in the Proposed Key Holder Transfer all or any part of such Investor’s Capital Stock equal to the product obtained by multiplying (i) the aggregate number of shares of Transfer Stock subject to the Proposed Key Holder Transfer (excluding shares purchased by the Investors pursuant to the Right of First Refusal) by (ii) a fraction, the numerator of which is the number of shares of Capital Stock owned by such Investor immediately before consummation of the Proposed Key Holder Transfer (including any shares that such Investor has agreed to purchase pursuant to the Right of First Refusal but excluding any Transfer Stock) and the denominator of which is the total number of shares of Capital Stock owned, in the aggregate, by all Investors immediately prior to the consummation of the Proposed Key Holder Transfer (including any shares that all Investors have collectively agreed to purchase pursuant to the Right of First Refusal but excluding any Transfer Stock), plus, without duplication, the number of shares of Transfer Stock held by the selling Key Holder. To the extent one or more of the Investors exercise such right of participation in accordance with the terms and conditions set forth herein, the number of shares of Transfer Stock that the selling Key Holder may sell in the Proposed Key Holder Transfer shall be correspondingly reduced.

 

(c)                                   Delivery of Certificates . Each Investor shall effect its participation in the Proposed Key Holder Transfer by delivering to the transferring Key Holder, no later than fifteen (15) days after such Investor’s exercise of the Right of Co-Sale, one or more stock certificates, properly endorsed for transfer to the Prospective Transferee, representing:

 

(i)                                      the number of shares of Common Stock that such Investor elects to include in the Proposed Key Holder Transfer; or

 

(ii)                                   the number of shares of Preferred Stock that is at such time convertible into the number of shares of Common Stock that such Investor elects to include in the Proposed Key Holder Transfer; provided, however , that if the Prospective Transferee objects to the delivery of convertible Preferred Stock in lieu of Common Stock, such Investor shall first convert the Preferred Stock into Common Stock and deliver Common Stock as provided above. The Company agrees to make any such conversion concurrent with and contingent upon the actual transfer of such shares to the Prospective Transferee.

 


 

(d)                                  Purchase Agreement . The parties hereby agree that the terms and conditions of any sale pursuant to this Section 2.2 will be memorialized in, and governed by, a written purchase and sale agreement with customary terms and provisions for such a transaction and the parties further covenant and agree to enter into such an agreement as a condition precedent to any sale or other transfer pursuant to this Section 2.2.

 

(e)                                   Deliveries . Each stock certificate an Investor delivers to the selling Key Holder pursuant to Section 2.2(c) above will be transferred to the Prospective Transferee against payment therefor in consummation of the sale of the Transfer Stock pursuant to the terms and conditions specified in the Proposed Transfer Notice and the purchase and sale agreement, and the selling Key Holder shall concurrently therewith remit or direct payment to each Investor the portion of the sale proceeds to which such Investor is entitled by reason of its participation in such sale. If any Prospective Transferee or Transferees refuse(s) to purchase securities subject to the Right of Co-Sale from any Investor exercising its Right of Co-Sale hereunder, no Key Holder may sell any Transfer Stock to such Prospective Transferee or Transferees unless and until, simultaneously with such sale, such Key Holder purchases all securities subject to the Right of Co-Sale from such Investor on the same terms and conditions (including the proposed purchase price) as set forth in the Proposed Transfer Notice.

 

(f)                                    Additional Compliance . If any Proposed Key Holder Transfer is not consummated within forty-five (45) days after receipt of the Proposed Transfer Notice by the Company, the Key Holders proposing the Proposed Key Holder Transfer may not sell any Transfer Stock unless they first comply in full with each provision of this Section 2. The exercise or election not to exercise any right by any Investor hereunder shall not adversely affect its right to participate in any other sales of Transfer Stock subject to this Section 2.2.

 

2.3                                Effect of Failure to Comply .

 

(a)                                  Transfer Void; Equitable Relief . Any Proposed Key Holder Transfer not made in compliance with the requirements of this Agreement shall be null and void ab initio , shall not be recorded on the books of the Company or its transfer agent and shall not be recognized by the Company. Each party hereto acknowledges and agrees that any breach of this Agreement would result in substantial harm to the other parties hereto for which monetary damages alone could not adequately compensate. Therefore, the parties hereto unconditionally and irrevocably agree that any non-breaching party hereto shall be entitled to seek protective orders, injunctive relief and other remedies available at law or in equity (including, without limitation, seeking specific performance or the rescission of purchases, sales and other transfers of Transfer Stock not made in strict compliance with this Agreement).

 

(b)                                  Violation of First Refusal Right . If any Key Holder becomes obligated to sell any Transfer Stock to any Investor under this Agreement and fails to deliver such Transfer Stock in accordance with the terms of this Agreement, such Investor may, at its option, in addition to all other remedies it may have, send to such Key Holder the purchase price for such Transfer Stock as is herein specified and transfer to the name of such Investor (or request that the Company effect such transfer in the name of an Investor) on the Company’s books the certificate or certificates representing the Transfer Stock to be sold.

 


 

(c)                                   Violation of Co-Sale Right . If any Key Holder purports to sell any Transfer Stock in contravention of the Right of Co-Sale (a “ Prohibited Transfer ”), each Investor who desires to exercise its Right of Co-Sale under Section 2.2 may, in addition to such remedies as may be available by law, in equity or hereunder, require such Key Holder to purchase from such Investor the type and number of shares of Capital Stock that such Investor would have been entitled to sell to the Prospective Transferee under Section 2.2 had the Prohibited Transfer been effected pursuant to and in compliance with the terms of Section 2.2. The sale will be made on the same terms and subject to the same conditions as would have applied had the Key Holder not made the Prohibited Transfer, except that the sale (including, without limitation, the delivery of the purchase price) must be made within ninety (90) days after the Investor learns of the Prohibited Transfer, as opposed to the timeframe proscribed in Section 2.2. Such Key Holder shall also reimburse each Investor for any and all reasonable and documented out-of-pocket fees and expenses, including reasonable legal fees and expenses, incurred pursuant to the exercise or the attempted exercise of the Investor’s rights under Section 2.2.

 

3.                                       Exempt Transfers .

 

3.1                                Exempted Transfers . Notwithstanding the foregoing or anything to the contrary herein, the provisions of Sections 2.1 and 2.2 shall not apply: (a) in the case of a Key Holder that is an entity, upon a transfer by such Key Holder to its stockholders, members, partners or other equity holders, (b) to a repurchase of Transfer Stock from a Key Holder by the Company at a price no greater than that originally paid by such Key Holder for such Transfer Stock and pursuant to an agreement containing vesting and/or repurchase provisions approved by the Board of Directors, (c) in the case of a Key Holder that is a natural person, upon a transfer of Transfer Stock by such Key Holder made for bona fide estate planning purposes, either during his or her lifetime or on death by will or intestacy to his or her spouse, child (natural or adopted), or any other direct lineal descendant of such Key Holder (or his or her spouse) (all of the foregoing collectively referred to as “family members”), or any custodian or trustee of any trust, partnership or limited liability company for the benefit of, or the ownership interests of which are owned wholly by, such Key Holder or any such family members or (d) to a transfer of Transfer Stock to any other Person approved by the Company’s Board of Directors, including the Preferred Director (as defined in the Company’s Certificate of Incorporation); provided that in the case of clauses (a), (c) or (d), the Key Holder shall deliver prior written notice to the Investors of such pledge, gift or transfer and such shares of Transfer Stock shall at all times remain subject to the terms and restrictions set forth in this Agreement and such transferee shall, as a condition to such issuance, deliver a counterpart signature page to this Agreement as confirmation that such transferee shall be bound by all the terms and conditions of this Agreement as a Key Holder (but only with respect to the securities so transferred to the transferee), including the obligations of a Key Holder with respect to Proposed Key Holder Transfers of such Transfer Stock pursuant to Section 2; and provided, further , in the case of any transfer pursuant to clause (a) or (c) above, that such transfer is made pursuant to a transaction in which there is no consideration actually paid for such transfer.

 

3.2                                Exempted Offerings . Notwithstanding the foregoing or anything to the contrary herein, the provisions of Section 2 shall not apply to the sale of any Transfer Stock (a) to the public in an offering pursuant to an effective registration statement under the Securities

 


 

Act of 1933, as amended, or (b) pursuant to a Deemed Liquidation Event (as defined in the Company’s Certificate of Incorporation).

 

3.3                                Prohibited Transferees . Notwithstanding the foregoing, no Key Holder shall transfer any Transfer Stock to (a) any entity which, in the determination of the Company’s Board of Directors, directly or indirectly competes with the Company or (b) any customer, distributor or supplier of the Company, if the Company’s Board of Directors should determine that such transfer would result in such customer, distributor or supplier receiving information that would place the Company at a competitive disadvantage with respect to such customer, distributor or supplier.

 

4.                                       Legend . Each certificate representing shares of Transfer Stock held by the Key Holders or issued to any permitted transferee in connection with a transfer permitted by Section 3.1(a) hereof shall be endorsed with the following legend:

 

THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO, AND IN CERTAIN CASES PROHIBITED BY, THE TERMS AND CONDITIONS OF A CERTAIN RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT BY AND AMONG THE STOCKHOLDER, THE CORPORATION AND CERTAIN OTHER HOLDERS OF STOCK OF THE CORPORATION, AS MAY BE AMENDED OR RESTATED FROM TIME TO TIME. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.

 

Each Key Holder agrees that the Company may instruct its transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in this Section 4 above to enforce the provisions of this Agreement, and the Company agrees to promptly do so. The legend shall be removed upon termination of this Agreement at the request of the holder.

 

5.                                       Lock-Up .

 

5.1                                Agreement to Lock-Up . Each Key Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the registration by the Company of shares of Common Stock in its initial public offering (the “ IPO ”), and ending on the date specified by the Company and the managing underwriter (such period not to exceed l80 days), which period may be extended upon the request of the managing underwriter, to the extent required by any FINRA rules, for an additional period of up to fifteen (15) days if the Company issues or proposes to issue an earnings or other public release within fifteen (15) days of the expiration of the 180-day lock-up period) (a) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Capital Stock held immediately prior to the effectiveness of the registration statement for the IPO or (b) enter into

 


 

any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Capital Stock, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of Capital Stock or other securities, in cash or otherwise. The foregoing provisions of this Section 5 shall not apply to (i) the sale of any shares to an underwriter pursuant to an underwriting agreement, (ii) any shares purchased in the IPO, or (iii) any shares purchased in open market transactions following the IPO, and shall only be applicable to the Key Holders if all officers and directors are subject to the same restrictions and the Company uses commercially reasonable efforts to obtain a similar agreement from all stockholders individually owning more than one percent (1%) of the Company’s outstanding Common Stock (after giving effect to the conversion into Common Stock of all outstanding shares of the Company’s preferred stock). The underwriters in connection with the IPO are intended third party beneficiaries of this Section 5 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Key Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the IPO that are consistent with this Section 5 or that are necessary to give further effect thereto.

 

5.2                                Stop Transfer Instructions . In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the shares of Capital Stock of each Key Holder (and transferees and assignees thereof) until the end of such restricted period.

 

6.                                       Miscellaneous .

 

6.1                                Term . This Agreement shall automatically terminate upon the earlier of (a) immediately prior to the consummation of the Company’s IPO and (b) the consummation of a Deemed Liquidation Event (as defined in the Company’s Certificate of Incorporation).

 

6.2                                Stock Split . All references to numbers of shares in this Agreement shall be appropriately adjusted to reflect any stock dividend, split, combination or other recapitalization affecting the Capital Stock occurring after the date of this Agreement.

 

6.3                                Ownership . Each Key Holder represents and warrants that such Key Holder is the sole legal and beneficial owner of the shares of Transfer Stock subject to this Agreement and that no other person or entity has any interest in such shares (other than (a) a community property interest as to which the holder thereof has acknowledged and agreed in writing to the restrictions and obligations hereunder and (b) the Company pursuant to pledges granted by Key Holders in connection with share purchase loans from the Company).

 

6.4                                Dispute Resolution . The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of the Commonwealth of Massachusetts and to the jurisdiction of the United States District Court for the District of Massachusetts for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of the Commonwealth of Massachusetts or the United States District Court for the District of Massachusetts, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution,

 


 

that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Each party will bear its own costs in respect of any disputes arising under this Agreement. Each of the parties to this Agreement consents to personal jurisdiction for any equitable action sought in the U.S. District Court for the District of Massachusetts or any court of the Commonwealth of Massachusetts having subject matter jurisdiction.

 

WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION AGREEMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

 

6.5                                Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on Schedule A or Schedule B hereof, as the case may be, or to such email address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 6.5. If notice is given to the Company, it shall be sent to the attention of the Company’s President or Chief Executive Officer, at the principal offices of the Company, and a copy (which shall not constitute notice) shall also be sent to Goodwin Procter LLP, 100 Northern Avenue, Boston, MA 02210, Attn: Kingsley Taft, Fax: (617) 523-1231.

 

6.6                                Entire Agreement . This Agreement (including the Exhibits and Schedules hereto) constitutes the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties are expressly canceled. Upon the effectiveness of this Agreement, the Prior Agreement shall be amended, restated superseded and replaced in its entirety by this Agreement.

 


 

6.7                                Delays or Omissions . No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

 

6.8                                Amendment; Waiver and Termination . This Agreement may be amended, modified or terminated (other than pursuant to Section 6.1 above) and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument executed by (a) the Company, (b) the Key Holders holding a majority of the shares of Transfer Stock then held by all of the Key Holders who are then providing services to the Company as officers, employees or consultants and (c) the holders of a majority of the shares of Common Stock issued or issuable upon conversion of the then outstanding shares of Preferred Stock held by the Investors (voting as a single class and on an as-converted basis). Any amendment, modification, termination or waiver so effected shall be binding upon the Company, the Investors, the Key Holders and all of their respective successors and permitted assigns whether or not such party, assignee or other stockholder entered into or approved such amendment, modification, termination or waiver. Notwithstanding the foregoing, (i) this Agreement may not be amended, modified or terminated and the observance of any term hereunder may not be waived with respect to any Investor (including the Fidelity Investors or their Affiliates) or Key Holder without the written consent of such Investor (including the Fidelity Investors or their Affiliates) or Key Holder unless such amendment, modification, termination or waiver applies to all Investors (including the Fidelity Investors or their Affiliates) and Key Holders, respectively, in the same fashion, (ii) the consent of the Key Holders shall not be required for any amendment, modification, termination or waiver if such amendment, modification, termination or waiver is not directly applicable to the rights or obligations of the Key Holders hereunder (it being understood that the addition of new parties as Investors or Key Holders hereunder shall not, in itself, be deemed to be directly applicable to the rights or obligations of the Key Holders hereunder), and (iii)  Schedule B hereto may be amended by the Company from time to time to include additional Key Holders who become a party hereto in accordance with the terms set forth in Section 6.17 without the consent of the other parties hereto. The Company shall give prompt written notice of any amendment, modification or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, modification, termination or waiver. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.

 

6.9                                Assignment of Rights .

 

(a)                                  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties.

 


 

Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

(b)                                  Any successor or permitted assignee of any Key Holder, including any Prospective Transferee who purchases shares of Transfer Stock in accordance with the terms hereof, shall deliver to the Company and the Investors, as a condition to any transfer or assignment, a counterpart signature page hereto pursuant to which such successor or permitted assignee shall confirm their agreement to be subject to and bound by all of the provisions set forth in this Agreement that were applicable to the predecessor or assignor of such successor or permitted assignee.

 

(c)                                   The rights of the Investors hereunder are not assignable without the Company’s written consent (which shall not be unreasonably withheld, delayed or conditioned), except (i) by an Investor to any Affiliate or (ii) to an assignee or transferee who acquires at least 150,000 shares of Capital Stock (as adjusted for any stock combination, stock split, stock dividend, recapitalization or other similar transaction), it being acknowledged and agreed that any such assignment, including an assignment contemplated by the preceding clauses (i) or (ii) shall be subject to and conditioned upon any such assignee’s delivery to the Company and the other Investors of a counterpart signature page hereto pursuant to which such assignee shall confirm their agreement to be subject to and bound by all of the provisions set forth in this Agreement that were applicable to the assignor of such assignee.

 

(d)                                  Except in connection with an assignment by the Company by operation of law to the acquirer of the Company, the rights and obligations of the Company hereunder may not be assigned under any circumstances.

 

6.10                         Severability . The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.

 

6.11                         Governing Law . This Agreement and any controversy arising out of or relating to this Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the Commonwealth of Massachusetts.

 

6.12                         Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

6.13                         Counterparts; Facsimile . This Agreement may be executed and delivered by facsimile transmission or electronic mail (including in .pdf format) and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 


 

6.14                         Aggregation of Stock . All shares of Capital Stock held or acquired by Affiliated entities or Persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.

 

6.15                         Specific Performance . In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, each Investor shall be entitled to specific performance of the agreements and obligations of the Company and the Key Holders hereunder and to such other injunction or other equitable relief as may be granted by a court of competent jurisdiction.

 

6.16                         Additional Investors . Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of Preferred Stock, any purchaser of such shares of Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and thereafter shall be deemed an “Investor” for all purposes hereunder. No action or consent by any Investor or Key Holder shall be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all of the obligations as an “Investor” hereunder.

 

6.17                         Additional Key Holders . In the event that after the date of this Agreement, the Company issues shares of Common Stock, or options to purchase Common Stock, to any employee or consultant, which shares or options would collectively constitute with respect to such employee or consultant (taking into account all shares of Common Stock, options and other purchase rights held by such employee or consultant) one percent (1%) or more of the Company’s then outstanding Common Stock (treating for this purpose all shares of Common Stock issuable upon exercise of or conversion of outstanding options, warrants or convertible securities, as if exercised or converted), the Company shall, as a condition to such issuance, cause such employee or consultant to execute a counterpart signature page hereto as a Key Holder, and such person shall thereby be bound by, and subject to, all the terms and provisions of this Agreement applicable to a Key Holder.

 

6.18                         Consent of Spouse . If any Key Holder is married on the date on which it enters into this Agreement and resides in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin, or the Commonwealth of Puerto Rico, such Key Holder’s spouse shall execute and deliver to the Company a consent of spouse in the form of Exhibit A hereto (“ Consent of Spouse ”), effective on the date hereof. Notwithstanding the execution and delivery thereof, such consent shall not be deemed to confer or convey to the spouse any rights in such Key Holder’s shares of Transfer Stock that do not otherwise exist by operation of law or the agreement of the parties. If any Key Holder should marry or remarry subsequent to the date of this Agreement, such Key Holder shall within thirty (30) days thereafter obtain his/her new spouse’s acknowledgement of and consent to the existence and binding effect of all restrictions contained in this Agreement by causing such spouse to execute and deliver a Consent of Spouse acknowledging the restrictions and obligations contained in this Agreement and agreeing and consenting to the same.

 


 

[Remainder of Page Intentionally Left Blank]

 


 

IN WITNESS WHEREOF, the parties have executed this Fifth Amended and Restated Right of First Refusal and Co-Sale Agreement as of the date first written above.

 

COMPANY:

AXCELLA HEALTH INC.

 

 

 

 

 

By:

/s/ William R. Hinshaw, Jr.

 

Name:

William R. Hinshaw, Jr.

 

Title:

President and Chief Executive Officer

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT]

 


 

INVESTORS:

FLAGSHIP VENTURES FUND IV, L.P.

 

 

 

By:

its General Partner

 

 

Flagship Ventures Fund IV General Partner LLC

 

 

 

 

 

By:

/s/ Noubar B. Afeyan, Ph.D.

 

 

Name:

Noubar B. Afeyan, Ph.D.

 

 

Title:

Manager

 

 

FLAGSHIP VENTURES OPPORTUNITIES FUND I, L.P.

 

 

 

By:

its General Partner

 

 

Flagship Ventures Opportunities Fund I General Partner LLC

 

 

 

 

 

By:

/s/ Noubar B. Afeyan, Ph.D.

 

 

Name:

Noubar B. Afeyan, Ph.D.

 

 

Title:

Manager

 

 

FLAGSHIP VENTURES FUND IV-RX, L.P.

 

 

 

By:

its General Partner

 

 

Flagship Ventures Fund IV General Partner LLC

 

 

 

 

 

By:

/s/ Noubar B. Afeyan, Ph.D.

 

 

Name:

Noubar B. Afeyan, Ph.D.

 

 

Title:

Manager

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT]

 


 

INVESTORS:

FIDELITY SELECT PORTFOLIOS:

 

BIOTECHNOLOGY PORTFOLIO

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY ADVISOR SERIES VII: FIDELITY

 

ADVISOR BIOTECHNOLOGY FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY SECURITIES FUND: FIDELITY BLUE CHIP GROWTH FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY SECURITIES FUND: FIDELITY SERIES BLUE CHIP GROWTH FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIAM TARGET DATE BLUE CHIP GROWTH COMMINGLED POOL

 

 

 

By: Fidelity Institutional Asset Management Trust Company, as Trustee

 

 

 

By:

/s/ Adrien Deberghes

 

Name:

Adrien Deberghes

 

Title:

Authorized Signatory

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT]

 


 

INVESTORS:

FIDELITY GROWTH COMPANY COMMINGLED POOL

 

 

 

By: Fidelity Management & Trust Co.

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY MT. VERNON STREET TRUST: FIDELITY SERIES GROWTH COMPANY FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

 

FIDELITY MT. VERNON STREET TRUST: FIDELITY GROWTH COMPANY FUND

 

 

 

By:

/s/ Colm Hogan

 

Name:

Colm Hogan

 

Title:

Authorized Signatory

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT]

 


 

INVESTORS:

SMRS-TOPE LLC

 

 

 

By: HVST-TOPE LLC

 

Its Managing Member

 

 

 

By: HarbourVest Partners L.P.

 

Its Manager

 

 

 

By: HarbourVest Partners, LLC

 

Its General Partner

 

 

 

By:

/s/ Ian C. Lane

 

Name:

Ian C. Lane

 

Title:

Managing Director

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT]

 


 

INVESTORS:

GURNET POINT L.P.

 

 

 

By: Waypoint International GP LLC, its General Partner

 

 

 

By:

/s/ James Singleton

 

Name:

James Singleton

 

Title:

A Manager

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT]

 


 

INVESTORS:

NESTLÉ HEALTH SCIENCE US HOLDINGS, INC.

 

 

 

By:

/s/ James Pepin

 

Name:

James Pepin

 

Title:

President

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT]

 


 

INVESTORS:

ALEXANDRIA VENTURE INVESTMENTS, LLC,

 

A DELAWARE LIMITED LIABILITY COMPANY

 

 

 

By: ALEXANDRIA REAL ESTATE EQUITIES, INC, a Maryland corporation, managing member

 

 

 

By:

/s/ Aaron Jacobson

 

Name:

Aaron Jacobson

 

Title:

SVP-Venture Counsel

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT]

 


 

INVESTORS:

CONTROL EMPRESARIAL DE CAPITALES, S.A. DE C.V.

 

 

 

By:

/s/ Victor Manuel Gutierrez Lopez

 

Name:

Victor Manuel Gutierrez Lopez

 

Title:

Attorney-in-Fac

 

[SIGNATURE PAGE TO FIFTH AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT]

 


 

SCHEDULE A

 

INVESTORS

 

Flagship Ventures Fund IV, L.P.

55 Cambridge Pwky, Suite 800e

Cambridge, MA 02142

 

Flagship Ventures Fund 2007, L.P.

55 Cambridge Pwky, Suite 800e

Cambridge, MA 02142

 

Flagship Ventures Fund IV-Rx, L.P.

55 Cambridge Pwky, Suite 800e

Cambridge, MA 02142

 

Flagship Ventures Opportunities Fund I, L.P.

55 Cambridge Pwky, Suite 800e

Cambridge, MA 02142

 

Infoseek Services Limited

Trident Chambers

P.O. Box 146

Road Town, Tortola

British Virgin Islands

 

GHF Inc.

Walkers SPV Limited

Walker House

87 Mary Street

George Town, Grand Cayman KY 1-9002

Cayman Islands

 

Alexandria Venture Investments, LLC

385 E. Colorado Blvd., Ste 299

Pasadena, CA 91101

 

Graham Allison

69 Pinehurst Rd

Belmont, MA 02478

 

Garo H. Armen IRA

c/o Merrill Lynch

2200 Fletcher Avenue

Fort Lee, NJ 07024

Attn: Greg Amerkanian

 

Control Empresarial de Capitales, S.A. de C.V.

Paseo de las Palmas 750

Lomas de Chapultepec

Mexico, D.F., 11000

 

Fidelity Select Portfolios: Biotechnology Portfolio

Brown Brothers Harriman & Co.
525 Washington Blvd
Jersey City NJ 07310

 


 

Attn: Michael Lerman 15th Floor
Corporate Actions

 

Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund

State Street Bank & Trust
PO Box 5756
Boston, Massachusetts 02206
Attn: Bangle & Co fbo Fidelity Advisor Series VII: Fidelity Advisor Biotechnology Fund

 

Fidelity Securities Fund: Fidelity Blue Chip Growth Fund

M. Gardiner & Co.
C/o JPMorgan Chase Bank, N.A.
PO Box 35308
Newark, N.J. 07101-8006

 

Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund

State Street Bank & Trust
PO Box 5756  
Boston, Massachusetts 02206
Attn: Wavechart & Co fbo Fidelity Securities Fund: Fidelity Series Blue Chip Growth Fund

 

FIAM Target Date Blue Chip Growth Commingled Pool

Pyramis Global Advisors Trust Company, as Trustee

State Street Bank & Trust
PO Box 5756  
Boston, Massachusetts 02206
Attn: FLAPPER CO fbo Pyramis Lifecycle Blue Chip Growth Commingled Pool

 

Gurnet Point L.P.

Waypoint Capital Inc.

55 Cambridge Parkway

Suite 401

Cambridge, MA 02142

 

Nestlé Health Science US Holdings, Inc.

383 Main Ave 5th Floor

Norwalk, CT 06851

 

AFOS, LLC

55 E 52nd Street

New York, New York 10022”

 

Enso Ventures 2 Limited

Suite C1

Hirzel Court

St. Peter Port

Guernsey

GY1 2 NH

UK

 

Fidelity Growth Company Commingled Pool

Fidelity Management & Trust Co.

Mag & Co.

c/o Brown Brothers Harriman & Co.

 


 

Attn: Corporate Actions /Vault

140 Broadway

New York, NY 10005

 

Fidelity Mt. Vernon Street Trust: Fidelity Series Growth Company Fund

State Street Bank & Trust

PO Box 5756

Boston, Massachusetts 02206

Attn: WAVELENGTH + CO Fidelity Mt. Vernon Street Trust: Fidelity

Series Growth Company Fund

 

Fidelity Mt. Vernon Street Trust: Fidelity Growth Company Fund

BNY Mellon

Attn: Stacey Wolfe

525 William Penn Place Rm 0400

Pittsburgh, PA 15259

 

SMRS-TOPE LLC

c/o HarbourVest Partners, LLC

One Financial Center, 44th Floor

Boston, MA 02111

Attention: Jackie Peradotto; Alex Brown

Email: jPeradotto@harbourvest.com; abrown@harbourvest.com

 

with copy to:

 

Debevoise & Plimpton LLP

919 Third Avenue

New York, New York 10022

Attention: Edward Drew Dutton

Email: eddutton@debevoise.com

 


 

SCHEDULE B

 

KEY HOLDERS

 

Bruce Bistrian

George Church

Robert Connelly

Charles L. Cooney

Peter Hutt

David Berry

Jerry Hjelle Advisor, LLC

Geoff von Maltzahn

Harold McGee

Garry E. Menzel

Jeff Moore

Peter Mueller

Thomas Leggett

Tony Tramontin

Manu Chakravarthy

David Epstein

William Hinshaw

Stephen Mitchener

Paul Fehlner

 


 

EXHIBIT A

 

CONSENT OF SPOUSE

 

I, [                    ], spouse of [              ], acknowledge that I have read the Fifth Amended and Restated Right of First Refusal and Co-Sale Agreement, dated as of November 30, 2018, to which this Consent is attached as Exhibit A (the “ Agreement ”), and that I know the contents of the Agreement. I am aware that the Agreement contains provisions regarding certain rights to certain other holders of Capital Stock of the Company upon a Proposed Key Holder Transfer of shares of Transfer Stock of the Company which my spouse may own including any interest I might have therein.

 

I hereby agree that my interest, if any, in any shares of Transfer Stock of the Company subject to the Agreement shall be irrevocably bound by the Agreement and further understand and agree that any community property interest I may have in such shares of Transfer Stock of the Company shall be similarly bound by the Agreement.

 

I am aware that the legal, financial and related matters contained in the Agreement are complex and that I am free to seek independent professional guidance or counsel with respect to this Consent. I have either sought such guidance or counsel or determined after reviewing the Agreement carefully that I will waive such right.

 

Dated as of the [  ] day of [        ,      ].

 

 

 

 

Signature

 

 

 

 

 

Print Name

 




Exhibit 10.5

 

April 18, 2018

 

William R. Hinshaw, Jr.

Dear William:

 

On behalf of Axcella Health, Inc. (the “Company”), I am delighted to offer you employment with the Company.  This offer letter (the “Offer Letter”) and the accompanying documents and agreements summarize and set forth important terms about your employment with the Company.

 

1.              Starting Date, Position, and Duties.

 

a.              Your initial position shall be Chief Executive Officer reporting to the Company’s Board of Directors (the “Board”).  We anticipate that your employment shall start effective on or before June 1, 2018 (the “Start Date”).  In your key position, you shall have responsibility for driving the strategic direction of the Company, as well as oversight of all operational activities of the Company.  In your role you are expected to build and lead a team to execute against objectives that you have set in conjunction with the Board.  You shall also be expected to perform such other services for the Company, as may be assigned to you from time to time by the Board or its designee.  If you are agreeable then, subject to applicable corporate and procedural requirements, you shall be elected to serve as a member of the Board, effective as of the Start Date, and shall resign from the Board upon the ending of your employment.

 

b.              As a member of our team, we expect you to devote your professional and working time and energies to the business and affairs of the Company.  Notwithstanding the forgoing, nothing contained herein shall prevent you from managing your personal investments on your own personal time, including the right to make passive investments in the securities of:  (i)  any entity which you do not control, directly or indirectly, and which does not compete with Company, or (ii)  any publicly held entity so long as your aggregate direct and indirect interest does not exceed five percent (5%) of the issued and outstanding securities of any class of securities of such publicly held entity.  You shall not engage in other non-Company related business activities (including board memberships) without Company’s prior written consent, provided that you may be involved in civic and charitable activities so long as such activities do not interfere with your duties for Company.

 

c.              As is generally true for Company employees, you shall be employed on an at-will basis, which means that neither you nor the Company are guaranteeing this employment relationship for any specific period of time.  Either of you or the Company may choose to end the employment relationship at any time, for any reason, with or without notice.  The descriptions of benefits and other compensation arrangements set forth herein are meant to be summary in form and may be subject to change.  Other than the terms of this Offer Letter, the Company reserves the right to alter, supplement or rescind its employment procedures, benefits or policies (other than the employment at-will policy) at any time in its sole and absolute discretion and without notice.

 

2.              Compensation.

 

a.              Salary.  Your initial base pay shall be at a rate of $475,000 on an annualized basis, minus customary deductions for federal and state taxes and the like, in accordance with the

 

1


 

Company’s normal payroll practices (the “Annual Salary”).  In the event that the Company undertakes an initial public offering of shares pursuant to an effective registration statement under the Securities Act of 1933, then the Annual Salary shall be increased to $500,000.

 

b.              Annual Performance Bonus.  You shall be eligible to receive an annual cash bonus with a target of 50% of your Annual Salary (the “Annual Bonus”), payable upon the achievement, as determined by the Board in its sole discretion, of specific milestones to be mutually agreed in writing.  The Annual Bonus shall be paid to you no later than March 15 th  of the calendar year immediately following the calendar year in which it was earned.  You must be employed by the Company at the time that the Annual Bonus is paid in order to be eligible for and have earned the Annual Bonus.

 

c.              Equity .

 

i.               Stock Options.  The Board shall grant you a stock option (the “Stock Option”) to purchase shares of common stock of the Company equal to 4.6% of the fully diluted shares of the Company outstanding as of the Start Date, at a price per share equal to the fair market value of the Company’s common stock on the date of grant as determined by the Board.  The Stock Option shall be, to the maximum extent permissible, treated as an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code and the rules and regulations thereunder.  25% of the Stock Option shall vest on the 1 st  anniversary of the date of grant, and the remaining 75% of the Stock Option shall vest quarterly over the 3-year period following such anniversary, subject to your continued employment with the Company.  In all respects, this Stock Option shall be governed by the Company’s Stock Incentive Plan (the “Plan”) and applicable Stock Option Agreement (an “Option Agreement”) executed by you pursuant thereto.

 

d.              Relocation and Temporary Lodging.  It is a condition of your employment hereunder that you relocate your principal residence to the Cambridge, Massachusetts area prior to the Start Date.  Pursuant to such requirement:  (i)  the Company shall provide you with a stipend in the amount of $160,000 to cover the costs of such relocation, with such stipend to be paid to you on the Company’s first regularly-scheduled payroll date following the Start Date, less applicable taxes and withholdings.  In the event your employment with the Company is terminated by the Company for Cause (as defined below) prior to the conclusion of the 6-month period following the Start Date, you must repay the Company for 100% of the amounts paid to you pursuant to this paragraph.  By signing below, you agree to make such repayment within 10 days following such termination and, if any amount remains unpaid, then you authorize the Company to deduct such amount from any final payments otherwise due to you, to the extent permissible under law.

 

e.              Benefits.  You shall be eligible to participate in the Company’s benefit plans to the same extent as, and subject to the same terms, conditions and limitations applicable to, other Company employees of similar rank and tenure.  Summaries of each of the Company’s benefit plans are available to you.  These benefits may be modified, changed or eliminated from time to time at the sole discretion of the Company, and the provision of such benefits does not change your status as an at-will employee.  Where a particular benefit is subject to a formal plan (for example, medical insurance or life insurance), eligibility to participate in and receive any particular benefit is governed solely by the applicable plan document.  Each calendar year you shall be eligible to accrue four (4) weeks’ vacation and holidays as set forth by the Company and subject to the Company’s vacation and holiday policies as in effect from time to time.

 

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f.              Expense Reimbursement.  The Company shall reimburse you for all ordinary and reasonable out-of-pocket business expenses incurred in furtherance of the Company’s business in accordance with the Company’s policies with respect thereto as in effect from time to time.  You must submit any request for reimbursement no later than ninety (90) days following the date that such business expense is incurred.  All reimbursements hereunder shall be made or provided in accordance with the requirements of Section 409A (“Section 409A”) of the Internal Revenue Code and the rules and regulations thereunder (the “Code”) including, where applicable, the requirement that:  (i)  any reimbursement is for expenses incurred during your lifetime (or during a shorter period of time specified in this Offer Letter); (ii)  the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year; (iii)  the reimbursement of an eligible expense shall be made no later than the last day of the calendar year following the year in which the expense is incurred; and (iv)  the right to reimbursement or in kind benefits is not subject to liquidation or exchange for another benefit.

 

3.              Termination; Severance Benefits.

 

a.              Severance in Event of Termination without Cause.  Notwithstanding the at-will nature of the parties’ relationship, should the Company terminate your employment without Cause (described below) then, conditioned upon your execution and non-revocation of a separation agreement (which shall contain, among other things, a full and general release of claims to the Company and its affiliates and their respective directors, officers, agents and employees, in a form satisfactory to the Company) including compliance with your obligations set forth in your Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement (described in Section 6 below), then:  (i)  the Company shall provide you with payments equal to 12 months of your then current base salary, payable in periodic installments over 12 months, in accordance with the Company’s normal payroll practices; and (ii)  (x) if the Company is subject to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) or similar state law, (y) the premium subsidy described below is not illegal or discriminatory under the Code, the Patient Protection and Affordable Care Act or the Health Care and Education Reconciliation Act, and (z) if you properly elect to receive benefits under COBRA, the Company shall provide you with 12 months of your COBRA premiums at the Company’s normal rate of contribution for employees for your coverage at the level in effect immediately prior to your termination.

 

b.              Severance in Event of Termination without Cause Following Change of Control.   Similarly notwithstanding the at-will nature of the parties’ relationship, should the Company terminate your employment without Cause within 12 months following the consummation of a Change of Control (described below) then, also conditioned upon your execution and non-revocation of the separation agreement described and compliance with your Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement, then:  (i)  the Company shall provide you with payments equal to 18 months of your then current base salary, payable in periodic installments over 18 months, in accordance with the Company’s normal payroll practices; (ii)  (x) if the Company is subject to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) or similar state law, (y) the premium subsidy described below is not illegal or discriminatory under the Code, the Patient Protection and Affordable Care Act or the Health Care and Education Reconciliation Act, and (z) if you properly elect to receive benefits under COBRA, the Company shall provide you with 18 months of your COBRA premiums at the Company’s normal rate of contribution for employees for your coverage at the level in effect immediately prior to your termination; and (iii)  all stock options with time-based vesting held by you as of the date of termination will immediately accelerate and become fully exercisable or non-forfeitable as of date of termination.  Please note that if you are entitled to the payments and

 

3


 

benefits described in this Section 3.b., then you will not be entitled to the payments and benefits described in Section 3.a. above.

 

c.              Definitions.  For purposes of this Section 3:

 

i.               “Cause” means any one or more of the following actions:  (a) your material breach of the terms of this Offer Letter or your Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement; (b) your material dishonesty, willful misconduct, gross negligence, or reckless conduct; (c) your commission of an act of fraud, theft, misappropriation or embezzlement; (d) your commission of, or pleading nolo contendere to, any crime involving dishonesty or moral turpitude or any felony; or (e) your material violation of a Company policy or willful refusal to perform your assigned duties to the Company, following written notice of such violation or refusal by the Company and a period of thirty (30) days to cure the same.

 

ii.             “Change of Control” means:  (i)  any “Person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities (excluding for this purpose any such voting securities held by the Company or its Affiliates or by any employee benefit plan of the Company) pursuant to a transaction or a series of related transactions which the Board does not approve; or (ii)  a merger or consolidation of the Company whether or not approved by the Board, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) more than 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation, as the case may be, outstanding immediately after such merger or consolidation; or (iii)  the sale or disposition by the Company of all or substantially all of the Company’s assets in a transaction requiring stockholder approval.  “Change of Control” will be interpreted, if applicable, in a manner, and limited to the extent necessary, so that it will not cause adverse tax consequences under Section 409A of the Code.

 

d.              Timing.  Any severance payments paid under this Section 3 shall commence within 60 days after the date of termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the severance payments begin to be paid in the second calendar year by the last day of such 60-day period; provided, further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the day immediately following the date of termination.  Each payment pursuant to this Offer Letter is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).

 

e.              Restrictions.  Should you voluntarily terminate your employment for any reason, or should your employment be terminated for Cause, then you shall not be entitled to any severance payments described herein.  Nothing in this Section 3 shall alter your status as an at-will employee.

 

4.              Certification.  By signing this Offer Letter, you are certifying to the Company that:  (a)  your employment with the Company does not and shall not require you to breach any agreement entered into by you prior to employment with the Company (i.e., you have not entered into any agreements with previous employers that are in conflict with your obligations to the Company); (b)  to the extent you are subject to restrictive agreements with any prior employer that may affect

 

4


 

your employment with the Company, you have provided us with a copy of that agreement; (c)  your employment with the Company does not violate any order, judgment or injunction applicable to you, and you have provided the Company with a copy of any such order, judgment, or injunction; and (d)  all facts you have presented to the Company are accurate and true, including all statements made to the Company pertaining to your education, training, qualifications, licensing and prior work experience on any job application, resume or c.v., or in any interview.  Please understand that the Company does not want you to disclose any confidential information belonging to a previous employer or to incorporate the proprietary information of any previous employer into the Company’s proprietary information and expects that you shall abide by restrictive covenants to prior employers.

 

5.              Required 1-9 Documentation.  Your employment with the Company is conditioned on your eligibility to work in the United States.  For purposes of completing the INS 1-9 form, you must provide us sufficient documentation to demonstrate your eligibility to work in the United States on or before your first day of employment.

 

6.              Confidentiality and Other Obligations.  As part of your employment with the Company, you shall be exposed to, and provided with, valuable confidential and trade secret information concerning the Company and its present and prospective clients.  As a result, in order to protect the Company’s legitimate business interests, you agree, as a condition of your employment, to enter into the enclosed Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment of Inventions Agreement (the “Confidentiality Agreement”).  You must sign and return the Confidentiality Agreement before beginning your employment with the Company.

 

7.              Section 409A and 280G of Internal Revenue Code.

 

a.              Notwithstanding any other provision of this Offer Letter to the contrary, if any amount (including imputed income) to be paid to you pursuant to this Offer Letter as a result of your termination of employment is “deferred compensation” subject to Section 409A of the Code, and if you are a “Specified Employee” (as defined under Section 409A of the Code) as of the date of your termination of employment hereunder, then, to the extent necessary to avoid the imposition of excise taxes or other penalties under Section 409A of the Code, the payment of benefits, if any, scheduled to be paid by the Company to you hereunder during the first 6-month period following the date of a termination of employment hereunder shall not be paid until the date which is the first business day after six (6) months have elapsed since your termination of employment for any reason other than death.  Any deferred compensation payments delayed in accordance with the terms of this Section 6.a. shall be paid in a lump sum after 6-months have elapsed since your termination of employment.  Any other payments shall be made according to the schedule provided for herein.

 

b.              If any of the benefits set forth in this Offer Letter are “deferred compensation” under Section 409A of the Code, any termination of employment triggering payment of such benefits must constitute a “separation from service” under Section 409A of the Code before distribution of such benefits can commence.  To the extent that the termination of your employment does not constitute a “separation from service” under Section 409A of the Code (as the result of further services that are reasonably anticipated to be provided by you to the Company at the time your employment terminates), any benefits payable under this Offer Letter that constitute “deferred compensation” under Section 409A of the Code shall be delayed until after the date of a subsequent event constituting a “separation from service” under Section 409A of the Code.  For purposes of clarification, this Section 6.b. shall not cause any forfeiture of benefits on your part, but shall only act as a delay until such time as a “separation from service” occurs.

 

5


 

c.              It is intended that each installment of the payments and benefits provided under this Offer Letter shall be treated as a separate “payment” for purposes of Section 409A of the Code.  Neither the Company nor you shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A of the Code.

 

d.              This Offer Letter shall be interpreted and at all times administered in a manner that avoids the inclusion of compensation in income under Section 409A of the Code.  Any provision inconsistent with Section 409A of the Code shall be read out of the Offer Letter.  For purposes of clarification, this Section 6.d. shall be a rule of construction and interpretation and nothing in this Section 6.d. shall cause a forfeiture of benefits on the part of you.  You acknowledge and agree that the Company does not guarantee the tax treatment or tax consequences associated with any payment or benefit arising under this Offer Letter, including but not limited to consequences related to Section 409A of the Code.

 

e.              If any payment or benefit you would receive under this Offer Letter, when combined with any other payment or benefit you receive pursuant to a Change of Control (for purposes of this section, a “Payment”) would:  (i)  constitute a “parachute payment” within the meaning of Section 280G the Code; and (ii)  but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be either:  (A) the full amount of such Payment; or (B) such lesser amount as would result in no portion of the Payment being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local employments taxes, income taxes and the Excise Tax, results in your receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax.  With respect to subsection (B), if there is more than one method of reducing the payment as would result in no portion of the Payment being subject to the Excise Tax, then you shall determine which method shall be followed, provided that if you fail to make such determination within thirty (30) days after Company has sent you written notice of the need for such reduction, Company may determine the amount of such reduction in its sole discretion.

 

8.              General.  This Offer Letter, together with the Confidentiality Agreement and the Option Agreement and any other agreements specifically referred to herein, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.  The terms and provisions of this Offer Letter may be modified or amended only by written agreement executed by the parties hereto, and may be waived (or consent for the departure there from granted) only by a written document executed by the party entitled to the benefits of such terms or provisions.  The Company may assign its rights and obligations hereunder to any person or entity that succeeds to all or substantially all of the Company’s business.  You may not assign your rights and obligations hereunder without the prior written consent of the Company and any such attempted assignment by you without the prior written consent of the Company shall be void.  This Offer Letter and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the internal law of Massachusetts, without giving effect to the conflict of law principles thereof.  By accepting this offer of employment, you agree that any action, demand, claim or counterclaim in connection with any aspect of your employment with the Company, or any separation of employment (whether voluntary or involuntary) from the Company, shall be brought in the courts of Massachusetts or of the United States of America for the District of Massachusetts, and shall be resolved by a judge alone, and you waive and forever renounce your right to a trial before a civil jury.

 

6


 

Because our employment discussions and the terms of your employment are confidential, it is understood that you shall not disclose the fact or terms of such discussions or the terms of your employment with the Company to anyone other than your immediate family and your legal or financial advisor at any time, absent prior written consent from the Company, or as permitted by law.

 

This offer shall remain open, unless sooner revoked by the Company, through April 20, 2018.  Please acknowledge acceptance of this employment offer by signing and dating below.  Keep one copy for your files and return one executed copy to me.

 

[Signature Page Follows]

 

7


 

Bill, we look forward to having you on the Axcella team.

 

 

Very truly yours,

 

 

 

Axcella Health, Inc.

 

 

 

 

 

By:

/s/ David Epstein

 

 

David Epstein

 

 

 

Accepted and Agreed to:

 

 

 

 

 

/s/ William R. Hinshaw, Jr.

 

William R. Hinshaw, Jr.

 

 

 

4/27/18

 

Date

 

 

8




Exhibit 10.6

 

December 14, 2016

 

BY EMAIL

 

Mr. Thomas Leggett

Re:  Employment Agreement

 

Dear Tom:

 

On behalf of Axcella Health Inc. (the “Company”), and the entire Board of Directors of the Company (the “Board”), I am delighted to offer you employment with the Company.  This offer letter agreement (the “Agreement”) describes the terms and conditions of such employment.

 

1.              Position.

 

a.              Position and Responsibilities.  Your position shall be Chief Financial Officer, working out of our Cambridge office reporting to the Company’s President and CEO.  We anticipate that your employment shall start effective no later than January 3, 2017 (and if other than this date, your actual start date, the “Start Date”).  In this key position you will initially have responsibility for all finance, investor relations, operations and planning and you will serve as a member of the executive team.  It is also expected that you will play a critical role in corporate strategy and business development activities.  As you progress with the Company, your position and assignments are, of course, subject to change, and you shall also be expected to perform such other and/or different services for the Company, including broader corporate responsibilities, as may be assigned to you from time to time by the CEO.  You agree to discharge such duties faithfully and diligently and shall dedicate your full business time to the business and affairs of the Company.

 

b.              At-Will Employment.  This Agreement and the accompanying documents and agreements summarize and set forth important terms about your employment with the Company.  No provision of this Agreement shall be construed to create an express or implied promise of employment for any specific period of time.  You shall be employed on an at-will basis, which means that neither you nor the Company is guaranteeing this employment relationship for any specific period of time.  Either of the parties hereto may choose to end the employment relationship at any time, for any reason, with or without notice, subject to the provisions hereof.  Further, the Company reserves the right to alter, supplement or rescind your job duties, its employment procedures, benefits or policies (other than the employment at-will policy) at any time in its sole and absolute discretion and without notice.

 

2.              Compensation.

 

a.              Salary.  Your initial base pay shall be at a rate of $13,958.33 on a semi-monthly basis ($335,000 on an annualized basis), minus customary deductions for federal and state taxes and the like, payable in periodic installments in accordance with the Company’s normal payroll practices.  Your salary shall be subject to annual performance review and will be reviewed annually against relative benchmarks.  In addition, it is also expected that executive compensation will be assessed in advance of any IPO.  Any such compensation adjustment shall be in the Company’s sole discretion and will include Compensation Committee review and approval.  You

 

840 MEMORIAL DRIVE, THIRD FLOOR  |  CAMBRIDGE, MA 02139  |  +1.857.320.2200  |

AXCELLAHEALTH.COM

 


 

understand and acknowledge that setting forth the annual total of your salary in no way changes or impacts your status as an at-will employee.

 

b.              Annual Performance Bonus.  You shall be eligible to receive an annual bonus of up to 40 percent (40%) of your annual base salary (the “Annual Bonus”), the actual bonus amount shall be determined based on upon the achievement, as determined by the CEO and the Board or the Compensation Committee, of corporate performance goals (set by the Board) and individual performance goals (set by the CEO) on an annual basis.  The Annual Bonus, if any, shall be paid to you no later than March 15 th  of the calendar year immediately following calendar year applicable to the bonus.  You must be employed by the Company at the time that any such Annual Bonus is paid in order to be eligible for and have earned any such Annual Bonus.  The Company shall deduct from the Annual Bonus any customary deductions for federal and state taxes and the like.

 

c.              Stock Options.  Subject to the terms of and contingent upon your execution of a stock option agreement (the “Option Agreement”) issued pursuant to the Company’s 2010 Stock Option and Grant Plan, as amended (the “Stock Plan”), and subject to Board approval, you shall be granted a one-time stock option to purchase common stock of the Company equal to 1% of the fully diluted equity (excluding any unallocated stock options and before giving effect to the grant in reference) of the Company immediately after the Company’s Series D-1 Preferred Stock or Series D Preferred Stock financing, up through $30M raised in such financing, at an exercise price equal to the Fair Market Value (as defined in the Stock Plan) of the stock at the time of the grant (the “Initial Hire Grant”).  The option for the Initial Hire Grant shall vest 25%, on the one year anniversary of the Start Date and thereafter the remaining 75% shall vest in equal installments on a quarterly basis on the last day of each quarter over a period of three years following such first anniversary, provided that you remain employed by the Company on each vesting day.  In addition to the above grant, subject to terms of and contingent upon your execution of an Option Agreement issued pursuant the Stock Plan, and subject to Board approval, you will be eligible for an additional option grant to purchase common stock of the Company equal to 0.25% of the fully diluted equity (excluding any unallocated stock options and before giving effect to the grant in reference) of the Company immediately after a qualified financing completed within 12 months of your Start Date with the Company (the “Financing Grant”).  A qualified financing is defined to include the completion of:  a) the Company’s initial public offering, or b) a total financing from investors of at least $100M (excluding total amount raised in the Company’s Series D and D-l Preferred Stock financing) and such qualified financing must be completed within 12 months of your Start Date with the Company (the “Qualified Financing Criteria”).  The option for the Financing Grant shall vest 25%, on the one year anniversary of the completion of the qualified financing, and thereafter the remaining 75% shall vest in equal installments on a quarterly basis on the last day of each quarter over a period of three years following such first anniversary, provided that you remain employed by the Company on each vesting day.  The aforesaid grants shall be subject to the specific terms and conditions of the Stock Plan and stock option agreements, in the case of inconsistency, the Stock Plan shall govern.

 

d.              Benefits.  You shall be eligible to participate in the Company’s benefit plans to the same extent as, and subject to the same terms, conditions and limitations applicable to, other Company employees of similar rank and tenure.  Summaries of each of the Company’s benefit plans are available to you.  Any descriptions of benefits and other compensation arrangements set forth herein are meant to be summary in form and may be subject to change.  If any benefit is subject to a benefit plan, the terms of that plan shall control.  Each calendar year you shall be eligible to earn four (4) weeks’ vacation and up to ten (10) holidays, as set forth by the Company and subject to the Company’s vacation and holiday policies as in effect from time to time.  Such time off should

 


 

be scheduled to minimize disruption to the Company’s operations.  These benefits, of course, may be modified, changed or eliminated from time to time at the sole discretion of the Company, and the provision of such benefits to you in no way changes or impacts your status as an at-will employee.

 

e.              Reimbursements.  The Company shall reimburse you for all ordinary, reasonable and documented out-of-pocket business expenses incurred by you in furtherance of the Company’s business and the performance of your job duties in accordance with the Company’s policies with respect thereto as in effect from time to time including reimbursement or coverage of expenses related to a Company provided computer and business use of a personal cell phone service.  As stated above, you must submit any request for reimbursement, along with appropriate supporting documentation, no later than forty five (45) days following the date that such business expense is incurred.  Also as stated above, all reimbursements provided under this Agreement shall be subject to the terms and conditions of any applicable Company policy and, as further described in Section 7 below, shall be made or provided in accordance with the requirements of Section 409A of the Code.

 

f.              Relocation.  You will be entitled up to approximately six (6) months of temporary housing at a reasonable cost and under arrangements as mutually agreed to between you and the Company beginning on your Start Date.  In addition, the Company will reimburse you for the actual reasonable cost to pack, load, transport, unload, insure and store (if necessary) your immediate personal effects, and any reasonable travel or lodging to be incurred by you in connection with relocating your personal effects to the Cambridge area on or before June 30, 2017 in an amount not to exceed $25,000.  The Company will determine in its reasonable, good faith judgment what, if any, of your reimbursed temporary housing and other relocation costs are for nondeductible expenses in accordance with applicable law and will comply with associated withholding and tax reporting obligations.

 

3.              Severance Pay and Benefits upon Termination of Employment

 

a.              Termination by the Company Other Than for Cause, Death or Disability.  Should the Company involuntarily terminate your employment for reasons other than for “Cause” or “Disability” (as these terms are defined in the Stock Plan, subject to the modification described in Section 3.c. below) or death, and conditioned upon your execution and non-revocation of and compliance with a separation agreement (which shall contain, among other things, a full and general release of claims to the Company and its affiliates and their respective directors, officers, agents and employees, in a form satisfactory to the Company) including compliance with your obligations set forth in your Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement (the “Confidentiality Agreement,” as described in Section 6 below), then the Company shall provide you with:  (i) payments equal to six (6) months of your then current base salary, payable in periodic installments over six (6) months, in accordance with the Company’s normal payroll practices; and (ii) (x) if the Company is subject to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) or similar state law, (y) the premium subsidy described below is not illegal or discriminatory under the Code, the Patient Protection and Affordable Care Act or the Health Care and Education Reconciliation Act, and (z) if you properly elect to receive benefits under COBRA, three (3) months of your COBRA premiums at the Company’s normal rate of contribution for employees for your coverage at the level in effect immediately prior to your termination.

 

b.              Any severance payments paid under this Section 3 shall commence within 60 days after the date of termination; provided, however that the initial payment shall include a catch-up

 


 

payment to cover amounts retroactive to the day immediately following the date of termination.  Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A-2(b) (2).

 

c.              Should you voluntarily terminate your employment for any reason or if you are terminated for Cause or due to death or disability, you shall not be entitled to any severance payments or benefits described in Section 3.a.  Nothing in this Section 3 shall alter your status as an at-will employee.

 

4.              Certifications by You.

 

By signing this Agreement, you are certifying to the Company that:  (a) your employment with the Company does not, and shall not, require you to breach any agreement entered into by you prior to employment with the Company (e.g., you have not entered into any agreements with previous employers, including, without limitation, confidentiality, noncompetition and non-solicitation agreements, that are in conflict with your obligations to the Company); (b) to the extent you are subject to any such restrictive agreements that may affect your employment with the Company (e.g., confidentiality, non-competition and non-solicitation agreements that are in conflict with your obligations to the Company), you have provided the Company with a copy of any such agreements; (c) your employment with the Company does not violate any order, judgment or injunction applicable to you, and you have provided the Company with a copy of any such order, judgment, injunction or agreement which may be applicable to you; and (d) all facts you have presented or shall present to the Company are accurate and true, including, but not limited to, all oral and written statements you have made to the Company pertaining to your education, training, qualifications, licensing and prior work experience on any job application, resume or c.v., or in any interview or discussion with the Company.  Please understand that the Company does not want you to disclose any confidential information belonging to a previous employer or to incorporate the proprietary information of any previous employer into the Company’s proprietary information, and expects that you shall abide by restrictive covenants to prior employers.

 

5.              Required I-9 Documentation.

 

Before you may begin to work for the company, you must be authorized to work in the US.  The company will sponsor you for an 0-1 visa as a scientist or businessperson with extraordinary ability, which will allow you to work in the US for the company.  This visa requires that you cooperate fully in obtaining documents to show that you are eligible for this visa category, including obtaining letters from previous employers, copies of articles written or about you and other documentation to be detailed later.  Before you may begin working for the company, you must provide the company with sufficient documentation to demonstrate your eligibility to work in the US by completing an 1-9 on or before your first day of employment.  This offer is contingent on you being legally authorized to work in the United States as of the Start Date.

 

6.              Non-Competition, Confidentiality and Intellectual Property and Other Obligations by You.

 

The Company considers the protection of its confidential information, proprietary materials and goodwill to be extremely important.  Moreover, as part of your employment with the Company, you have been, and shall be, exposed to, and provided with, valuable confidential and/or trade secret information concerning the Company and its present and prospective clients.  As a result, in order to protect the Company’s legitimate business interests, you agree, as a condition of your employment, to abide by the terms of the enclosed Confidentiality Agreement, the terms of which

 


 

are incorporated by reference herein.  You must sign and return the Confidentiality Agreement before beginning your employment with the Company.  Prior to accepting employment with any subsequent employer, you shall inform any such employer of any restrictions set forth herein which apply in any way to your activities for or employment by such employer.

 

7.              Compliance with Section 409A of the Code.

 

The parties intend this Agreement to be in compliance with Section 409A of the Code.  Notwithstanding any other provision of this Agreement, you acknowledge and agree that the Company does not guarantee any specific tax treatment or tax consequences associated with any payment or benefit arising under this Agreement or otherwise with respect to your employment or termination thereof, including but not limited to consequences related to Section 409A of the Code, and that you shall be solely responsible for same.

 

8.              General.

 

a.              Integration.  This Agreement, together with the Confidentiality Agreement, the Stock Plan and the Option Agreement and any other agreements specifically referred to herein, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.

 

b.              Modification; Amendment; Waiver.  The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the parties hereto.  The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

 

c.              Assignment.  The Company may assign its rights and obligations hereunder to any person or entity that succeeds to all or substantially all of the Company’s business.  You may not assign your rights and obligations hereunder without the prior written consent of the Company and any such attempted assignment by you without the prior written consent of the Company shall be void.  This Agreement shall inure to the benefit of, and be binding on, the parties’ respective heirs, successors and assigns.

 

d.              Choice of Law; Jurisdiction; Waiver of Jury Trial.  This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the Commonwealth of Massachusetts, without giving effect to the conflict of law principles thereof.  By accepting this Agreement and offer of employment, you agree that any action, demand, claim or counterclaim in connection with any aspect of your employment with the Company, or any separation of employment (whether voluntary or involuntary) from the Company, shall be brought in the courts of the Commonwealth of Massachusetts or of the United States of America for the District of Massachusetts, and shall be resolved by a judge alone, and you waive and forever renounce your right to a trial before a civil jury.  In the event of any litigation, the Court shall have the discretion to award the prevailing party reasonable costs and attorney’s fees.

 

e.              Counterparts.  This Agreement may be executed in two or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but

 


 

all of which together shall constitute one and the same instrument.  For all purposes a signature by fax shall be treated as an original.

 

The offer of employment contained in this Agreement shall remain open, unless sooner revoked by the Company, through December 20, 2016.

 

Please acknowledge acceptance of this Agreement by signing, dating, and indicating your start date below.  Keep one copy for your files and return one executed copy to me.  We look forward to having you join the Axcella Health team.

 

 

Very truly yours,

 

 

 

Axcella Health Inc.

 

 

 

 

 

By:

/s/ Robert Connelly

 

Robert Connelly

 

President & CEO

 

 

 

 

Accepted and Agreed to:

 

 

 

 

 

/s/ Thomas Leggett

 

Thomas Leggett

 

 

 

January 3, 2017

 

Date

 

 




Exhibit 10.7

 

July 23, 2018

 

Mr. Stephen Mitchener

Re:          Offer of Employment

 

Dear Stephen,

 

On behalf of Axcella Health Inc. (the “Company” or “Axcella”) and the entire Board of Directors of the Company (the “Board”), I am delighted to offer you employment with the Company.  This offer letter agreement (the “Agreement”) describes the initial terms and conditions of such employment.  Your employment terms will be reviewed annually to ensure they are appropriate for your then current level of responsibility and performance of your obligations at the Company.  In addition, your compensation will be reviewed in connection with any review process performed with respect to the Company’s executive team.

 

1.                                       Position and Responsibilities.

 

a.              Your position shall be Chief Business Officer (“CBO”) and Senior Vice President, reporting to the Company’s Chief Executive Officer (the “CEO”).  Your employment shall start effective August 13, 2018 unless the Company agrees to another day (the “Start Date”).  In this key position, you shall initially have responsibility to lead and manage business and corporate development across multiple disease areas, as well as strategic planning, analysis and evaluation of new opportunities, while establishing successful relationships and partnerships that contribute to company’s growth, through commercialization.  As you progress with the Company, your position and assignments are subject to change, and you shall also be expected to perform such other and/or different services for the Company, including broader corporate responsibilities, as may be assigned to you from time to time by the CEO.

 

b.              As a member of our team, we expect you to devote your professional and working time and energies to the business and affairs of the Company.  The Company will review your assigned position at least annually and will consider, in its sole discretion, additional goals and responsibilities.  You agree to discharge such duties faithfully and diligently and shall dedicate your full business time to the business and affairs of the Company.  You agree to inform Axcella of any third-party consulting agreements you have as of your Start Date and to obtain approval in writing from Axcella before entering into any third-party consulting or services agreement after your Start Date.  You agree and understand that Axcella has the right to decline approval of or require that you terminate any third-party consulting or services arrangement as a condition to your continued employment to protect Axcella’s intellectual property and business objectives.  You agree to abide by all reasonable employment policies instituted by the Company as they may be instituted or amended from time to time.

 

You shall be employed on an at-will basis, which means that neither you nor the Company is guaranteeing this employment relationship for any specific period of time.  Either of the parties hereto may choose to end the employment relationship at any time, for any reason, with or without notice, subject to the provisions hereof.  Other than the terms of this Agreement, the

 


 

Company reserves the right to alter, supplement or rescind its employment procedures, benefits or policies (other than the employment at-will policy) at any time in its sole and absolute discretion and without notice.

 

2.                                       Compensation.

 

a.              Salary.  Your initial base pay shall be at a rate of $13,750.00 on a semi-monthly basis ($330,000.00 on an annualized basis), minus customary deductions for federal and state taxes and the like, payable in periodic installments in accordance with the Company’s normal payroll practices.  Your salary shall be subject to annual performance review, and any adjustment shall be in the Company’s sole discretion.

 

b.              Annual Performance Bonus.  You shall be eligible to receive an annual bonus of up to forty percent (40 %) of your annual base salary (the “Annual Bonus”), payable upon the achievement, as determined by the CEO and the Board or the Compensation Committee, of corporate performance goals (set by the Board or the Compensation Committee) on an annual basis.  The Annual Bonus, if any, shall be paid to you at the same time annual bonuses are paid to the Company’s other executives which shall be no later than March 15th of the calendar year immediately following the applicable calendar year (the “Bonus Payment Date”).  The bonus to be paid for your performance in 2018 shall be pro-rated based upon the Start Date.  You must be employed by the Company on the Bonus Payment Date in order to be eligible for and have earned any such Annual Bonus.

 

c.              Stock Options; Equity Awards.  Subject to final approval by the Board or the Compensation Committee (i) promptly following the closing of the Company’s Series E financing round (the “Series E Round” or “Crossover”), the Company shall grant you an option to purchase shares of the Company’s Common Stock, par value $0.001 per share (“Shares”)with an exercise price per Share equal to at the fair market value (“FMV”) per Share approved by the Board in an amount equal to approximately 0.6% of the Company’s Shares then outstanding on a fully-diluted basis, including for such purposes the exercise of all options and warrants, the conversion of all convertible securities and all shares reserved for issuance under the Company’s equity incentive plans (the “Cross Over Option”), subject to the terms of and contingent upon your execution of a stock option award agreement issued pursuant to and under the terms of the Stock Plan (the “Option Agreement”); and (ii) if during the twelve (12) month period after the Start Date, which may be extended to twenty four (24) months with modified terms at the discretion of the Compensation Committee based upon factors such as Company strategy, the Company signs a partnership agreement with an upfront cash payment of at least $10,000,000 with a third party to develop one or more therapeutic products, the Company shall grant you an additional option to purchase Company Shares at an exercise price per Share equal to the FMV per Share approved by the Board, or if the Company is publicly traded, at price per share equal to the closing trading price of the Company’s Shares on the applicable stock exchange on the date of grant in an amount equal to approximately 0.25% of the Company’s Shares then outstanding on a fully-diluted basis, including for such purposes the exercise of all options and warrants, the conversion of all convertible securities and all Shares reserved for issuance under the Company’s Stock Plan (the “Partnership Agreement Option”), subject to the terms of and contingent upon your execution of an Option Agreement issued pursuant to the Stock Plan.  To the extent permitted by law and subject to Board or Compensation Committee approval, the Cross Over

 

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Option and the Partnership Agreement Option (together the “Option Awards”) shall each be granted in the form of an incentive stock option meeting the requirements of Section 422 of the Code except to the extent that you direct that the Option Awards be granted in whole or in part in the form of a non-qualified stock option.  Subject to final approval by the Board or the Compensation Committee, the Cross Over Option and the Partnership Agreement Option shall each vest 25% on the first anniversary of the Start Date and the closing date of the partnership, respectively, thereafter the remaining 75% of the Option Awards shall vest in equal installments on a quarterly basis on the last day of each quarter over a period of three years following such first anniversary, provided that you remain employed by the Company on each vesting day; provided however that notwithstanding the foregoing, if an event occurs as outlined in the CIC & Severance Agreement, as defined below, the unvested portions of the Option Awards will vest in accordance with the terms of the CIC & Severance Agreement.  The aforesaid shall be subject to the specific terms and conditions of the Stock Plan and Option Agreements, in the case of inconsistency between this Agreement, the CIC & Severance Agreement and the Stock Plan, the provision in the Stock Plan shall govern; in the case of inconsistency between this Agreement and any Option Agreement, the provision in this Agreement shall govern unless waived in writing by you.

 

d.              Benefits.  You shall be eligible to participate in the Company’s benefit plans to the same extent as, and subject to the same terms, conditions and limitations applicable to, other Company employees of similar rank and tenure.  Summaries of each of the Company’s benefit plans are available to you.  Any descriptions of benefits and other compensation arrangements set forth herein are meant to be summary in form and may be subject to change.  If any benefit is subject to a benefit plan, the terms of that plan shall control.  The Company has adopted a non-accrual paid time off policy.  Such time off should be scheduled to minimize disruption to the Company’s operations.  These benefits, of course, may be modified, changed or eliminated from time to time at the sole discretion of the Company, and the provision of such benefits to you in no way changes or impacts your status as an at-will employee.

 

e.              Other Consideration.  You will be entitled to a maximum of $3,000 per month to cover housing costs beginning on your Start Date and under arrangements as mutually agreed to between you and the Company (“Housing Reimbursement Benefit”) as long as your main domicile remains in NJ.  The intended duration of the Housing Reimbursement Benefit is (i) two (2) years from your Start Date at which time the Company will review the Housing Reimbursement Benefit and may either extend or terminate it at its sole discretion or (ii) your place of domicile is no longer in NJ.  The Company reserves the right at its sole discretion to terminate or modify the terms of the Housing Reimbursement Benefit.  The Company will also reimburse you, ongoing as long as your main domicile remains in NJ, for weekly round trip transportation to and from your residence in NJ, in the amount of up to $600.00 per week, with timely payment to you, after submission of an expense report.  The transportation reimbursement dollar amount will be flexible, if and when short notice from the Company causes higher costs for such transportation.

 

f.              Signing Bonus.  You will be eligible for a signing bonus in the amount of $ 15,000 less all customary and required taxes and employment-related deductions (“Signing Bonus”).  This Signing Bonus will be paid to you in your first regularly scheduled payroll following your Start Date.  If, within six months of the Start Date you:  (i) resign from your employment for any

 

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reason other than a constructive discharge, or (ii) your employment is terminated by the Company for Cause, you agree that you will repay to the Company the entirety of the Signing Bonus within ten (10) days following the last day of your employment.

 

As used in this Agreement, “Cause” means (i) your knowingly dishonest statements or acts with respect to the Company or any Affiliate (as defined in the Company’s 2010 Stock Option and Grant Plan, as amended or restated, and/or any replacement or other applicable equity incentive compensation plan as approved under the Company’s governance documents and applicable law (the “Stock Plan”), or any of the Company’s current or prospective customers, suppliers, vendors or other third parties with which such entity does business; (ii) your conviction of (or pleading nolo contendere to) a felony involving moral turpitude, deceit, dishonesty or fraud; (iii) your failure to perform your assigned duties and responsibilities to the reasonable satisfaction of the Company which failure continues, in the reasonable judgment of the Company, after written notice given to you by the Company and a reasonable opportunity to cure; (iv) your gross negligence or willful misconduct with respect to the Company or any Affiliate of the Company; or (v) your violation of any provision of any agreement(s) between you and the Company relating to noncompetition, nondisclosure and/or assignment of inventions.

 

3.                                       At Will; Severance Pay and Benefits upon Termination of Employment.

 

This Agreement and the accompanying documents and agreements summarize and set forth important terms about your employment with the Company.  No provision of this Agreement shall be construed to create an express or implied promise of employment for any specific period of time.  After the Start Date, you will be eligible to enter into the Company’s Senior Vice President Change in Control and Severance Agreement terms approved by the Compensation Committee (“CIC & Severance Agreement”).  Should your employment with the Company terminate, the CIC & Severance Agreement will govern the terms and payments, if any, that you would be entitled to in connection with such termination.  The terms of your CIC and Severance Agreement will be subject to periodic review and changed by the Board or the Compensation Committee at their discretion.

 

4.                                       Certifications by You.

 

By signing this Agreement, you are certifying to the Company that:  (a) your employment with the Company does not, and shall not, require you to breach any agreement entered into by you prior to employment with the Company (e.g., you have not entered into any agreements with previous employers, including, without limitation, confidentiality, non-competition and nonsolicitation agreements, that are in conflict with your obligations to the Company); (b) to the extent you are subject to any such restrictive agreements that may affect your employment with the Company (e.g., confidentiality, non-competition and non-solicitation agreements that are in conflict with your obligations to the Company), you have provided the Company with a copy of any such agreements; (c) your employment with the Company does not violate any order, judgment or injunction applicable to you, and you have provided the Company with a copy of any such order, judgment, injunction or agreement which may be applicable to you; and (d) all facts you have presented or shall present to the Company are accurate and true, including, but not limited to, all oral and written statements you have made to the Company pertaining to your education, training, qualifications, licensing and prior work experience on any job application,

 

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resume or c.v., or in any interview or discussion with the Company.  Please understand that the Company does not want you to disclose any confidential information belonging to a previous employer or to incorporate the proprietary information of any previous employer into the Company’s proprietary information, and expects that you shall abide by restrictive covenants to prior employers.

 

5.                                       Required I-9 Documentation.

 

For purposes of completing the INS I-9 form, you must provide the Company with sufficient documentation to demonstrate your eligibility to work in the United States on or before your first day of employment.  If you have any questions about what documentation you must provide, please contact me.  Your employment with the Company is conditioned on your eligibility to work in the United States.

 

6.                                       Non-Competition, Confidentiality and Intellectual Property and Other Obligations by You.

 

The Company considers the protection of its confidential information, proprietary materials and goodwill to be extremely important.  Moreover, as part of your employment with the Company, you have been, and shall be, exposed to, and provided with, valuable confidential and/or trade secret information concerning the Company and its present and prospective clients.  As a result, in order to protect the Company’s legitimate business interests, you agree, as a condition of your employment, to abide by the terms of the enclosed Confidentiality Agreement, the terms of which are incorporated by reference herein.  You must sign and return the Confidentiality Agreement before beginning your employment with the Company.  Prior to accepting employment with any subsequent employer, you shall inform any such employer of any restrictions set forth herein which apply in any way to your activities for or employment by such employer.

 

7.                                       Compliance with Section 409A and 280G of the Code.

 

a.              Notwithstanding any other provision of this Agreement to the contrary, if any amount (including imputed income) to be paid to you pursuant to this Agreement as a result of your termination of employment is “deferred compensation” subject to Section 409A of the Code, and if you are a “Specified Employee” (as defined under Section 409A of the Code) as of the date of your termination of employment hereunder, then, to the extent necessary to avoid the imposition of excise taxes or other taxes or penalties under Section 409A of the Code, the payment of amounts or benefits, if any, scheduled to be paid by the Company to you hereunder during the first six (6)-month period following the date of a termination of employment hereunder shall not be paid until the date which is the first business day after six (6) months have elapsed since your termination of employment for any reason other than death or disability (within the meaning of Section 409A(a)(2)(A)(ii) and Treasury Regulation Section 1.409A-3(i)(4)(i)).  For the sake of clarity and elimination of doubt, any amounts payable solely on account of death, disability or the occurrence of a Sale Event shall not be subject to the six-month delay provided for under the preceding sentence notwithstanding the fact that such event may occur simultaneously with or precede your separation from service.  Any deferred compensation payments delayed in accordance with the terms of this Section 6.a. shall be paid in a lump sum on the first business

 

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day after six (6) months have elapsed since your termination of employment.  Any other payments shall be made according to the original schedule provided for herein.

 

b.              To the extent that any of the amounts or benefits set forth in this Agreement are “deferred compensation” under Section 409A of the Code (“409A Compensation”), then any termination of employment triggering payment of such 409A Compensation must constitute a “separation from service” under Section 409A of the Code before distribution of such 409A Compensation can commence.  To the extent that the termination of your employment does not constitute a “separation from service” under Section 409A of the Code (as the result of further services that are reasonably anticipated to be provided by you to the Company at the time your employment terminates), any 409A Compensation payable under this Agreement on account of termination of employment shall be delayed until after the date of a subsequent event constituting a “separation from service” under Section 409A of the Code.  For purposes of clarification, this Section 7.b. shall not cause any forfeiture on your part of 409A Compensation payable on account of termination from employment, but shall only act as a delay of the distribution of such 409A Compensation until such time as a “separation from service” occurs.

 

c.              It is intended that each and all installments of any payment or benefit provided under this Agreement shall be treated as a single “payment” within the meaning of Treasury Regulation Section 1.409-2(b)(2)(iii) for purposes of Section 409A of the Code.  Neither the Company nor you shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A of the Code (including the regulations promulgated thereunder).

 

d.              Any reimbursements or direct payment of your expenses subject to Section 409A of the Code shall be for expenses incurred during your lifetime (or during a shorter period of time specified in this Agreement), and shall be made no later than the end of the calendar year following the calendar year in which such expense is incurred by you.  Any reimbursement or right to direct payment of your expense in one calendar year shall not affect the amount that may be reimbursed or paid for in any other calendar year, and any reimbursement or payment of your expense (or right thereto) may not be exchanged or liquidated for another benefit or payment.

 

e.              Notwithstanding any other provision of this Agreement to the contrary, the Agreement shall be interpreted and at all times administered in a manner that avoids the inclusion of compensation in income under Section 409A(a)(l) of the Code.  Any provision that requires the inclusion of compensation in income under Section 409A(a)(l) of the Code shall be modified by mutual agreement of the parties so as to eliminate such inclusion.  For purposes of clarification, this Section 7.e. shall be a rule of construction and interpretation and nothing in this Section 7.e. shall cause a forfeiture of benefits on the part of you.

 

f.              If any payment or benefit you would receive under this Agreement, when combined with any other payment or benefit you receive (for purposes of this section, a “Payment”) would:  (i) constitute a “parachute payment” within the meaning of Section 280G (“Section 280G”) of the Code; and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then (a) any Payment shall be reduced (but not below zero) to the extent necessary so that the maximum Payment shall not exceed the Threshold Amount (the “Reduction Amount”) and (b) the Company will use reasonable efforts to satisfy the shareholder

 

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approval requirements set forth in Q/A 7 of Treasury Regulations 1.280G-1 with respect to such Reduction Amount, and if such requirements are satisfied, then such Reduction Amount shall become payable hereunder as if subsection (a) above had not applied thereto.  For purposes hereof, “Threshold Amount” shall mean three times your “base amount” within the meaning of Section 280G(b)(3) of the Code and the regulations thereunder, less one dollar.  For purposes of any reduction under subsection (a), the Payment shall be reduced in the following order:  (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits.  To the extent any payment is to be made over time (e.g., in installments, etc.), then the payments shall be reduced in reverse chronological order.

 

g.              The parties intend this Agreement to be in compliance with Section 409A and Section 280G of the Code.  Notwithstanding any other provision of this Agreement, you acknowledge and agree that the Company does not guarantee any specific tax treatment or tax consequences associated with any payment or benefit arising under this Agreement or otherwise with respect to your employment or termination thereof, including but not limited to consequences related to Section 409A or Section 280G of the Code, and that you shall be solely responsible for same.

 

8.                                       General.

 

a.              Integration.  This Agreement, together with the Confidentiality Agreement, the Stock Plan, Option Award(s), the Option Agreement(s), the retirement plan/40l (k), and any other agreements specifically referred to in these agreements, embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements and understandings relating to the subject matter hereof.

 

b.              Modification; Amendment; Waiver.  The terms and provisions of this Agreement may be modified or amended only by written agreement executed by the parties hereto.  The terms and provisions of this Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.  No such waiver or consent shall be deemed to be or shall constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar.  Each such waiver or consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing waiver or consent.

 

c.              Confidentiality.  Because our employment discussions and the terms of your employment are confidential, it is understood that you shall not disclose the economic terms of such discussions or the economic terms of your employment with the Company to anyone other than your immediate family and your legal, tax, or financial advisor at any time, absent prior written consent from the Company.

 

d.              Assignment.  The Company may assign its rights and obligations hereunder to any person or entity that succeeds to all or substantially all of the Company’s business.  You may not assign your rights and obligations hereunder without the prior written consent of the Company and any such attempted assignment by you without the prior written consent of the Company shall be void.  This Agreement shall inure to the benefit of, and be binding on, the parties’ respective heirs, successors and assigns.

 

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e.              Choice of Law; Jurisdiction; Waiver of Jury Trial.  This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the Commonwealth of Massachusetts, without giving effect to the conflict of law principles thereof.  By accepting this Agreement and offer of employment, you agree that any action, demand, claim or counterclaim in connection with any aspect of your employment with the Company, or any separation of employment (whether voluntary or involuntary) from the Company, shall be brought in the courts of the Commonwealth of Massachusetts or of the United States of America for the District of Massachusetts, and shall be resolved by a judge alone, and you waive and forever renounce your right to a trial before a civil jury.  In the event of any litigation, the Court shall have the discretion to award the prevailing party reasonable costs and attorney’s fees.

 

f.              Counterparts.  This Agreement may be executed in two or more counterparts, and by different parties hereto on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  For all purposes a signature by fax shall be treated as an original.

 

The offer of employment contained in this Agreement shall remain open, unless sooner revoked by the Company, through July 26, 2018.

 

Please acknowledge acceptance of this Agreement by signing, dating, and indicating your start date below.  Keep one copy for your files and return one executed copy to me.  We look forward to having you join the Axcella team.

 

 

Very truly yours,

 

 

 

Axcella Health, Inc.

 

 

 

 

 

By:

/s/ William Hinshaw

 

 

William Hinshaw

 

 

Chief Executive Officer

 

Accepted and Agreed to:

 

 

 

 

 

/s/ Stephen A. Mitchener

 

Stephen Mitchener

 

 

 

July 24, 2018

 

Date

 

 

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Exhibit 10.8

 

AXCELLA HEALTH INC.

 

[FORM OF] DIRECTOR INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (“ Agreement ”) is made as of [        ] by and between Axcella Health Inc., a Delaware corporation (the “ Company ”), and [Director] (“ Indemnitee ”).

 

RECITALS

 

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company;

 

WHEREAS, in order to induce Indemnitee to provide or continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;

 

WHEREAS, the Amended and Restated Certificate of Incorporation (as amended and in effect from time to time, the “ Charter ”) and the Amended and Restated Bylaws (as amended and in effect from time to time, the “ Bylaws ”) of the Company require indemnification of the officers and directors of the Company, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “ DGCL ”);

 

WHEREAS, the Charter, the Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;

 

WHEREAS, the Board of Directors of the Company (the “ Board ”) has determined that the increased difficulty in attracting and retaining highly qualified persons such as Indemnitee is detrimental to the best interests of the Company’s stockholders;

 

WHEREAS, it is reasonable and prudent for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law, regardless of any amendment or revocation of the Charter or the Bylaws, so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

 

WHEREAS, this Agreement is a supplement to and in furtherance of the indemnification provided in the Charter, the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and

 

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[WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by [  ] (“[ ]”) which Indemnitee and [ ] intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided in this Agreement, with the Company’s acknowledgment and agreement to the foregoing being a material condition to Indemnitee’s willingness to serve or continue to serve on the Board.]

 

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

 

Section 1.                                            Services to the Company .  Indemnitee agrees to [continue to] serve as a director of the Company.  Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position.  This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee.

 

Section 2.                                            Definitions .

 

As used in this Agreement:

 

(a)                                  Change in Control ” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

 

(b)                                  Corporate Status ” describes the status of a person as a current or former director of the Company or current or former director, manager, partner, officer, employee, agent or trustee of any other Enterprise which such person is or was serving at the request of the Company.

 

(c)                                   Enforcement Expenses ” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with an action to enforce indemnification or advancement rights, or an appeal from such action.  Expenses, however, shall not include fees, salaries, wages or benefits owed to Indemnitee.

 

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(d)                                  Enterprise ” shall mean any corporation (other than the Company), partnership, joint venture, trust, employee benefit plan, limited liability company, or other legal entity of which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee.

 

(e)                                   Expenses ” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding or an appeal resulting from a Proceeding.  Expenses, however, shall not include amounts paid in settlement by Indemnitee, the amount of judgments or fines against Indemnitee or fees, salaries, wages or benefits owed to Indemnitee.

 

(f)                                    Independent Counsel ” means a law firm, or a partner (or, if applicable, member or shareholder) of such a law firm, that is experienced in matters of Delaware corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company, any subsidiary of the Company, any Enterprise or Indemnitee in any matter material to any such party; or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.  The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

(g)                                   The term “ Proceeding ” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director of the Company or is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise or by reason of any action taken by Indemnitee or of any action taken on his or her part while acting as a director of the Company or while serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement; provided , however , that the term “Proceeding” shall not include any action, suit or arbitration, or part thereof, initiated by Indemnitee to enforce Indemnitee’s rights under this Agreement as provided for in Section 12(a) of this Agreement.

 

Section 3.                                            Indemnity in Third-Party Proceedings .  The Company shall indemnify Indemnitee to the extent set forth in this Section 3 if Indemnitee is, or is threatened to be made, a

 

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party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor.  Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties, excise taxes, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.

 

Section 4.                                            Indemnity in Proceedings by or in the Right of the Company .  The Company shall indemnify Indemnitee to the extent set forth in this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor.  Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company.  No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery (the “ Delaware Court ”) shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court shall deem proper.

 

Section 5.                                            Indemnification for Expenses of a Party Who is Wholly or Partly Successful .  Notwithstanding any other provisions of this Agreement and except as provided in Section 7, to the extent that Indemnitee is a party to or a participant in any Proceeding and is successful in such Proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith.  If Indemnitee is not wholly successful in such Proceeding but is successful as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with each successfully resolved claim, issue or matter.  For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

Section 6.                                            Reimbursement for Expenses of a Witness or in Response to a Subpoena .  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, (i) is a witness in any Proceeding to which Indemnitee is not a party and is not threatened to be made a party or (ii) receives a subpoena with respect to any Proceeding to which Indemnitee is not a party and is not threatened to be made a party, the Company shall reimburse Indemnitee for all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

 

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Section 7.                                            Exclusions .  Notwithstanding any provision in this Agreement to the contrary, the Company shall not be obligated under this Agreement:

 

(a)                                  to indemnify for amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such amounts under any insurance policy, contract, agreement or otherwise; provided that the foregoing shall not affect the rights of Indemnitee or the Secondary Indemnitors as set forth in Section 13(c);

 

(b)                                  to indemnify for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law, or from the purchase or sale by Indemnitee of such securities in violation of Section 306 of the Sarbanes Oxley Act of 2002, as amended (“ SOX ”);

 

(c)                                   to indemnify with respect to any Proceeding, or part thereof, brought by Indemnitee against the Company, any legal entity which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding or part thereof and (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided , however , that this Section 7(c) shall not apply to (A) counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee or (B) any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought as described in Section 12; or

 

(d)                                  to provide any indemnification or advancement of expenses that is prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).

 

Section 8.                                            Advancement of Expenses .  Subject to Section 9(b), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made as incurred, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) from time to time, whether prior to or after final disposition of any Proceeding.  Advances shall be unsecured and interest free.  Advances shall be made without regard to Indemnitee’s (i) ability to repay the expenses, (ii) ultimate entitlement to indemnification under the other provisions of this Agreement, and (iii) entitlement to and availability of insurance coverage, including advancement, payment or reimbursement of defense costs, expenses of covered loss under the provisions of any applicable insurance policy (including, without limitation, whether such advancement, payment or reimbursement is withheld, conditioned or delayed by the insurer(s)).  Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that Indemnitee undertakes to the fullest extent required by law to repay the advance if and to the

 

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extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company.  The right to advances under this paragraph shall in all events continue until final disposition of any Proceeding, including any appeal therein.  Nothing in this Section 8 shall limit Indemnitee’s right to advancement pursuant to Section 12(e) of this Agreement.

 

Section 9.                                          Procedure for Notification and Defense of Claim .

 

(a)                                  To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor specifying the basis for the claim, the amounts for which Indemnitee is seeking payment under this Agreement, and all documentation related thereto as reasonably requested by the Company.

 

(b)                                  In the event that the Company shall be obligated hereunder to provide indemnification for or make any advancement of Expenses with respect to any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, or any claim, issue or matter therein, with counsel approved by Indemnitee (which approval shall not be unreasonably withheld or delayed) upon the delivery to Indemnitee of written notice of the Company’s election to do so.  After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of such defense, or (C) the Company shall not continue to retain such counsel to defend such Proceeding, then the fees and expenses actually and reasonably incurred by Indemnitee with respect to his or her separate counsel shall be Expenses hereunder.

 

(c)                                   In the event that the Company does not assume the defense in a Proceeding pursuant to paragraph (b) above, then the Company will be entitled to participate in the Proceeding at its own expense.

 

(d)                                  The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed).  The Company shall not, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed), enter into any settlement which (i) includes an admission of fault of Indemnitee, any non-monetary remedy imposed on Indemnitee or any monetary damages for which Indemnitee is not wholly and actually indemnified hereunder or (ii) with respect to any Proceeding with respect to which Indemnitee may be or is made a party or may be otherwise entitled to seek indemnification hereunder, does not include the full release of Indemnitee from all liability in respect of such Proceeding.

 

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Section 10.                                     Procedure Upon Application for Indemnification .

 

(a)                                  Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if such determination is required by applicable law, with respect to Indemnitee’s entitlement to indemnification hereunder shall be made in the specific case by one of the following methods:  (x) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board; or (y) if a Change in Control shall not have occurred: (i) by a majority vote of the disinterested directors, even though less than a quorum; (ii) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum; or (iii) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board.  For purposes hereof, disinterested directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought.  In the case that such determination is made by Independent Counsel, a copy of Independent Counsel’s written opinion shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) days after such determination.  Indemnitee shall cooperate with the Independent Counsel or the Company, as applicable, in making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such counsel or the Company, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any out-of-pocket costs or expenses (including reasonable attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Independent Counsel or the Company shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

 

(b)                                  If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a), the Independent Counsel shall be selected by the Board if a Change in Control shall not have occurred or, if a Change in Control shall have occurred, by Indemnitee.  Indemnitee or the Company, as the case may be, may, within ten (10) days after written notice of such selection, deliver to the Company or Indemnitee, as the case may be, a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion.  Absent a proper and timely objection, the person so selected shall act as Independent Counsel.  If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit.  If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a), and (ii) the final disposition of the Proceeding, including any appeal therein, no Independent Counsel shall have been selected without objection, either Indemnitee or the Company may petition the Delaware Court for resolution of any objection which shall have been made by Indemnitee or the Company to the selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate.   The person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(a) hereof.  Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent

 

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Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

 

Section 11.                                   Presumptions and Effect of Certain Proceedings .

 

(a)                                  To the extent permitted by applicable law, in making a determination with respect to entitlement to indemnification hereunder, it shall be presumed that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.  Neither (i) the failure of the Company or of Independent Counsel to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor (ii) an actual determination by the Company or by Independent Counsel that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

 

(b)                                  The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty, nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.

 

(c)                                   The knowledge and/or actions, or failure to act, of any director, manager, partner, officer, employee, agent or trustee of the Company, any subsidiary of the Company, or any Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

 

Section 12.                                     Remedies of Indemnitee .

 

(a)                                  Subject to Section 12(f), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within sixty (60) days after receipt by the Company of the request for indemnification for which a determination is to be made other than by Independent Counsel, (iv) payment of indemnification or reimbursement of expenses is not made pursuant to Section 5 or 6 or the last sentence of Section 10(a) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an

 

8


 

adjudication by the Delaware Court of his or her entitlement to such indemnification or advancement.  Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association.  Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided , however , that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 5 of this Agreement.  The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

 

(b)                                  In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination.  In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.

 

(c)                                   If a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

 

(d)                                  The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

 

(e)                                   The Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Enforcement Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Enforcement Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought.  Such written request for advancement shall include invoices received by Indemnitee in connection with such Enforcement Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law need not be included with the invoice.

 

(f)                                    Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding, including any appeal therein.

 

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Section 13.                                   Non-exclusivity; Survival of Rights; Insurance; Primacy of Indemnification; Subrogation .

 

(a)                                  The rights of indemnification and to receive advancement as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal.  To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

 

(b)                                  To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, partners, officers, employees, agents or trustees of the Company or of any other Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, manager, partner, officer, employee, agent or trustee under such policy or policies.  If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.  The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

 

(c)                                   [The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by [   ] and certain of its affiliates (collectively, the “ Secondary Indemnitors ”).  The Company hereby agrees (i) that it is the indemnitor of first resort ( i.e. , its obligations to Indemnitee are primary and any obligation of the Secondary Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Charter and/or Bylaws (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Secondary Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Secondary Indemnitors from any and all claims against the Secondary Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof.  The Company further agrees that no advancement or payment by the Secondary Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Secondary Indemnitors

 

10


 

shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company.  The Company and Indemnitee agree that the Secondary Indemnitors are express third party beneficiaries of the terms of this Section 13(c).]

 

(d)                                  [Except as provided in paragraph (c) above,] in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee [(other than against the Secondary Indemnitors)], who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

 

(e)                                   [Except as provided in paragraph (c) above,] the Company’s obligation to provide indemnification or advancement hereunder to Indemnitee who is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement from such other Enterprise.

 

Section 14.                                     Duration of Agreement .  This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director of the Company or (b) one (1) year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto.  This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators.  The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

 

Section 15.                                     Severability .  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

 

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Section 16.                                     Enforcement .

 

(a)                                  The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve or continue to serve as a director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director of the Company.

 

(b)                                  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided , however , that this Agreement is a supplement to and in furtherance of the Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

 

Section 17.                                     Modification and Waiver .  No supplement, modification or amendment, or waiver of any provision, of this Agreement shall be binding unless executed in writing by the parties thereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.  No supplement, modification or amendment of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee prior to such supplement, modification or amendment.

 

Section 18.                                     Notice by Indemnitee .  Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification, reimbursement or advancement as provided hereunder.  The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

 

Section 19.                                     Notices .  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (iii) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (iv) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:

 

(a)                                  If to Indemnitee, at such address as Indemnitee shall provide to the Company.

 

(b)                                  If to the Company to:

 

Axcella Health Inc.

 

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840 Memorial Drive

Cambridge, MA 02139

Attention: [  ]

 

or to any other address as may have been furnished to Indemnitee by the Company.

 

Section 20.                                     Contribution .  To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect (i) the relative benefits received by the Company and Indemnitee in connection with the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transactions.

 

Section 21.                                     Internal Revenue Code Section 409A .  The Company intends for this Agreement to comply with the Indemnification exception under Section 1.409A-1(b)(10) of the regulations promulgated under the Internal Revenue Code of 1986, as amended (the “ Code ”), which provides that indemnification of, or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by Indemnitee with respect to a bona fide claim against Indemnitee or the Company do not provide for a deferral of compensation, subject to Section 409A of the Code, where such claim is based on actions or failures to act by Indemnitee in his or her capacity as a service provider of the Company.  The parties intend that this Agreement be interpreted and construed with such intent.

 

Section 22.                                     Applicable Law and Consent to Jurisdiction .  This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules.  Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) consent to service of process at the address set forth in Section 19 of this Agreement with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

 

Section 23.                                     Headings .  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

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Section 24.                                     Identical Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

 

 

AXCELLA HEALTH INC.

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

[Indemnitee]

 




Exhibit 10.9

 

AXCELLA HEALTH INC.

 

[FORM OF] OFFICER INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (“ Agreement ”) is made as of [                ] by and between Axcella Health Inc., a Delaware corporation (the “ Company ”), and [Officer] (“ Indemnitee ”).(1)

 

RECITALS

 

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company;

 

WHEREAS, in order to induce Indemnitee to provide or continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;

 

WHEREAS, the Amended and Restated Certificate of Incorporation (as amended and in effect from time to time, the “ Charter ”) and the Amended and Restated Bylaws (as amended and in effect from time to time, the “ Bylaws ”) of the Company require indemnification of the officers and directors of the Company, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “ DGCL ”);

 

WHEREAS, the Charter, the Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;

 

WHEREAS, the Board of Directors of the Company (the “ Board ”) has determined that the increased difficulty in attracting and retaining highly qualified persons such as Indemnitee is detrimental to the best interests of the Company’s stockholders;

 

WHEREAS, it is reasonable and prudent for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law, regardless of any amendment or revocation of the Charter or the Bylaws, so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and

 

WHEREAS, this Agreement is a supplement to and in furtherance of the indemnification provided in the Charter, the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

 


(1)  To be entered into with all C-level officers and Section 16 officers.

 


 

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

 

Section 1.                                            Services to the Company .  Indemnitee agrees to [continue to] serve as [a director and] an officer of the Company.  Indemnitee may at any time and for any reason resign from [any] such position (subject to any other contractual obligation or any obligation imposed by law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position.  This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee.

 

Section 2.                                            Definitions .

 

As used in this Agreement:

 

(a)                                  “Change in Control” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

 

(b)                                  Corporate Status ” describes the status of a person as a current or former [director or] officer of the Company or current or former director, manager, partner, officer, employee, agent or trustee of any other Enterprise which such person is or was serving at the request of the Company.

 

(c)                                   Enforcement Expenses ” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with an action to enforce indemnification or advancement rights, or an appeal from such action.  Expenses, however, shall not include fees, salaries, wages or benefits owed to Indemnitee.

 

(d)                                  Enterprise ” shall mean any corporation (other than the Company), partnership, joint venture, trust, employee benefit plan, limited liability company, or other legal entity of which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee.

 

(e)                                   Expenses ” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or

 

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expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding or an appeal resulting from a Proceeding.  Expenses, however, shall not include amounts paid in settlement by Indemnitee, the amount of judgments or fines against Indemnitee or fees, salaries, wages or benefits owed to Indemnitee.

 

(f)                                    Independent Counsel ” means a law firm, or a partner (or, if applicable, member or shareholder) of such a law firm, that is experienced in matters of Delaware corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company, any subsidiary of the Company, any Enterprise or Indemnitee in any matter material to any such party; or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.  The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

(g)                                   The term “ Proceeding ” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was [a director or] an officer of the Company or is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise or by reason of any action taken by Indemnitee or of any action taken on his or her part while acting as [a director or] an officer of the Company or while serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement; provided , however , that the term “Proceeding” shall not include any action, suit or arbitration, or part thereof, initiated by Indemnitee to enforce Indemnitee’s rights under this Agreement as provided for in Section 12(a) of this Agreement.

 

Section 3.                                            Indemnity in Third-Party Proceedings .  The Company shall indemnify Indemnitee to the extent set forth in this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor.  Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties, excise taxes, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.

 

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Section 4.                                            Indemnity in Proceedings by or in the Right of the Company .  The Company shall indemnify Indemnitee to the extent set forth in this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor.  Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company.  No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery (the “ Delaware Court ”) shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court shall deem proper.

 

Section 5.                                            Indemnification for Expenses of a Party Who is Wholly or Partly Successful .  Notwithstanding any other provisions of this Agreement and except as provided in Section 7, to the extent that Indemnitee is a party to or a participant in any Proceeding and is successful in such Proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith.  If Indemnitee is not wholly successful in such Proceeding but is successful as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with each successfully resolved claim, issue or matter.  For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

Section 6.                                            Reimbursement for Expenses of a Witness or in Response to a Subpoena .  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, (i) is a witness in any Proceeding to which Indemnitee is not a party and is not threatened to be made a party or (ii) receives a subpoena with respect to any Proceeding to which Indemnitee is not a party and is not threatened to be made a party, the Company shall reimburse Indemnitee for all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

 

Section 7.                                            Exclusions .  Notwithstanding any provision in this Agreement to the contrary, the Company shall not be obligated under this Agreement:

 

(a)                                  to indemnify for amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such amounts under any insurance policy, contract, agreement or otherwise;

 

(b)                                  to indemnify for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state

 

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statutory law or common law, or from the purchase or sale by Indemnitee of such securities in violation of Section 306 of the Sarbanes-Oxley Act of 2002, as amended (“ SOX ”);

 

(c)                                   to indemnify for any reimbursement of, or payment to, the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company pursuant to Section 304 of SOX or any formal policy of the Company adopted by the Board (or a committee thereof), or any other remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law;

 

(d)                                  to indemnify with respect to any Proceeding, or part thereof, brought by Indemnitee against the Company, any legal entity which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding or part thereof and (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided , however , that this Section 7(d) shall not apply to (A) counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee or (B) any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought as described in Section 12; or

 

(e)                                   to provide any indemnification or advancement of expenses that is prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).

 

Section 8.                                            Advancement of Expenses .  Subject to Section 9(b), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made as incurred, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) from time to time, whether prior to or after final disposition of any Proceeding.  Advances shall be unsecured and interest free.  Advances shall be made without regard to Indemnitee’s (i) ability to repay the expenses, (ii) ultimate entitlement to indemnification under the other provisions of this Agreement, and (iii) entitlement to and availability of insurance coverage, including advancement, payment or reimbursement of defense costs, expenses of covered loss under the provisions of any applicable insurance policy (including, without limitation, whether such advancement, payment or reimbursement is withheld, conditioned or delayed by the insurer(s)).  Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that Indemnitee undertakes to the fullest extent required by law to repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company.  The right to advances under this paragraph shall in all events continue until final disposition of any Proceeding, including any appeal therein.  Nothing in this Section 8 shall limit Indemnitee’s right to advancement pursuant to Section 12(e) of this Agreement.

 

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Section 9.                                          Procedure for Notification and Defense of Claim .

 

(a)                                  To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor specifying the basis for the claim, the amounts for which Indemnitee is seeking payment under this Agreement, and all documentation related thereto as reasonably requested by the Company.

 

(b)                                  In the event that the Company shall be obligated hereunder to provide indemnification for or make any advancement of Expenses with respect to any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, or any claim, issue or matter therein, with counsel approved by Indemnitee (which approval shall not be unreasonably withheld or delayed) upon the delivery to Indemnitee of written notice of the Company’s election to do so.  After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of such defense, or (C) the Company shall not continue to retain such counsel to defend such Proceeding, then the fees and expenses actually and reasonably incurred by Indemnitee with respect to his or her separate counsel shall be Expenses hereunder.

 

(c)                                   In the event that the Company does not assume the defense in a Proceeding pursuant to paragraph (b) above, then the Company will be entitled to participate in the Proceeding at its own expense.

 

(d)                                  The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed).  The Company shall not, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed), enter into any settlement which (i) includes an admission of fault of Indemnitee, any non-monetary remedy imposed on Indemnitee or any monetary damages for which Indemnitee is not wholly and actually indemnified hereunder or (ii) with respect to any Proceeding with respect to which Indemnitee may be or is made a party or may be otherwise entitled to seek indemnification hereunder, does not include the full release of Indemnitee from all liability in respect of such Proceeding.

 

Section 10.                                     Procedure Upon Application for Indemnification .(2)

 

(a)                                  Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if such determination is required by applicable law, with respect to Indemnitee’s entitlement to indemnification hereunder shall be made in the specific case by one of the following methods: [(x) if a Change in Control shall have occurred and indemnification is

 


(2)  Bracketed portions for CEO Director version only

 

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being requested by Indemnitee hereunder in his or her capacity as a director of the Company, by Independent Counsel in a written opinion to the Board; or (y) in any other case,] (i) by a majority vote of the disinterested directors, even though less than a quorum; (ii) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum; or (iii) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board.  For purposes hereof, disinterested directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought.  In the case that such determination is made by Independent Counsel, a copy of Independent Counsel’s written opinion shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) days after such determination.  Indemnitee shall cooperate with the Independent Counsel or the Company, as applicable, in making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such counsel or the Company, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any out-of-pocket costs or expenses (including reasonable attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Independent Counsel or the Company shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

 

(b)                                  If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a), the Independent Counsel shall be selected by the Board[; provided that, if a Change in Control shall have occurred and indemnification is being requested by Indemnitee hereunder in his or her capacity as a director of the Company, the Independent Counsel shall be selected by Indemnitee].  Indemnitee [or the Company, as the case may be,] may, within ten (10) days after written notice of such selection, deliver to the Company [or Indemnitee, as the case may be,] a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion.  Absent a proper and timely objection, the person so selected shall act as Independent Counsel.  If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit.  If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a), and (ii) the final disposition of the Proceeding, including any appeal therein, no Independent Counsel shall have been selected without objection, either Indemnitee or the Company may petition the Delaware Court for resolution of any objection which shall have been made by Indemnitee or the Company to the selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate.   The person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(a) hereof.  Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

 

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Section 11.                                   Presumptions and Effect of Certain Proceedings .

 

(a)                                  To the extent permitted by applicable law, in making a determination with respect to entitlement to indemnification hereunder, it shall be presumed that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.  Neither (i) the failure of the Company or of Independent Counsel to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor (ii) an actual determination by the Company or by Independent Counsel that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

 

(b)                                  The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty, nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.

 

(c)                                   The knowledge and/or actions, or failure to act, of any director, manager, partner, officer, employee, agent or trustee of the Company, any subsidiary of the Company, or any Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

 

Section 12.                                     Remedies of Indemnitee .

 

(a)                                  Subject to Section 12(f), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within sixty (60) days after receipt by the Company of the request for indemnification for which a determination is to be made other than by Independent Counsel, (iv) payment of indemnification or reimbursement of expenses is not made pursuant to Section 5 or 6 or the last sentence of Section 10(a) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court of his or her entitlement to such indemnification or advancement.  Alternatively, Indemnitee, at his or her option, may seek an award in arbitration to

 

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be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association.  Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided , however , that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 5 of this Agreement.  The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

 

(b)                                  In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination.  In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.

 

(c)                                   If a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

 

(d)                                  The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

 

(e)                                   The Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Enforcement Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Enforcement Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought.  Such written request for advancement shall include invoices received by Indemnitee in connection with such Enforcement Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law need not be included with the invoice.

 

(f)                                    Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding, including any appeal therein.

 

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Section 13.                                   Non-exclusivity; Survival of Rights; Insurance; Subrogation .

 

(a)                                  The rights of indemnification and to receive advancement as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her Corporate Status prior to such amendment, alteration or repeal.  To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

 

(b)                                  To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, partners, officers, employees, agents or trustees of the Company or of any other Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, manager, partner, officer, employee, agent or trustee under such policy or policies.  If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.  The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

 

(c)                                   In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

 

(d)                                  The Company’s obligation to provide indemnification or advancement hereunder to Indemnitee who is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement from such other Enterprise.

 

Section 14.                                     Duration of Agreement .  This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as [both a director and] an officer of the Company or (b) one (1) year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement hereunder and of any proceeding

 

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commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto.  This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators.  The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

 

Section 15.                                     Severability .  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

 

Section 16.                                     Enforcement .

 

(a)                                  The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve or continue to serve as [a director and] an officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as [a director and] an officer of the Company.

 

(b)                                  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided , however , that this Agreement is a supplement to and in furtherance of the Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

 

Section 17.                                     Modification and Waiver .  No supplement, modification or amendment, or waiver of any provision, of this Agreement shall be binding unless executed in writing by the parties thereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.  No supplement, modification or amendment of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee prior to such supplement, modification or amendment.

 

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Section 18.                                     Notice by Indemnitee .  Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification, reimbursement or advancement as provided hereunder.  The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

 

Section 19.                                     Notices .  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (iii) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (iv) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:

 

(a)                                  If to Indemnitee, at such address as Indemnitee shall provide to the Company.

 

(b)                                  If to the Company to:

 

Axcella Health Inc.

840 Memorial Drive

Cambridge, MA 02139

Attention:  Chief Executive Officer

 

or to any other address as may have been furnished to Indemnitee by the Company.

 

Section 20.                                     Contribution .  To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect (i) the relative benefits received by the Company and Indemnitee in connection with the event(s) and/or transaction(s) giving rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transactions.

 

Section 21.                                     Internal Revenue Code Section 409A .  The Company intends for this Agreement to comply with the Indemnification exception under Section 1.409A-1(b)(10) of the regulations promulgated under the Internal Revenue Code of 1986, as amended (the “ Code ”), which provides that indemnification of, or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by Indemnitee with respect to a bona fide claim against Indemnitee or the Company do not provide for a deferral of compensation, subject to Section 409A of the Code, where such claim is based on actions or failures to act by Indemnitee in his or her capacity as a service provider of the Company.  The parties intend that this Agreement be interpreted and construed with such intent.

 

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Section 22.                                     Applicable Law and Consent to Jurisdiction .  This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules.  Except with respect to any arbitration commenced by Indemnitee pursuant to Section 12(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court, and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) consent to service of process at the address set forth in Section 19 of this Agreement with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

 

Section 23.                                     Headings .  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

Section 24.                                     Identical Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

 

 

AXCELLA HEALTH INC.

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

 

[Name of Indemnitee]

 




Exhibit 10.15

 

STOCK REPURCHASE AGREEMENT

 

THIS STOCK REPURCHASE AGREEMENT (this “ Agreement ”) is effective as of the 31st day of May, 2018 (the “ Effective Date ”), by and  between  (i) Axcella Health, Inc., a Delaware corporation (the “ Company ”), and (ii) Robert Connelly (the “ Repurchase Stockholder ”).

 

RECITALS

 

WHEREAS, the Repurchase Stockholder owns of record and beneficially 1,154,655 shares of the Company’s Common Stock, par value $0.001 per share, and the Company (the “ Owned Shares ”);

 

WHEREAS, the Company lent the Repurchase Stockholder funds pursuant to a Promissory Note, dated as of September 5, 2013 (the “ Note ”), and the outstanding principal of the Note as of the Effective Date is $529,986.64, and the outstanding interest accrued on such principal as of the Effective Date is $38,171.97, for a current outstanding balance as of the Effective Date of $568,158.61 (the “ Balance ”); and

 

WHEREAS, the Repurchase Stockholder desires for the Company to repurchase 168,594 Owned Shares (the “ Repurchase Shares ”) , at cost which is $3.37 per share, resulting in an aggregate repurchase price of $568,161.78, which shall satisfy the Balance and discharge Repurchase Stockholder’s obligations under the Note, and the Company desires to make such repurchase.

 

NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement, the parties hereto agree as follows:

 

1.                                       Repurchase of Shares .

 

1.1                                Repurchase and Cancellation . Subject to the terms and conditions of this Agreement, the Repurchase Stockholder agrees to sell, assign, transfer, convey and deliver to the Company, and the Company agrees to purchase, accept and take from the Repurchase Stockholder, at the Closing (as defined in Section 1.2) the Repurchase Shares as consideration for the payment of the Balance and the discharge of all of the Repurchase Stockholders obligations under the Note (the “ Repurchase Consideration ”).  The Repurchase Stockholder agrees that he is not entitled to any consideration other than the Repurchase Consideration in connection with the Company’s purchase of the Repurchase Shares.

 

1.2                                Closing .

 

(a)                                  Subject to the terms and conditions of this Agreement, the closing of the repurchase of Repurchase Shares by the Company from the Repurchase Stockholder, pursuant to this Agreement (the “ Closing ”) shall take remotely via the exchange of documents and signatures on the Effective Date.

 

(b)                                  On or before the Closing, the Repurchase Stockholder shall deliver to the Company the original certificate representing the Repurchase Shares to be transferred by the

 


 

Repurchase Stockholder, accompanied by an executed stock assignment in the form attached hereto as Exhibit A .

 

(c)                                   If any certificate representing Repurchase Shares shall have been lost, stolen, mislaid or destroyed, upon receipt of (i) an affidavit of that fact from the Repurchase Stockholder claiming such certificate to be lost, mislaid, stolen or destroyed, (ii) such indemnity as the Company may reasonably require and (iii) any other documents necessary to evidence and effect the repurchase thereof, the Company shall deliver to the Repurchase Stockholder the applicable consideration for the Repurchase Shares represented by such lost, stolen, mislaid or destroyed certificate.

 

1.3                                Taxes . (a) The Repurchase Stockholder shall pay all sales or transfer taxes payable with respect to the repurchase of shares hereunder, as well as any income taxes payable with respect to the repurchase of the Repurchase Shares.  (b) The parties agree for all income tax purposes that the fair market value of the Repurchase Shares is $568,161.78 and shall not take any position to the contrary unless required by a final determination to the contrary.

 

2.                                       Representations and Warranties of the Company .

 

2.1                                Representations and Warranties of the Company . As a material inducement to the Repurchase Stockholder to enter into and perform their respective obligations under this Agreement, the Company represents and warrants to the Repurchase Stockholder that:

 

(a)                                  The Company has all requisite corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby.

 

(b)                                  All corporate action on the part of the Company and its officers, directors and stockholders necessary for the authorization, execution, delivery and performance of all obligations of the Company under this Agreement has been or will be taken prior to or concurrently with the Closing. This Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally or by equitable principles and (ii) general principles of equity (including, without limitation, the availability of specific performance, injunctive relief or other equitable remedies).

 

(c)                                   The execution, delivery and performance of this Agreement by the Company, and the consummation by the Company of the transactions contemplated hereby, will not (i) conflict with or result in a violation of any provision of the Company’s certificate of incorporation or bylaws, (ii) result in any violation of, or be in conflict with, or constitute, with or without the passage of time or giving of notice, a default under, any provision, instrument, judgment, order, writ, decree, law, rule, regulation, license, permit or contract by which the Company or its assets are bound, or (iii) constitute, with or without the passage of time or giving of notice, an event that results in the creation of any lien, charge, restriction, claim, security interest or encumbrance (collectively, “ Encumbrances ”) upon the Company or any assets of the Company.

 

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2.2                                Representations and Warranties of the Repurchase Stockholder . As a material inducement to the Company to enter into and perform its obligations under this Agreement, the Repurchase Stockholder represents and warrants to the Company as follows:

 

3


 

(a)                                  The Repurchase Stockholder has all requisite power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. All action on the part of the Repurchase Stockholder and, as applicable, its directors, officers, members, partners and stockholders necessary for the authorization, execution, delivery and performance of all obligations of the Repurchase Stockholder under this Agreement has been or will be taken prior to Closing. This Agreement constitutes the valid and legally binding obligation of the Repurchase Stockholder, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally or by equitable principles and (ii) general principles of equity (including, without limitation, the availability of specific performance, injunctive relief, or other equitable remedies.

 

(b)                                  The execution, delivery and performance of this Agreement by the Repurchase Stockholder, and the consummation by the Repurchase Stockholder of the transactions contemplated hereby, will not (i) conflict with or result in a violation of any provision of the Repurchase Stockholder’s governing documents, (ii) result in any violation of, or be in conflict with, or constitute, with or without the passage of time or giving of notice, a default under, any provision, instrument, judgment, order, writ, decree, law, rule, regulation, license, permit or contract by which the Repurchase Stockholder or its assets are bound, or (iii) constitute, with or without the passage of time or giving of notice, an event that results in the creation of any Encumbrances upon the Repurchase Stockholder or any assets of the Repurchase Stockholder. The consummation by the Repurchase Stockholder of the transactions contemplated hereby does not require the consent of any third party not obtained.

 

(c)                                   The Repurchase Stockholder is the sole record and beneficial owner of all of the Repurchase Shares, free and clear of all  options, calls  or Encumbrances;  provided, however, that such shares may be subject to such restrictions as are set forth in the Company’s certificate of incorporation, equity incentive plan, and current financing documents (collectively, the “ Related Agreements ”). At the Closing, the Company shall take good and marketable title to the Repurchase Shares, free and clear of all options, calls or Encumbrances. Other than the Related Agreements, the Repurchase Stockholder is not a party to any stockholders agreement, voting agreement, voting trust or similar agreement or arrangement relating to any of the Repurchase Shares.

 

(d)                                  The Repurchase Stockholder is sophisticated in financial and business matters and has such knowledge and experience in transactions of the sort contemplated by this Agreement so as to be capable of evaluating and understanding the merits and risks of the transactions contemplated by this Agreement, has received certain information concerning the Company and has had the opportunity to obtain such additional information as it has requested in order to evaluate the merits of and the risks inherent in such transactions. The Repurchase Stockholder has determined based on its own investigation that the repurchase of the Repurchase Shares for the Repurchase Consideration pursuant to this Agreement is fair under the circumstances.

 

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3.                                       General .

 

3.1                                Further Assurances . The Company and the Repurchase Stockholder agree to (a) furnish upon request to any other party such further information, (b) execute and deliver to any other party such other documents and (c) do such other acts and things, all as such other party may reasonably request for the purpose of carrying out the intent of this Agreement and the transactions contemplated by this Agreement.

 

3.2                                Survival . All representations and warranties made by any party in this Agreement or pursuant hereto shall survive any investigation made at any time by or on behalf of any other party and shall survive the Closing. The covenants and agreements set forth in this Agreement shall survive the Closing and shall continue until all obligations set forth therein shall have been performed or satisfied or they shall have terminated in accordance with their terms.

 

3.3                                Successors and Assigns . Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

3.4                                Entire Agreement . This Agreement and the documents referred to herein constitute the entire agreement among the parties and supersede all prior communications, representations, understandings and agreements of the parties with respect to the subject matter hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. All Exhibits hereto are hereby incorporated herein by reference. Nothing in this Agreement, express or implied, is intended to confer upon any third party any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

3.5                                Injunctive Relief . Each of the Repurchase Stockholder and the Company acknowledges and agrees that in view of the uniqueness of the Repurchase Shares, damages at law would be insufficient for breach by a party of any of its covenants in this Agreement. Accordingly, each party agrees that in the event of breach or threatened breach by such party of any provisions of this Agreement, the non-breaching parties shall be entitled to equitable relief in the form of an order to specifically perform or an injunction to prevent irreparable injury, without being required to provide security or post bond. Nothing herein shall be construed as prohibiting any party hereto from pursuing solely or in addition any other remedies, including damages, for breach or threatened breach of this Agreement.

 

3.6                                        Governing Law . This Agreement, and all matters arising directly or indirectly herefrom, shall be governed by and construed under the laws of Delaware without regard to the provisions thereof relating to choice of law or conflicts of law. Any suit, action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be

 

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brought against any of the parties only in the courts of the State of Delaware, or, if it has or can acquire the necessary jurisdiction, in the United States District Court located in Delaware.

 

3.7                                Counterparts; Facsimile Signatures . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may be executed by facsimile signatures.

 

3.8                                Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

3.9                                Notices . All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified; (b) when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one (1) business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address as set forth on the signature page hereof and to the Repurchase Stockholder at the Repurchase Stockholder’s address set forth on the signature page hereto or at such other address as the Company or the Repurchase Stockholder may designate by ten (10) days advance written notice to the other parties hereto.

 

3.10                         Finders’ Fees . Each party hereto represents that it is not,  and will not be, obligated for any finders’ fee, broker’s fee or commission in connection with this transaction. The Repurchase Stockholder agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders’ fee or broker’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Repurchase Stockholder or, as applicable, any of its officers, directors, employees or representatives is or may be found responsible.

 

3.11                         Amendments and Waivers . This Agreement may be amended or waived only by written instrument duly executed by the Company and the Repurchase Stockholder. Any waiver must be in writing, and any waiver by any party of breach of any provision of this Agreement shall not operate as or be construed to be waiver of any other breach of that provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions will not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

 

3.12                         Severability . If any provision of this Agreement is held to be unenforceable under applicable law, such provision shall be deemed severed from this Agreement and the remainder of this Agreement shall continue in full force and effect. The parties agree to replace any unenforceable provision with a substitute provision that, to the maximum extent permitted by applicable law, reflects the original intentions of the parties and is enforceable.

 

[Signatures appear on following pages . ]

 

6


 

IN WITNESS WHEREOF, the parties have executed this Share Repurchase Agreement as of the Effective Date.

 

COMPANY:

 

AXCELLA HEALTH, INC.

 

 

 

 

 

By:

/s/ David A. Epstein

 

 

 

Name:

David A. Epstein

 

 

 

Title:

Chairman Axcella Health

 

 

 

REPURCHASE STOCKHOLDER :

 

 

 

 

 

 

 

ROBERT CONNELLY

 

 

 

 

 

 

By:

/s/ Robert Connelly

 

 

 

 

 

Address:

 

 


 

EXHIBIT A

FORM OF STOCK ASSIGNMENT

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers or otherwise relinquishes, as applicable, unto Axcella Health, Inc., a Delaware corporation (the “ Corporation ”), 168,594 shares of Common Stock of the Corporation standing in the undersigned’s name on the books of the Corporation, and represented by Certificate No.    , and does hereby irrevocably constitute and appoint the Secretary of the Corporation or such other authorized officer of the Corporation as attorney-in-fact, with full power of substitution, to transfer the stock on the books of the Corporation.

 

Dated:  May 29, 2018

 

 

ROBERT CONNELLY

 

 

 

 

By:

/s/ Robert Connelly

 




Exhibit 21.1

 

Subsidiaries of the Registrant

 

Entity

 

Jurisdiction of Incorporation or Organization

Acora Nutrition LLC

 

Delaware

Axcella Health Securities Corporation

 

Massachusetts

 




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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

          We consent to the use in this Registration Statement on Form S-1 of our report dated March 15, 2019 relating to the consolidated financial statements of Axcella Health Inc. appearing in the Prospectus, which is part of this Registration Statement.

          We also consent to the reference to us under the heading "Experts" in such Prospectus.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts
April 12, 2019




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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM