Our Business

Overview

We are a biopharmaceutical company focused on the development of vascular disrupting agents, or VDAs, for the treatment of cancer. VDAs selectively target the vasculature of cancer tumors and obstruct a tumor’s blood supply without disrupting the blood supply to normal tissues. Treatment with VDAs has been shown to lead to rapid and significant death of cancer cells within tumors.

VDAs are in a class of drugs called vascular targeted therapies, or VTTs, which also includes anti-angiogenic agents, or AAs. There are over 12 AAs approved in the U.S. for over 15 different oncology indications. According to Datamonitor, 2015 sales for AAs were estimated to exceed $10 billion. Genentech’s bevacizumab (Avastin ^® ) had the greatest market share, with 2015 estimated sales of approximately $6.7 billion. Bevacizumab and other AA drugs work by preventing angiogenesis, or the growth of new blood vessels.

We are seeking to realize the full potential of VTTs in oncology by using the combination of VDAs and AAs to treat cancer. Our VDAs have been shown to rapidly cut off the blood supply to the tumor, which causes necrosis, or death, of the cancer cells in the interior of the tumor. Conversely, AAs inhibit angiogenesis, which is the process by which new tumor blood vessels form. If a VDA were given in the absence of an AA, angiogenesis would allow new blood vessels to re-vascularize the tumor, including the interior where the VDA had caused tumor cell necrosis.

Our current VDA development plans are focused on the combination of VDAs and AAs because the mechanism of action of each drug complements that of the other — disrupting tumor blood supply in two different ways instead of just one. We believe that our VDA’s direct effect on established tumor blood vessels combined with the AA’s prevention of new blood vessel formation results in a significantly greater benefit to patients than either drug alone. Our belief in the benefit of this combination is supported by numerous preclinical studies, as well as clinical studies which demonstrate improved progression-free survival and objective response rate, as well as trends in overall survival.

Interestingly, our VDAs have consistently shown a stronger treatment effect in larger tumors than in smaller tumors, which is in contrast to the majority of conventional therapies currently used for the treatment of cancer. The greater effect of our VDAs on larger tumors occurs because these larger tumors have a greater proportion of tumor cells which depend upon the tumor vasculature for their supply of oxygen and nutrients, and a smaller proportion of tumor cells that have exposure to the tumor rim, where normal tissue blood vessels can supply oxygen and nutrients to the tumor cells. The proportion of the tumor’s blood vessels that are inside the tumor increases as the size of the tumor increases, based on volume-to-surface area ratios, allowing our drug candidates to occlude a greater percentage of a larger tumor’s overall blood supply. The tumor cell necrosis caused by CA4P is greatest in the interior of the tumor, because cancer cells in the interior are fully reliant on the tumor vasculature for their blood supply. Cancer cells on or near the edge of the tumor can receive their blood supply through the tumor vasculature as well as from surrounding, normal vasculature.

We are currently developing two clinical stage investigational drugs, which are both VDAs — CA4P and OXi4503. Our lead compound is CA4P, which is also known as combretastatin A4-phosphate, fosbretabulin tromethamine, fosbretabulin and ZYBRESTAT ^® . The largest clinical trial of CA4P conducted to date was a phase 2 clinical trial in recurrent ovarian cancer sponsored by the Gynecologic Oncology Group, or GOG, which was completed in 2014 and met its primary endpoint by demonstrating an improvement in progression-free survival for the patients who received CA4P. This trial, referred to as GOG-0186I, compared treatment with CA4P plus bevacizumab to treatment with bevacizumab alone. Based on the positive results of this clinical trial, we initiated the FOCUS Study in 2016, a phase 2/3 clinical trial of CA4P in platinum-resistant ovarian cancer, with the goal of determining whether the addition of CA4P improves upon the current standard of care. In the FOCUS Study, we are comparing treatment with CA4P, bevacizumab and physician’s choice chemotherapy

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(PCC) to treatment with bevacizumab and PCC. CA4P is also being studied in combination with pazopanib (Votrient ^® ) in an on-going phase 2 clinical trial in recurrent ovarian cancer that is sponsored by The Christie Hospital NHS Foundation Trust in the United Kingdom. Our second compound, OXi4503, is being studied in combination with cytarabine in an ascending-dose phase 1/2 clinical trial in patients with relapsed or refractory acute myeloid leukemia (AML) or myelodysplastic syndromes (MDS).

In 2016, we received Fast Track designation for CA4P for the treatment of platinum-resistant ovarian cancer. Companies with Fast Track designation are able to benefit from more frequent meetings and communications with the United States Food and Drug Administration, or the FDA, regarding development plans to support product registration, and may also be eligible for priority review of New Drug Applications, which shortens FDA’s standard review timeline. We have also been granted orphan drug designation for CA4P for the treatment of ovarian cancer in the United States and the European Union, and for OXi4503 for the treatment of AML in the United States and the European Union.

To date, we have observed CA4P to be well tolerated in over 475 patients and to have clinical activity in a variety of indications in addition to ovarian cancer.

CA4P Development Program

CA4P is a reversible tubulin-binding agent that selectively targets endothelial cells, which make up the interior lining of blood vessel walls in most solid tumors. CA4P causes these endothelial cells to change shape and detach, which obstructs the flow of blood to the tumor and starves the tumor of vital nutrients and oxygen. The resultant tumor ischemia leads to rapid downstream tumor cell death. Although CA4P acts quickly, within minutes of infusion, and its circulating half-life is approximately 4 hours, the anti-tumor effects caused by CA4P generally last for several weeks, until tumor regrowth aided by revascularization occurs. CA4P is given to patients via a 10 minute intravenous infusion.

Ovarian Cancer

Our primary focus for 2017 will be the development of CA4P for platinum-resistant ovarian cancer.

Approximately 22,000 women in the U.S. are diagnosed with ovarian cancer each year. This form of cancer is thought to begin in the ovaries and often spreads to the rest of the pelvis and abdomen prior to detection, resulting in a relatively poor prognosis. More than 60% of women diagnosed with ovarian cancer are in stage III or IV, making ovarian cancer difficult to treat and often fatal, with a five-year survival rate of approximately 45% — a rate which is largely unchanged since the 1990s. Overall, approximately 80% of patients diagnosed with ovarian epithelial, fallopian tube, and primary peritoneal cancer will relapse after first-line platinum-based and taxane-based chemotherapy. When treating recurrent ovarian cancer, the time between receiving the last dose of platinum-based chemotherapy and disease recurrence is used to help determine the choice of therapy used in the next line of treatment. Patients are considered to have platinum-resistant disease if the cancer progresses within six months of completing platinum-based chemotherapy. Approximately 25% of those who relapse after initial treatment, or more than 4,000 women, have platinum-resistant cancer, the most difficult-to-treat form of the disease. Additionally, a majority of patients who are not initially platinum-resistant and who may achieve remission following first-line therapy will also develop recurrent disease. There are relatively few treatments that have been approved for ovarian cancer, and fewer for platinum-resistant ovarian cancer. Approved drugs for ovarian cancer include bevacizumab, carboplatin and cisplatin, gemcitabine, doxorubicin, paclitaxel and olaparib. Many patients eventually become resistant to platinum-based therapies, and new treatment agents are needed.

In December 2014, the FDA approved bevacizumab in combination with chemotherapy (paclitaxel, pegylated liposomal doxorubicin, or topotecan) for the treatment of women with platinum-resistant ovarian cancer, based on results from the phase 3 AURELIA trial, which had a primary endpoint of PFS, or progression-free survival. Accordingly, PFS is the primary endpoint for our FOCUS trial. Bevacizumab is also approved in the EU in combination with different chemotherapy regimens for platinum-resistant and platinum-sensitive ovarian cancer, and the EU approvals were also based on PFS. In December 2016, the FDA approved bevacizumab for the treatment of platinum-sensitive ovarian cancer also, which could expand our market opportunity for CA4P, although we are presently not studying CA4P in platinum-sensitive disease.

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CA4P has been granted Fast Track designation in the U.S. for treatment of platinum-resistant ovarian cancer. CA4P has also been granted orphan drug designation in both the U.S. and the European Union for the treatment of ovarian cancer.

CA4P in Combination with Bevacizumab—Completed Phase 2 Clinical Trial with Positive Results (GOG-0186I)

Genentech’s bevacizumab is an anti-vascular endothelial growth factor, or VEGF, monoclonal antibody which has been approved for the treatment of ovarian cancer in the United States and elsewhere. The GOG-0186I clinical trial was conducted by the GOG, now part of NRG Oncology, under the sponsorship of the Cancer Therapy Evaluation Program (CTEP) of the National Cancer Institute (NCI), and was a randomized, two-arm phase 2 clinical trial evaluating CA4P plus bevacizumab compared to bevacizumab alone in patients with recurrent ovarian cancer.

The GOG-0186I clinical trial enrolled a total of 107 patients with recurrent ovarian cancer at 67 clinical sites in the United States. The results indicated a statistically significant increase in progression-free survival (PFS) in the combination arm, which was the primary endpoint of the trial, with a p-value of 0.049 (pre-specified analysis using a one-sided test; 10% level of significance). The hazard ratio was 0.685, with a 90% 2-sided confidence interval (CI) of 0.47 ~1.00. Median PFS was 7.3 months for CA4P plus bevacizumab (n=54), compared to 4.8 months for bevacizumab alone (n= 53). Patients in both arms were treated until disease progression or adverse effects prohibited further therapy.

In a post-hoc subgroup analysis, data showed that patients who were platinum-resistant had an even greater improvement in PFS with the combination. Among the 27 patients who were platinum-resistant, median PFS was 6.7 months for those receiving CA4P plus bevacizumab compared to 3.4 months for those receiving bevacizumab alone, and the results were statistically significant with a p-value of 0.01 and a hazard ratio of 0.57. These findings suggest that adding CA4P to bevacizumab has a greater effect in the difficult-to-treat platinum-resistant patient group than it does for platinum-sensitive patients. Although the results were stronger for the platinum-resistant patients, the 80 patients who were platinum-sensitive still showed a numerical improvement in PFS for the combination therapy, with a median PFS of 7.6 months for those receiving CA4P plus bevacizumab compared to 6.1 months for those receiving bevacizumab alone, although the results were not statistically significant, with a p-value of 0.139 and a hazard ratio of 0.67.

Based on the final dataset as of November 2015, the median overall survival (OS) for the GOG-0186I Study in the intent-to-treat (ITT) group was 3.2 months longer for the CA4P-treated patients compared to the control patients (25.2 vs. 22.0 months, respectively; HR=0.83, p=NS).

The GOG-0186I Study included 81 patients (75.7% of study patients) with recurrent ovarian cancer that was deemed “measurable”, as defined by RECIST criteria, and 26 patients (24.3%) deemed “non-measurable.” Measurable disease is generally defined as primary tumor sizes greater than 1 cm in diameter, while non-measurable tumors are generally identified and monitored by increased serum CA-125 antigen levels, ascites, or other clinical signs of disease. Patients with measurable disease who received the combination of CA4P and bevacizumab achieved a higher objective response rate, or ORR, a secondary endpoint in the clinical trial, measured according to RECIST criteria. Although not a statistically significant result, patients receiving the combination had an ORR of 35.7% (n=42; 90% CI 23.5 ~ 49.5%) compared to 28.2% for patients on bevacizumab alone (n=39; 90% CI 16.7 ~ 42.3%). In the subgroup of platinum-resistant patients, the addition of CA4P to bevacizumab increased ORR to 40.0% (n=10) compared to 12.5% (n=8) for bevacizumab alone.

More importantly, patients with measurable disease treated with CA4P had a 5.6 month improvement in median OS (26.8 vs. 21.2 months; 22% reduction in the risk of death; HR=0.78, not statistically significant), and a 3.7 month improvement in progression free survival (PFS) (9.8 vs. 6.1 months; HR=0.60, p=0.027) compared to control patients with measurable disease. Additional analyses were conducted on patients with measurable disease whose tumors were larger than the median baseline tumor size (tumor size ³ 5.7 cm; n=41), showing CA4P-treated patients with these larger tumors experienced a 48% reduction in the risk of death (HR=0.52; p=0.095) and a 6.2 month improvement in median PFS (10.5 vs. 4.3 months; HR=0.55, p=0.071) compared to control patients.

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All adverse events in the clinical trial were manageable, with one Grade 4 event occurring in each treatment arm. Consistent with prior clinical experience with CA4P, patients in the combination arm experienced an increased incidence of Grade 3 hypertension compared to the control arm (17 events for the combination compared to 10 events for bevacizumab alone). One patient on the combination regimen had a Grade 3 thromboembolic event. All cases of hypertension were managed with anti-hypertensive treatments, as specified in the clinical trial protocol.

CA4P in Combination with Bevacizumab and Physician’s Choice Chemotherapy—Phase 2/3 FOCUS Study

Based on the positive overall results from the GOG-0186I clinical trial in recurrent ovarian cancer, including the stronger results among the subgroup of platinum-resistant patients and among the patients with measurable disease, we initiated the FOCUS Clinical Study in June 2016. FOCUS is a phase 2/3 clinical trial of CA4P seeking to demonstrate whether CA4P improves upon the current standard of care for platinum-resistant ovarian cancer — the current standard of care being treatment with both bevacizumab and chemotherapy. The primary endpoint of FOCUS is PFS, and secondary endpoints include ORR, OS and safety. If results from the second stage of the clinical study meet the primary endpoint, we plan to submit a New Drug Application, or NDA, to the FDA. The FDA has approved the protocol for FOCUS.

In FOCUS, we are enrolling platinum-resistant ovarian cancer patients with measurable disease, and randomizing them on a 1:1 basis into either the treatment group or the control group. The treatment group receives CA4P, bevacizumab and PCC, while the control group receives only bevacizumab and PCC. The clinical trial is designed in two sequential stages — in the first stage we are enrolling up to 80 patients and conducting interim analyses after 20, 40, 60 and 80 patients have been treated for approximately three months. The goal of the first stage is to verify efficacy seen in the GOG-0186I Study, confirm the safety of the treatment regimen in this population, and to confirm powering assumptions for the second stage. In the second stage, which is designed to support registration of CA4P in the United States and elsewhere, we plan to enroll up to 356 additional patients.

The FOCUS Study is currently enrolling patients in the United States and western Europe, with the first interim analysis expected in April 2017.

CA4P in Combination with Pazopanib—Ongoing Phase 2 Clinical Trial

Pazopanib is an anti-angiogenic oral tyrosine kinase inhibitor that is currently approved by the FDA for the treatment of renal cell carcinoma (RCC) and soft tissue sarcoma (STS). Pazopanib is also approved for ovarian and other cancers in the European Union, and was initially developed by GlaxoSmithKline, then sold to Novartis in 2015. We believe that using CA4P in combination with pazopanib may provide a clinically active yet potentially better tolerated alternative to the current standard of care, cytotoxic chemotherapy, for relapsed ovarian cancer.

The PAZOFOS trial in advanced recurrent ovarian cancer patients consists of a 12 patient phase 1b dose escalation portion with the combination of pazopanib and CA4P, which has been completed, followed by a 120 patient randomized phase 2 portion comparing pazopanib plus CA4P to pazopanib alone in patients with relapsed ovarian cancer. We are incurring limited costs for this trial, which is sponsored by The Christie Hospital NHS Foundation Trust and coordinated by the Manchester Academic Health Science Centre, Trials Coordination Unit, or MAHSC-CTU, with additional support from The University of Manchester, the Royal Marsden NHS Foundation Trust and Mount Vernon Cancer Centre (part of the East and North Hertfordshire NHS Trust).

In October 2014, the first patient was enrolled in the phase 1b portion of the trial, with the goal of finding an appropriate combination dose of CA4P and pazopanib for the phase 2 portion of the trial. Following the investigators’ identification of an appropriate dose combination, in July 2016 the first patient was enrolled in the phase 2 portion of the trial. The primary endpoint of the trial is PFS, and secondary endpoints include ORR, OS and safety.

Neuroendocrine Tumors

Approximately 14,000 patients in the U.S. are diagnosed with neuroendocrine tumors, or NETs, each year. Since patients with NETs can have prolonged survival rates of over 5 years, it is estimated that the overall prevalence is much higher, approximating 100,000 patients in the U.S. These tumors can produce increased amounts of vasoactive

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substances including hormones, many of which are biologically active and can result in debilitating symptoms including flushing, diarrhea, weight loss and, less frequently, bronchoconstriction and heart failure. It is our belief, based on the available preclinical data, that by reducing blood flow to these tumors using CA4P, we may be able to reduce the production of tumor-derived substances, including the biologically active hormones.

We have completed a phase 2 monotherapy clinical trial of CA4P in 18 patients with gastrointestinal or pancreatic NETs and elevated biomarkers. One patient (6%) experienced significant symptomatic improvement as measured by ECOG Status and had a partial response per investigator-assessed RECIST criteria, and an additional 7 patients (39%) had stable disease. In addition, a majority of patients (53%) experienced an improvement in patient-reported quality of life. A statistically significant mean change in biomarkers from baseline, the primary endpoint of the study, was not achieved due to the small sample size along with a high intra-and inter-patient variability observed in the biomarkers. A total of 7 patients were enrolled in a follow-up trial, of which 5 patients (71%) had stable disease, including one that continued for 14 months. The partial response and stable disease analyses, as well as other measures from the trial, suggest that CA4P monotherapy has activity in this indication. Based on the evidence of efficacy observed in this trial, plus an understanding of the benefits of VTT combination therapy, a lead investigator in this trial is sponsoring and funding a 20 patient study in NETs using CA4P in combination with everolimus (AFINITOR ^® , marketed by Novartis), an anti-angiogenic agent which is already approved and commonly used in this indication.

CA4P has been granted orphan drug designation for the treatment of neuroendocrine tumors in both the U.S. and the European Union.

Glioblastoma Multiforme

We are exploring recurrent glioblastoma multiforme, or GBM, as an additional indication for CA4P because:

CA4P has been granted orphan drug designation for the treatment of glioma in the United States. If funds become available for us to initiate and complete a clinical trial in GBM, we expect that we would pursue a trial. However, we currently do not plan to initiate a GBM clinical trial in the near term in order to conserve current resources.

Anaplastic Thyroid Cancer, or ATC

We have previously conducted a randomized, controlled clinical trial in ATC. ATC is one of the most aggressive tumors known and has very few treatment options. Results of the FACT Study, which combined CA4P with chemotherapy and which, in 2010, we terminated early (after 80 patients were enrolled) due to slow enrollment, showed a numerical improvement in OS for the CA4P group (5.2 months) compared to the control group (4.0 months), although the results were not statistically significant. Results also showed an improvement in ORR for the CA4P group (20.0%) compared to the control group (16.0%), although these results were not statistically significant. We believe the numerical improvements shown for the CA4P group compared to the control group provide supportive evidence for the potential benefit of CA4P against this tumor type, and for the overall potential of CA4P against other highly vascular solid tumors.

Non-Small Cell Lung Carcinoma, or NSCLC

We have previously conducted a randomized, controlled clinical trial in NSCLC. NSCLC accounts for most cases of lung cancer, and generally does not respond well to chemotherapy. Results of the FALCON Study,

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completed in 2011, which enrolled 63 patients and combined CA4P with both bevacizumab and chemotherapy, showed a numerical improvement in ORR for the CA4P group (56.3%) compared to the control group (35.5%), although the results were not statistically significant. The FALCON Study only enrolled patients who had not previously received chemotherapy. We believe the patients’ initial exposure to chemotherapy, requiring six cycles in the study, contributed to a high dropout rate among both treatment groups (46.8% and 38.7% for CA4P and control, respectively), making evaluation of PFS, the primary endpoint, difficult. However, we believe the numerical improvements in response rates shown for the CA4P group compared to the control group provide supportive evidence for the potential benefit of CA4P against this tumor type, and for the overall potential of CA4P against other highly vascular solid tumors.

Combination with Immune Oncology Agents—Preclinical Research

Over the last several years, there have been considerable advances in cancer immunotherapy, which makes use of the immune system to treat cancer. However, these immune oncology agents have significant limitations when used as single agents to treat cancer, since relatively few patients achieve a durable clinical response following treatment. Because CA4P causes tumor cell necrosis within hours of its administration, we believe it may in turn release into the circulation tumor antigens that enhance the immune system, and consequently enhance the presence and activity of T-cells within tumors. We believe CA4P’s potential enhanced immunologic effect may result in more and/or better clinical responses in certain cancers when combined with immune oncology agents, including in patients who have not experienced a response to therapy with immune oncology agents alone.

We have completed several preclinical studies evaluating CA4P in combination with immune oncology agents. Of these studies, the best results were found combining CA4P with an anti-CTLA4 antibody in an EMT-6 mammary tumor model. In this study, 7 of 8 mice receiving a combination of CA4P and an anti-CTLA4 antibody experienced complete remission of their tumors, compared to 1 of 8 in the CA4P monotherapy arm and 2 of 8 in the anti-CTLA4 antibody monotherapy arm. Three of four follow-up studies have also indicated that CA4P combined with immune oncology agents can delay tumor growth — these studies were conducted in a larger tumor EMT-6 mammary model, a C3H mammary model and a CT26 colon model, providing additional supportive evidence that CA4P may enhance anti-CTLA4 antibody activity, as well as initial evidence that CA4P may enhance anti PD-1 and PD-L1 activity. Based on these initial results, we are now planning additional preclinical work in this area.

OXi4503 Development Program

In addition to pursuing development of CA4P, we are also pursuing the development of a second product candidate, OXi4503, a novel, dual-mechanism VDA, which not only has been shown to reduce tumor blood flow but which also forms a potentially anti-proliferative metabolite. We believe that this dual mechanism of OXi4503 may result in enhanced anti-tumor activity in certain tumor types. Based on preclinical data, we believe that OXi4503 may be particularly active in certain cancers, including AML, which have relatively high levels of the enzymes that facilitate the conversion of OXi4503 into a metabolite that directly kills tumor cells. OXi4503 has shown potent anti-tumor activity in preclinical studies of solid tumors and AML, and in two clinical studies in advanced solid tumors and liver tumors, both as a single agent and in combination with other anti-proliferative agents.

Acute Myeloid Leukemia

AML is a cancer of the myeloid blood cells, with approximately 10,500 new cases each year in the U.S. AML is characterized by the rapid growth of abnormal white blood cells that pollute bone marrow and interfere with the production of normal blood cells. OXi4503 has been granted orphan drug designation in both the U.S. and the European Union for the treatment of AML.

With support from The Leukemia & Lymphoma Society’s Therapy Acceleration Program, the University of Florida sponsored a phase 1 clinical trial of patients with AML or MDS, a related disorder of the normal blood formation process. 18 patients were enrolled into UF4503, an open label, dose-escalating clinical trial which was

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designed to assess the safety profile, maximum tolerated dose and biologic activity of OXi4503. In October 2015 we closed the investigator-sponsored study and initiated a Mateon-sponsored study, OX1222, prior to the determination of a maximum tolerated dose, in order to bring the clinical trial under our direct management and expand the number of sites enrolling patients.

Initial data from UF4503 was presented at the December 2013 annual meeting of the American Society of Hematology, or ASH. Among the first 13 patients treated at the two lowest dose levels, two patients showed stable disease, one patient had a partial remission and one patient achieved a complete bone marrow response. Side effects included increases in D-dimer (a substance in the blood that is released when a blood clot breaks up), bone pain, fever, chills and flu-like symptoms. Accordingly, OXi4503 appeared to be reasonably well-tolerated based on these results in patients with relapsed and refractory AML and MDS.

In December 2015 we initiated the second stage of OX1222, in which ascending doses of OXi4503 are being used in combination with cytarabine, an FDA-approved drug for the treatment of AML. Data from the first two cohorts of the Mateon-sponsored trial was presented at the December 2016 annual meeting of ASH. The first cohort enrolled 6 patients, each receiving a dose of 3.75 mg/m ² of OXi4503 in combination with an intermediate dose (1g/m ² /day x 5 days) of cytarabine. The second cohort enrolled 4 patients, each receiving a dose of 4.68 mg/m ² of OXi4503 in combination with the same intermediate dose of cytarabine. Patients enrolled into the trial were treatment-resistant, end-stage AML/MDS patients who had on average four prior therapy failures before entering the study. In total 2 of 10 (20%) patients achieved a complete remission (CR) on treatment — one patient of six (17%) responded in the 3.75 mg/m ² dose cohort, and one patient of four (25%) responded in the 4.68 mg/m ² dose cohort. One of these two patients remains in CR at 9 months following treatment with OXi4503 and the other remained in CR for approximately 6 months before the disease recurred.

OXi4503 was generally well tolerated in the first two cohorts of the study. The adverse event profile remains similar to that seen in the monotherapy portion of the trial, with coagulopathies and hematological adverse events the most significant events. The most common drug-related SAEs were anemia (30%), neutropenia (30%), D-dimer increase (20%), thrombocytopenia (20%), and AST increase (20%). One patient in the 3.75 mg/m ² cohort experienced a dose-limiting toxicity of hypofibrinogenemia, or low levels of fibrinogen in the blood, with no clinical evidence of bleeding, which resolved with treatment.

In March 2017 we announced preliminary data from the third cohort, which enrolled 4 patients at a dose of 6.25 mg/m ² of OXi4503 in combination with the same intermediate dose of cytarabine. In the third cohort, one patient (25%) had a CR and one additional patient in the study remained in treatment. The CR in this cohort is particularly encouraging because the patient has a high risk TP53 gene mutation. Similar to the first two cohorts, OXi4503 was generally well tolerated and adverse events were also similar to the first two cohorts, with no significant adverse events. There were no dose-limiting toxicities observed in the third cohort, and following a safety review committee recommendation we initiated enrollment in the fourth cohort, at an OXi4503 dose of 7.81 mg/m ² .

Vascular Disrupting Agents: Background

According to Cancer Research UK, a non-profit cancer research organization in the United Kingdom, nearly 90% of all cancers are solid tumors that are dependent upon a continually evolving vascular supply for their growth and survival. VTTs, which include AAs and VDAs, are designed to interfere with a tumor’s vascular supply.

AAs are drugs that interfere with tumor blood vessel growth, as described further in the table below, and since 2004, a number have been approved for a variety of cancer indications. Development of AAs for new indications continues, and physician adoption of AAs has been rapid. VDAs are drugs that disrupt existing tumor blood vessels. Although a number of VDAs have been in clinical development, to date none have been approved. We believe that the historical focus on development of VDAs as a single agent, rather than as an agent for use in combination with an AA, is the primary reason that VDA development to date has generally not been successful.

While VDAs such as CA4P deprive tumors of blood supply, as do AAs, the mechanism of action of VDAs is quite different than that of AAs. VDAs such as CA4P have a direct effect on existing tumor blood vessels, and act by rapidly obstructing the blood supply to cancer tumors. AAs, on the other hand, act by preventing the

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formation of new blood vessels to cancer tumors. We believe that our VDA drug candidates and approved AAs are complementary to each other in that one agent destroys existing tumor vasculature and the other prevents new tumor vasculature from forming. We intend for substantially all of our future CA4P development to be focused on this combination, rather than pursuing CA4P approval as a monotherapy. We believe our VDAs are a second generation of VTTs that have the potential to improve upon the efficacy of AAs, the first generation of VTTs. Our belief in the synergy of CA4P and AAs is supported by the data we have gathered showing an improvement in certain patient outcomes when both agents are used in combination. Several preclinical studies, as well as the results of the phase 2 GOG-0186I clinical trial, have confirmed the potential of this approach.

As illustrated in the table below, VDA and anti-angiogenic drugs act via different mechanisms to produce complementary biological and anti-vascular effects with mostly non-overlapping side effects. In preclinical studies, VDA plus anti-angiogenic drug combinations demonstrate robust and additive anti-tumor effects. Results from human clinical trials with combinations of CA4P and bevacizumab provide support and initial clinical validation for combining these agents to significantly increase clinical activity without significantly increasing side-effects.

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We believe our VDA drug candidates act on tumor blood vessels via two complementary mechanisms, tubulin depolymerization and disengagement of the junctional protein VE-cadherin, which cause a change in the shape of tumor vascular endothelial cells, tumor vessel occlusion, and the subsequent blockage of blood-flow to the tumor, which deprives the tumor of oxygen and nutrients essential for survival.

In vitro studies have demonstrated that our VDA drug candidates act in a reversible fashion on tubulin inside newly-formed and growing endothelial cells, such as the vascular endothelial cells comprising tumor vasculature. By binding to the tubulin, CA4P is able to alter the structural framework that normally maintains the cells’ flat shape. When this occurs, the shape of the cells changes from flat to round, resulting in physical blockage of the blood vessels. The resulting shutdown in blood-flow then deprives tumor cells of the oxygen and nutrients necessary for maintenance and growth and also prevents tumor cells from being able to excrete toxic metabolic waste products. The consequence of the blockage is extensive tumor cell death.

Preclinical research, published in the November 2005 issue of the Journal of Clinical Investigation, showed that CA4P also disrupts the molecular engagement of VE-cadherin, a junctional protein important for endothelial cell survival and function. The authors of the research article conclude that this effect only occurs in endothelial cells which lack contact with smooth muscle cells, a known feature of abnormal vasculature associated with tumors and other disease processes. The disengagement of VE-cadherin leads to endothelial cell detachment, which in turn, can cause permanent physical blockage of vessels.

Preclinical and clinical study results indicate that CA4P exerts anti-vascular effects rapidly, within hours of administration, and the half-life of the active form of CA4P in humans is approximately four hours. In part because the half-life of the active form of CA4P is relatively short, the effects of CA4P on tubulin are reversible, and the pharmacodynamic effect lasts for weeks, CA4P is typically administered no more frequently than once per week. The side-effects of CA4P are typically transient in nature, limited to the period of time following administration when the active form of CA4P is in the body in significant concentrations. This contrasts with AAs, which are typically administered on a chronic basis so as to constantly maintain levels of drug in the body. Currently approved AAs generally exert their tumor blood-vessel growth inhibiting effects over days to weeks to

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months, and as a result can cause a variety of chronic side-effects that are not limited to the immediate period following administration.

Side-effects associated with CA4P are generally transient and manageable. The most frequent CA4P side-effects include acute blood pressure increases, infusion-related side effects such as nausea, vomiting, headache and fatigue, and tumor pain, which is consistent with the drug’s mechanism-of-action. Incrementally, we have noted that approximately 15-30% more patients treated with CA4P experience clinically-significant acute blood pressure increases compared to control patients. The acute blood pressure increases are often manageable by controlling underlying hypertension or treating with short-acting anti-hypertensives prior to CA4P infusion. The incidence of serious cardiovascular side-effects such as angina and myocardial ischemia observed across all studies to date (including early studies in which hypertension management and prevention was not employed) was less than 3%, a frequency comparable to that reported with approved anti-angiogenic agents such as bevacizumab, sunitinib and sorafenib.

Collaborative Research and Development Arrangements

Our primary focus is on advancing the clinical development of our drug candidates CA4P and OXi4503. We are also seeking to find additional potential uses for our clinical candidates and to identify new preclinical candidates that are complementary to our VDAs. In order to help achieve these objectives, we have established relationships with universities, research organizations and other institutions in the fields of our interest.

We plan to continue to rely on these external relationships as our programs advance, although the composition of our external relationships may change. Currently, we have collaborative agreements and arrangements with a number of institutions which we utilize to perform certain activities associated with drug discovery and drug development. In 2016, collaborations and agreements were ongoing with several universities and research institutions, including the following:

For rights to CA4P, we have secured a technology license from Arizona State University, or ASU. The ASU license is an exclusive, world-wide, royalty-bearing license for commercial development, use and sale of products or services covered by certain patent rights to particular combretastatins, including among others, CA4P and OXi4503. Combretastatins were originally isolated from the bark of the South African Bush Willow tree by researchers from Arizona State University but are now created by synthetic means and have tubulin-dependent anti-vascular and anti-proliferative properties. Under the ASU license, we have the right to grant sublicenses. ASU is entitled to single-digit royalty payments under the license agreement during the term of the patents licensed from ASU. We bear the costs of preparing, filing, prosecuting and maintaining all patent applications under the ASU license. Under the license agreement, we have agreed to diligently proceed with the development, manufacture and sale of products using the licensed technology. ASU has the first responsibility of enforcing patents under the license agreement. License payments made to ASU to date have amounted to $2,700,000, with no further license payments due on the combretastatins we are developing. The agreement remains in force until the expiration of the last to expire patent subject to the ASU license. Either party may terminate the ASU license agreement upon material default or bankruptcy of the other party. In addition, we may terminate the agreement if we determine that filing for regulatory approval is not warranted or economically feasible or upon two months’ written notice.

We also have an exclusive, world-wide, royalty-bearing license from Bristol-Myers Squibb, or BMS, for commercial development, use and sale of products or services covered by certain patent rights to particular

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combretastatins, including among others, CA4P. Under the BMS license, we have the right to grant sublicenses, and BMS is entitled to low single-digit royalty payments for all commercial sales plus any remuneration we receive for sale of CA4P under named patient or compassionate use programs. All licensing fees and milestone payments under the BMS license, in the aggregate amount of $1,080,000, have been paid. We bear the costs of preparing, filing, prosecuting and maintaining all patent applications under the BMS license and have a right, but not a duty, of enforcing patents covered by the license. Either party may terminate the BMS license upon material default of the other party. The term of the BMS license ends upon the expiration of the licensed patents. The latest United States patent licensed under the BMS license is scheduled to expire in December 2021, excluding a patent term extension available under the Hatch-Waxman Act.

Under a sponsored research agreement with Baylor University, we are pursuing discovery and development of additional novel, small-molecule therapeutics for the treatment of cancer, including small-molecule cathepsin-K inhibitors, cathepsin-L inhibitors and hypoxia-activated VDAs. Cathepsin-L is an enzyme involved in protein degradation and has been shown to be closely involved in the processes of angiogenesis and metastasis. Small molecule inhibitors may have the potential to slow tumor growth and metastasis in a manner we believe could be complementary with our VDA therapeutics. We believe that our hypoxia-activated VDAs could serve as line-extension products to CA4P and/or OXi4503. We also have an exclusive license from Baylor University to novel compositions developed for the treatment of vascular disorders, inflammation, parasitic diseases and infections, fungal diseases and infections and/or cancer. We have the right to grant sublicenses under the Baylor license. The agreement with Baylor provides for low-single-digit royalties to be paid by us for sales generated through use of Baylor’s compounds. Further, commencing in the first year that we provide no research funding to Baylor University we must pay a minimum annual royalty payment of $40,000. We are not required to pay Baylor for use of Baylor’s compounds other than pursuant to this royalty arrangement. We are entitled to file, prosecute and maintain patent applications on products for which we have a license under this agreement. We have made a one-time payment of $50,000 for the licensing fee that was used as a credit against research expenses generated by Baylor. Either party may terminate the license agreement upon material default of the other party. The term of the license shall end upon the expiration of the licensed patents. The latest U.S. patent licensed under this agreement is scheduled to expire in November 2030.

We previously licensed certain patents related to vascular disrupting agents for treating neuroendocrine tumors and associated symptoms and syndromes from Angiogene Pharmaceuticals Ltd. prior to our termination of the agreement in 2016.

Company Background

We were originally incorporated in 1988 in New York as OXiGENE, Inc., reincorporating in Delaware in 1992. In 2016, we changed our name to Mateon Therapeutics, Inc. Our principal corporate office is in the United States at 701 Gateway Boulevard, Suite 210, South San Francisco, California 94080 (telephone: (650) 635-7000, fax: (650) 635-7001). Our Internet address is www.mateon.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are available to you free of charge through the “Investors & News” section of our web site as soon as reasonably practicable after such materials have been electronically filed with, or furnished to, the Securities and Exchange Commission. Information contained on, or that can be accessed through, our web site is not and shall not be deemed to be a part of this Annual Report on Form 10-K.

REGULATORY MATTERS

Government Regulation and Product Approval

Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. Our drug candidates must be approved by the FDA through the New Drug Application, or NDA, process before they may be legally marketed in the United States.

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U.S. Drug Development Process

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusal of government contracts, restitution, disgorgement, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a drug may be marketed in the United States generally involves the following:

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.

Once a pharmaceutical candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. The sponsor will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated, if the first phase lends itself to an efficacy evaluation. Preclinical testing continues even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns or non-compliance.

All clinical trials must be conducted under the supervision of qualified investigators in accordance with GCP regulations. These regulations include the requirement that all research subjects provide informed consent. Further, an institutional review board, or IRB, must review and approve the plan for any clinical trial before it commences at any institution. An IRB considers, among other things, whether the risks to individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the information regarding the trial and the consent form that must be provided to each trial subject or his or her legal representative and must monitor the clinical trial until completed.

Each new clinical protocol must be submitted to the IND for FDA review, and to the IRBs for approval. Protocols detail, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety and efficacy in Phase 2 and 3 clinical trials.

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

During the development of a new drug, sponsors may, under certain circumstances request a special protocol assessment, or SPA, from the FDA. For example, a sponsor may request an SPA of a protocol for a clinical trial that will form the primary basis of an efficacy claim in an NDA. The request, which must be made prior to commencing the trial, must include the proposed protocol and protocol-specific questions that the sponsor would like the FDA to answer regarding the protocol design, clinical trial goals and data analysis for the proposed investigation. After receiving the request, the FDA will consider whether the submission is appropriate for an SPA. If an SPA is appropriate, the FDA will base its assessment on the questions posed by the sponsor. Comments from the FDA review team are supposed to be sent to the sponsor within 45 calendar days of receipt of the request. The sponsor may request a meeting to discuss the comments and any remaining issues and uncertainties regarding the protocol. If the sponsor and the FDA reach agreement regarding the protocol, the agreement will be documented and made part of the administrative record. This agreement may not be changed by the sponsor or the FDA after the trial begins, except (1) with the written agreement of the sponsor and the FDA or (2) if the FDA determines that a substantial scientific issue essential to determining the safety or effectiveness of the drug was identified after the testing began.

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA. IND Safety Reports must be submitted to the FDA, IRBs and the investigators for (a) any suspected adverse reaction that is both serious and unexpected; (b) any findings from epidemiological studies, pooled analysis of multiple trials, or clinical trials(other than those already reported in (a)); (c) any findings from animal or in vitro testing, whether or not conducted by the sponsor, that suggest a significant risk in humans exposed to the drug, such as reports of mutagenicity, teratogenicity, or carcinogenicity or reports of significant organ toxicity at or near the expected human exposure; and (d) any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, phase 2, and phase 3 testing may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the 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, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug. 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.

U.S. Review and Approval Processes

The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling, and other

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relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of user fees; a waiver of such fees may be obtained under certain limited circumstances, which may include orphan drug status and the first NDA application for a company.

In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data 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 drug is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted.

The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. The FDA may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA may refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. The approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data and information. Even if such data and information are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive, and the FDA may interpret data differently than we interpret the same data. The FDA may issue a complete response letter, which may require additional clinical or other data or impose other conditions that must be met in order to secure final approval of the NDA. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality and purity. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will also inspect selected clinical sites that participated in the clinical studies and may inspect the testing facilities that performed the GLP toxicology studies cited in the NDA.

NDAs receive either standard or priority review. A drug representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. Priority review and accelerated approval do not change the standards for approval, but may expedite the approval process.

If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. In addition, the FDA may require us to conduct phase 4 testing, which involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA approval, and may require testing and surveillance programs to monitor the safety of approved products which have been commercialized.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for this type of disease or condition will be recovered from sales in the United States for that drug. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the

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therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

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

In the European Union and Japan, orphan drug exclusivity regulations provide for 10 years of marketing exclusivity for orphan drugs that are approved for the treatment of rare diseases or conditions.

CA4P has been awarded orphan drug status by the FDA for the treatment of anaplastic, medullary, Stage IV papillary and Stage IV follicular thyroid cancers, ovarian cancer, neuroendocrine tumors and glioma. OXi4503 has been awarded orphan drug status by the FDA for the treatment of acute myelogenous leukemia.

CA4P has also been awarded orphan drug status by the European Commission in the European Union for the treatment of anaplastic thyroid cancer, ovarian cancer and neuroendocrine tumors. OXi4503 has been awarded orphan drug status by the European Commission in the European Union for the treatment of acute myelogenous leukemia.

Expedited Review and Approval

The FDA has various programs, including Fast Track, priority review, accelerated approval and breakthrough therapy, which are intended to expedite or simplify the process for reviewing drugs, and/or provide for approval on the basis of surrogate endpoints. Even if a drug qualifies for one or more of these programs, the FDA may subsequently decide the drug no longer meets the conditions for qualification or the FDA may not shorten the review or approval time period. Generally, drugs that may be eligible for these programs are those for serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that offer meaningful benefits over existing treatments. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. Although Fast Track and priority review do not affect the standards for approval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated drug and expedite review of the application for a drug designated for priority review. Drugs that receive an accelerated approval may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect of a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform post-marketing clinical trials.

CA4P has been awarded Fast Track designation for the treatment of platinum-resistant ovarian cancer.

Foreign Regulation

In addition to regulations in the United States, we are subject to a variety of foreign regulations governing clinical trials and if any of our product candidates are approved we will be subject to additional regulations regarding commercial sales and distribution. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of any product candidate in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

Under European Union regulatory systems, a company may submit marketing authorization applications, or MAAs, either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders or diabetes and optional for those medicines which are highly innovative, provides for the grant of a

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single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessments report, each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.

As in the United States, the European Medicines Agency, or EMA, may grant orphan drug status for specific indications if the request is made before an MAA is submitted. The EMA considers an orphan medicinal product to be one that affects less than five of every 10,000 people in the European Union. A company whose application for orphan drug designation in the European Union is approved is eligible to receive, among other benefits, regulatory assistance in preparing the marketing application, protocol assistance and reduced application fees. Orphan drugs in the European Union also enjoy economic and marketing benefits, including up to ten years of market exclusivity for the approved indication, unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan designated product.

Reimbursement

Sales of any of our product candidates, if approved, will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government health programs such as Medicare and Medicaid, commercial health insurers and managed care organizations. These third-party payors are increasingly challenging the prices charged for health care products and services. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue. If these third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, imposes requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D (the Medicare prescription drug benefit), Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs not covered under Medicare Part B. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs. Each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. Federal regulations require Part D prescription drug formularies to include drugs within each therapeutic category and class of covered Part D drugs, although not necessarily all the drugs in each category or class.

In general, government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA or other Medicare regulations may result in a similar reduction in payments from non-governmental payors.

The Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the Affordable Care Act or ACA,) was enacted in March 2010 and has had a significant impact on the health care industry. The ACA mandated prescription drug coverage as one of ten essential health benefits that most health plans must offer, requiring coverage of at least one drug in every category and class. The ACA also expanded coverage for the uninsured through the new health insurance exchanges and a significant increase in the number of individuals eligible for Medicaid coverage. The ACA also prevents health insurers from charging more, denying, or limiting coverage for individuals with pre-existing conditions (i.e. individuals whose health care costs are typically higher).

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Because of the significant increase in the number of individuals covered and the expansion of the coverage that must be provided to them, commercial insurers and government programs have increased their emphasis on cost controls to reduce overall spending. For example, the ACA expanded and increased mandatory industry rebates for drugs covered under Medicaid. Pharmaceutical manufacturers are required to provide drug rebates to the federal government and most state governments in order to have the product eligible for Medicaid coverage. In addition, commercial insurers offering Medicaid managed care products seek to negotiate additional rebates. The ACA also made changes to the drug coverage requirements under the Medicare Part D program. Although the changes have not yet been enacted, the Center for Medicine Services, or CMS, has proposed decreasing the number of categories and classes of drugs Part D plan sponsors must cover. Because of these cost controls, it is hard to determine what impact the ACA’s expansion in coverage might have on pharmaceutical companies.

The outcome of the recent Presidential and Congressional elections in the United States could result in significant changes in, and uncertainly with respect to, legislation, regulation and a number of government policies involving matters presently addressed by the ACA. The U.S. President and certain members of Congress have stated their intent to repeal the ACA and replace it with new laws and regulations. We expect that there will continue to be a number of federal and state proposals addressing governmental pricing controls and the growth of health care costs, including the cost of prescription drugs. At the present time, Medicare is prohibited from negotiating directly with pharmaceutical companies for drugs. Prior to the 2016 U.S. Presidential and Congressional elections, there were legislative proposals seeking to allow such direct negotiation. It is possible that the adoption of these or other alternative legislative or regulatory proposals could have a material adverse effect on our business, financial condition and results of operations.

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

PATENTS AND PROPRIETARY RIGHTS

We actively seek to protect the proprietary technology that we consider important to our business, including chemical species, compositions and forms, their methods of use and processes for their manufacture, as well as modified forms of naturally-expressed receptors, in the United States and other jurisdictions internationally that we consider key pharmaceutical markets. We also rely upon trade secrets and contracts to protect our proprietary information.

As of March 30, 2017, we were the exclusive licensee, sole assignee or co-assignee of twenty-one granted U.S. patents, one pending U.S. patent application, and granted patents and/or pending applications in several other major markets, including the European Union, Canada and Japan. Our policy is to file U.S. and foreign patent applications to protect technology, inventions and improvements to inventions that are commercially important to the development of our business. There can be no assurance that any of these patent applications will result in the grant of a patent either in the United States or elsewhere, or that any patents granted will be valid and enforceable, or will provide a competitive advantage or will afford protection against competitors with similar technologies. We also intend to rely upon trade secret rights to protect other technologies that may be used to discover and validate targets and that may be used to identify and develop novel drugs. We seek protection, in part, through confidentiality and proprietary information agreements.

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We consider the following U.S. patents and applications owned by or exclusively licensed to us to be particularly important to the protection of our most advanced product candidates.

In addition to these patents, for some of our product candidates, we have patents and/or applications that cover a particular form or composition, use for a particular indication, use as part of combination therapy or method of preparation or use, as well as other pending patent applications. These issued patents, including any patents that issue from pending applications, could provide additional or a longer period of protection. We also have patent applications pending that seek equivalent or substantially comparable protection for our product candidates in jurisdictions internationally that we consider key pharmaceutical markets.

The patent expiration dates referenced above do not reflect any potential patent term extension that we may receive under the federal Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Act. The Hatch-Waxman Act generally permits a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years. The patent term restoration period is generally one-half of the time between the effective date of an investigational new drug application, or IND, and the submission date of a new drug application, or NDA, plus the time between the submission date and approval date of an NDA. Only one patent applicable to an approved drug is eligible for the extension, and the extension must be applied for prior to expiration of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves applications for patent term extension.

As previously noted, the FDA and European Union have granted CA4P and OXi4503 orphan drug status for certain indications. We are also pursuing, and may continue to in the future to pursue, orphan drug status for other product candidates and indications. Our ability to obtain and maintain the exclusivity for our products and product candidates by virtue of their orphan drug status is an important part of our intellectual property strategy.

COMPETITION

The industry in which we are engaged is characterized by rapidly evolving technology and intense competition. Our competitors include, among others, major pharmaceutical, biopharmaceutical and biotechnology companies, many of which have financial, technical and marketing resources significantly greater than ours. In addition, many of the small companies that compete with us have also formed collaborative relationships with large, established companies to support research, development, clinical trials and commercialization of products that may be competitive with ours. Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize products on their own or through joint ventures or other collaborations.

We are aware of a limited number of companies currently or previously involved in the development of VDAs. Such companies include Angiogene, Bionomics, Immune Pharmaceuticals, and MediciNova, all of which have VDAs that we believe are at an earlier stage of clinical development than our lead drug candidate, CA4P. In addition, we are aware of one company, BeyondSpring, which has a tubulin-binding drug in phase 3 development

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for advanced NSCLC. If this trial is successful and BeyondSpring’s drug is approved, it could constitute competition for CA4P even though the indications are different.

We expect that, if any of our products gain regulatory approval for sale, they will compete primarily on the basis of product efficacy, safety, patient convenience, reliability, price and patent protection. Our competitive position will also depend on our ability to attract and retain qualified scientific and other personnel, develop effective proprietary products and implement joint ventures or other alliances with large pharmaceutical companies in order to jointly market and manufacture our products.

EMPLOYEES

We expect to continue to maintain a relatively small number of executives and other employees. We rely on outsourcing for much of our research, development, preclinical testing and clinical trial activity, although we maintain managerial and quality control over our clinical trials. As of March 30, 2017, we had a total of 16 full-time employees.