1.776.7319220846159830583403000010763300019220846159830580001322505--12-312021FYfalse0019107040http://fasb.org/us-gaap/2021-01-31#ProductMember1P3YP5YP5YP7YP31Dhttp://fasb.org/us-gaap/2021-01-31#OtherAssetsNoncurrenthttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesCurrenthttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesNoncurrenthttp://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesCurrent http://fasb.org/us-gaap/2021-01-31#OtherLiabilitiesNoncurrent1.776.7300001322505us-gaap:TreasuryStockCommonMember2021-01-012021-12-310001322505us-gaap:RetainedEarningsMember2021-12-310001322505us-gaap:AdditionalPaidInCapitalMember2021-12-310001322505us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001322505us-gaap:RetainedEarningsMember2020-12-310001322505us-gaap:AdditionalPaidInCapitalMember2020-12-310001322505us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001322505us-gaap:RetainedEarningsMember2019-12-310001322505us-gaap:AdditionalPaidInCapitalMember2019-12-310001322505us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001322505us-gaap:TreasuryStockCommonMember2021-12-310001322505us-gaap:CommonStockMember2021-12-310001322505us-gaap:CommonStockMember2020-12-310001322505us-gaap:CommonStockMember2019-12-310001322505srt:MinimumMemberus-gaap:EmployeeStockOptionMember2021-12-310001322505srt:MaximumMemberus-gaap:EmployeeStockOptionMember2021-12-310001322505srt:MinimumMemberus-gaap:EmployeeStockOptionMember2020-12-310001322505srt:MaximumMemberus-gaap:EmployeeStockOptionMember2020-12-310001322505srt:MinimumMemberus-gaap:EmployeeStockOptionMember2021-01-012021-12-310001322505srt:MaximumMemberus-gaap:EmployeeStockOptionMember2021-01-012021-12-310001322505srt:MinimumMemberus-gaap:EmployeeStockOptionMember2020-01-012020-12-310001322505srt:MaximumMemberus-gaap:EmployeeStockOptionMember2020-01-012020-12-310001322505us-gaap:EmployeeStockOptionMember2020-01-012020-12-310001322505us-gaap:RestrictedStockUnitsRSUMember2021-12-310001322505us-gaap:RestrictedStockUnitsRSUMember2020-12-310001322505us-gaap:ProductMembersrt:EuropeMember2021-01-012021-12-310001322505us-gaap:ProductMembercountry:US2021-01-012021-12-310001322505us-gaap:RoyaltyMember2021-01-012021-12-310001322505us-gaap:ProductMember2021-01-012021-12-310001322505us-gaap:LicenseMember2021-01-012021-12-310001322505us-gaap:RoyaltyMember2020-01-012020-12-310001322505us-gaap:ProductMember2020-01-012020-12-310001322505srt:MinimumMemberus-gaap:FurnitureAndFixturesMember2021-01-012021-12-310001322505srt:MinimumMemberus-gaap:ComputerEquipmentMember2021-01-012021-12-310001322505srt:MaximumMemberus-gaap:FurnitureAndFixturesMember2021-01-012021-12-310001322505srt:MaximumMemberus-gaap:ComputerEquipmentMember2021-01-012021-12-310001322505us-gaap:VehiclesMember2021-01-012021-12-310001322505us-gaap:LeaseholdImprovementsMember2021-12-310001322505us-gaap:FurnitureAndFixturesMember2021-12-310001322505us-gaap:ComputerEquipmentMember2021-12-310001322505us-gaap:LeaseholdImprovementsMember2020-12-310001322505us-gaap:FurnitureAndFixturesMember2020-12-310001322505us-gaap:ComputerEquipmentMember2020-12-310001322505albo:SalesAgreement2021AtMarketOfferingMember2021-07-012021-07-310001322505albo:UnderwrittenPublicOfferingFebruary2020Member2020-02-012020-02-290001322505us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-12-310001322505us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-12-310001322505us-gaap:StateAndLocalJurisdictionMember2021-12-310001322505us-gaap:ForeignCountryMember2021-12-310001322505us-gaap:RetainedEarningsMember2021-01-012021-12-310001322505us-gaap:RetainedEarningsMember2020-01-012020-12-310001322505us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012021-07-310001322505albo:LoanAndSecurityAgreementTermLoan.TrancheOneMember2020-06-080001322505albo:BostonMaBuildingOfficeSpaceTenPostOfficeMember2017-02-072017-02-070001322505albo:LoanAndSecurityAgreementTermLoansMember2021-01-012021-12-310001322505albo:LoanAndSecurityAgreementTermLoansMember2020-01-012020-12-310001322505us-gaap:EmployeeStockOptionMember2021-12-310001322505us-gaap:EmployeeStockOptionMember2021-01-012021-12-310001322505country:US2021-01-012021-12-310001322505country:SE2021-01-012021-12-310001322505country:US2020-01-012020-12-310001322505country:SE2020-01-012020-12-310001322505us-gaap:DomesticCountryMember2021-12-310001322505albo:LoanAndSecurityAgreementTermLoansMember2020-12-310001322505albo:LoanAndSecurityAgreementTermLoansMember2021-12-310001322505srt:EuropeMember2021-12-310001322505country:US2021-12-310001322505srt:EuropeMember2020-12-310001322505country:US2020-12-310001322505albo:CustomerTwoMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2021-01-012021-12-310001322505albo:CustomerTwoMemberus-gaap:AccountsReceivableMemberus-gaap:CreditConcentrationRiskMember2021-01-012021-12-310001322505albo:CustomerThreeMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2021-01-012021-12-310001322505albo:CustomerThreeMemberus-gaap:AccountsReceivableMemberus-gaap:CreditConcentrationRiskMember2021-01-012021-12-310001322505albo:CustomerOneMemberus-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2021-01-012021-12-310001322505albo:CustomerOneMemberus-gaap:AccountsReceivableMemberus-gaap:CreditConcentrationRiskMember2021-01-012021-12-310001322505albo:EmployeeStockPurchasePlan2018Member2021-12-310001322505albo:EmployeeStockPurchasePlan2018Member2018-06-3000013225052019-12-310001322505us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001322505us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001322505us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001322505us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001322505albo:BostonMaBuildingOfficeSpaceFiftyThreeStateStreetMember2021-12-070001322505albo:BostonMaBuildingOfficeSpaceTenPostOfficeAnnexSpaceMember2020-05-040001322505albo:BostonMaBuildingOfficeSpaceTenPostOfficeMember2017-02-070001322505albo:OptionsToPurchaseCommonStockAndRsusMember2021-01-012021-12-310001322505albo:OptionsToPurchaseCommonStockAndRsusMember2020-01-012020-12-310001322505us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-12-310001322505us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-12-310001322505us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-12-310001322505us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-12-310001322505albo:EmployeeStockPurchasePlan2018Member2020-01-012020-12-310001322505albo:HealthCareRoyaltyPartnersIiiLPMemberalbo:RoyaltyInterestAcquisitionAgreementMember2021-01-012021-12-3100013225052021-06-3000013225052022-02-220001322505albo:LoanAndSecurityAgreementTermLoan.TrancheOneMember2020-06-082020-06-080001322505srt:MinimumMembercountry:US2021-01-012021-12-310001322505srt:MaximumMembercountry:US2021-01-012021-12-310001322505srt:EuropeMember2021-01-012021-12-310001322505us-gaap:AdditionalPaidInCapitalMember2021-01-012021-12-310001322505us-gaap:AdditionalPaidInCapitalMember2020-01-012020-12-310001322505us-gaap:CommonStockMember2021-01-012021-12-310001322505us-gaap:CommonStockMember2020-01-012020-12-310001322505albo:EmployeeStockPurchasePlan2018Member2021-01-012021-12-310001322505albo:HealthCareRoyaltyPartnersIiiLPMemberalbo:RoyaltyInterestAcquisitionAgreementMember2020-12-310001322505albo:HealthCareRoyaltyPartnersIiiLPMemberalbo:RoyaltyInterestAcquisitionAgreementMember2021-12-310001322505albo:UniversalShelfRegistrationMay2020Member2021-01-012021-12-310001322505albo:HealthCareRoyaltyPartnersIiiLPMemberalbo:RoyaltyInterestAcquisitionAgreementMember2017-12-012017-12-310001322505albo:HealthCareRoyaltyPartnersIiiLPMemberalbo:RoyaltyInterestAcquisitionAgreementMember2020-06-082020-06-0800013225052020-01-012020-12-310001322505albo:HealthCareRoyaltyPartnersIiiLPMemberalbo:RoyaltyInterestAcquisitionAgreementMember2018-01-012020-12-310001322505albo:HealthCareRoyaltyPartnersIiiLPMemberalbo:RoyaltyInterestAcquisitionAgreementMember2018-01-012018-01-310001322505albo:UnderwrittenPublicOfferingSeptember2020Member2020-09-012020-09-300001322505albo:EaPharmaCoLtdMemberalbo:LicenseAgreementMember2021-01-012021-12-310001322505albo:BostonMaBuildingOfficeSpaceTenPostOfficeNewSpaceMember2019-03-282019-03-280001322505us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-12-310001322505albo:LoanAndSecurityAgreementTermLoan.TrancheTwoMember2020-06-080001322505albo:LoanAndSecurityAgreementTermLoan.TrancheThreeMember2020-06-080001322505albo:LoanAndSecurityAgreementTermLoan.TrancheThreeMember2020-06-082020-06-080001322505albo:BostonMaBuildingOfficeSpaceTenPostOfficeNewSpaceMember2019-03-280001322505srt:MinimumMemberalbo:LoanAndSecurityAgreementTermLoansMember2020-06-082020-06-080001322505albo:LoanAndSecurityAgreementTermLoansMemberus-gaap:PrimeRateMember2020-06-082020-06-0800013225052021-01-012021-12-310001322505us-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2021-01-012021-12-310001322505us-gaap:AccountsReceivableMemberus-gaap:CreditConcentrationRiskMember2021-01-012021-12-310001322505us-gaap:RevenueFromContractWithCustomerMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-12-310001322505us-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2020-01-012020-12-310001322505srt:MaximumMemberalbo:SalesAgreement2021AtMarketOfferingMember2021-02-280001322505albo:UniversalShelfRegistrationMay2020Member2020-05-310001322505srt:MaximumMemberalbo:LoanAndSecurityAgreementTermLoansMember2020-06-082020-06-080001322505albo:LoanAndSecurityAgreementTermLoansMember2020-06-080001322505albo:LoanAndSecurityAgreementTermLoansMember2020-06-082020-06-080001322505albo:EaPharmaCoLtdMemberalbo:LicenseAgreementMember2021-12-310001322505albo:HealthCareRoyaltyPartnersIiiLPMemberalbo:RoyaltyInterestAcquisitionAgreementMember2020-06-080001322505albo:BostonMaBuildingOfficeSpaceTenPostOfficeNewSpaceMember2021-12-0600013225052021-12-310001322505srt:MaximumMember2021-12-3100013225052020-12-31iso4217:USDutr:sqftxbrli:sharesxbrli:purealbo:customeriso4217:USDutr:sqftiso4217:USDxbrli:sharesalbo:segment

Table of Contents

ff

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

For the fiscal year ended December 31, 2021

or

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

For the transition period from            to           .

Commission File Number 001-33451

Albireo Pharma, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

90-0136863

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

53 State Street, 19th Floor

Boston, MA

02109

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code

(857) 254-5555

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

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

ALBO

The Nasdaq Capital Market

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

None

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

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

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

Emerging growth company

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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

The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) was approximately $672.7 million based on the price at which the common stock was last sold on The Nasdaq Capital Market as of the last business day of the registrant’s most recently completed second fiscal quarter.

The number of shares of the registrant’s common stock outstanding as of February 22 2022, was 19,361,898.

Documents Incorporated by Reference

The following documents (or parts thereof) are incorporated by reference into the following parts of this Annual Report on Form 10-K: Certain information required in Part III of this Annual Report on Form 10-K is incorporated from the Registrant’s Proxy Statement for its 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission.

Table of Contents

INDEX TO ANNUAL REPORT ON FORM 10-K

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

1

PART I

4

Item 1.

Business

4

Item 1A.

Risk Factors

37

Item 1B.

Unresolved Staff Comments

83

Item 2.

Properties

83

Item 3.

Legal Proceedings

83

Item 4.

Mine Safety Disclosures

83

PART II

84

Item 5.

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

84

Item 6.

[Reserved]

84

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

85

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

100

Item 8.

Financial Statements and Supplementary Data

101

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

102

Item 9A.

Controls and Procedures

102

Item 9B.

Other Information

103

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

103

PART III

103

Item 10.

Directors, Executive Officers and Corporate Governance

103

Item 11.

Executive Compensation

103

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

103

Item 13.

Certain Relationships and Related Transactions, and Director Independence

103

Item 14.

Principal Accountant Fees and Services

103

PART IV

104

Item 15.

Exhibits and Financial Statement Schedules

104

Item 16.

Form 10-K Summary

111

SIGNATURES

112

i

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, that relate to future events or to our future operating or financial performance. Any forward-looking statement involves known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statement. Forward-looking statements include statements, other than statements of historical fact, about, among other things:

our commercialization plans and expectations for commercializing Bylvay (odevixibat) globally;
the progress, number, scope, cost, duration or results of our development activities, nonclinical studies and clinical trials of Bylvay, elobixibat, A3907, A2342 or any of our other product candidates or programs, such as the target indication(s) for development or approval, the size, design, population, conduct, cost, objective or endpoints of any clinical trial, or the timing for initiation or completion of or availability of results from any clinical trial (including BOLD, our pivotal clinical trial of Bylvay in patients with biliary atresia, or ASSERT, our pivotal trial of Bylvay in Alagille syndrome, or ALGS) for submission, review or approval of any regulatory filing, or for meeting with regulatory authorities;
the potential benefits that may be derived from any of our product candidates;
the timing of and our ability to obtain and maintain regulatory approval of our existing product candidates, any product candidates that we may develop, and any related restrictions, limitations, or warnings in the label of any approved product candidates;
any payment that EA Pharma Co., Ltd., or EA Pharma, may make to us or any other action or decision that EA Pharma may make concerning elobixibat or our business relationship;
the potential impacts of the COVID-19 pandemic on our business operations or financial condition;
our future operations, financial position, revenues, costs, expenses, uses of cash, capital requirements, our need for additional financing or the period for which our existing cash resources will be sufficient to meet our operating requirements; or
our strategies, prospects, plans, expectations, forecasts or objectives.

Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “targets,” “likely,” “will,” “would,” “could,” “should,” “continue,” “scheduled” and similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on our estimates or projections of the future that are subject to known and unknown risks and uncertainties and other important factors that may cause our actual results, level of activity, performance, experience or achievements to differ materially from those expressed or implied by any forward-looking statement. Actual results, level of activity, performance, experience or achievements may differ materially from those expressed or implied by any forward-looking statement as a result of various important factors, including our critical accounting policies and risks and uncertainties relating, among other things, to:

our ability to effectively commercialize Bylvay for its approved indications;

1

Table of Contents

the design, size, duration and endpoints for, and results from BOLD, our pivotal trial of Bylvay in biliary atresia, and ASSERT our pivotal trial of Bylvay in ALGS, or any other trials that will be required to obtain marketing approval for Bylvay to treat patients with PFIC, biliary atresia, ALGS or any other pediatric cholestatic liver disease or for A3907 and A2342 as potential treatments for adult liver and viral diseases;
whether favorable findings from clinical trials of Bylvay to date, including findings in our completed Phase 3 clinical trial in PFIC and findings in indications other than PFIC, will be predictive of results from future clinical trials, including our pivotal trial of Bylvay in biliary atresia and pivotal trial of Bylvay in ALGS;
the outcome and interpretation by regulatory authorities of an ongoing third-party study pooling and analyzing long-term PFIC patient data;
the timing for completion of, or for availability of data from, our pivotal trial of Bylvay in biliary atresia and our pivotal trial of Bylvay in ALGS, and the outcomes of such trials;
delays or other challenges in the recruitment of patients for the pivotal trial of Bylvay in biliary atresia and the pivotal trial of Bylvay in ALGS;
the COVID-19 pandemic, which may negatively impact the conduct of, and the timing of initiation, enrollment, completion and reporting with respect to, our clinical trials; negatively impact the supply of drug product for our clinical and preclinical programs; and/or result in other adverse impacts on our business;
the competitive environment and commercial opportunity for a treatment for PFIC and potentially other orphan pediatric cholestatic liver diseases;
the conduct and results of clinical trials and nonclinical studies and assessments of Bylvay, A3907, A2342 or any of our other product candidates and programs, including the performance of third parties engaged to execute them and difficulties or delays in patient enrollment and data analysis;
the medical benefit that may be derived from Bylvay, A3907, A2342 or any of our other product candidates;
the extent to which our agreement with EA Pharma for elobixibat generates nondilutive income for us;
the timing and success of submission, acceptance and approval of regulatory filings and any related restrictions, limitations or warnings in the label of any approved product candidates;
whether we are able to effectively commercialize Bylvay in patients with PFIC;
the significant control or influence that EA Pharma has over the commercialization of elobixibat in Japan and, through its sublicensee, in Thailand, and the development and commercialization of elobixibat in EA Pharma’s other licensed territories;
whether we elect to seek and, if so, our ability to establish a license or other partnering transaction with a third party for elobixibat in the United States or Europe;
the accuracy of our estimates regarding expenses, costs, future revenues, uses of cash and capital requirements;
our ability to obtain additional financing on reasonable terms, or at all;
our ability to establish additional licensing, collaboration or similar arrangements on favorable terms and our ability to attract collaborators with development, regulatory and commercialization expertise;

2

Table of Contents

the success of competing third-party products or product candidates;
our ability to successfully commercialize any approved product candidates, including their rate and degree of market acceptance;
whether we are able to maintain compliance with the terms and conditions of our loan and security agreement with Hercules Capital, Inc.;
our ability to expand and protect our intellectual property estate;
regulatory developments in the United States and other countries;
the effectiveness of our internal control over financial reporting;
the performance of our third-party suppliers, manufacturers and contract research organizations and our ability to obtain alternative sources of raw materials;
our ability to attract and retain key personnel; and
our ability to comply with regulatory requirements relating to our business, and the costs of compliance with those requirements, including those on data privacy and security.

These and other risks and uncertainties are described in greater detail under the caption “Risk Factors” in Item 1A of Part I of this report and in other filings that we make with the Securities and Exchange Commission, or SEC. As a result of the risks and uncertainties, the results or events indicated by the forward-looking statements may not occur. We caution you not to place undue reliance on any forward-looking statement.

In addition, any forward-looking statement in this Annual Report on Form 10-K represents our views only as of the filing date of this annual report and should not be relied upon as representing our views as of any subsequent date. We anticipate that subsequent events and developments may cause our views to change. Although we may elect to update these forward-looking statements publicly at some point in the future, we specifically disclaim any obligation to do so, except as required by applicable law. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

3

Table of Contents

PART I

All brand names or trademarks appearing in this report are the property of their respective holders. Use or display by us of other parties’ trademarks, trade dress, or products in this report is not intended to, and does not, imply a relationship with, or endorsements or sponsorship of, us by the trademark or trade dress owners. Unless the context requires otherwise, references in this report to “we,” “us,” and “our” refer to Albireo Pharma, Inc. and its direct and indirect subsidiaries.

Item 1.

BUSINESS

Overview

We are a commercial-stage biopharmaceutical company focused on the development and commercialization of novel bile acid modulators to treat orphan pediatric liver diseases and other liver or gastrointestinal diseases and disorders. Our product Bylvay has been approved in the United States for the treatment of pruritis in patients with progressive familial intrahepatic cholestasis (PFIC) ages 3 months or older, and authorized in Europe for the treatment of PFIC in patients ages 6 months or older. In October 2021, the FDA granted the Company orphan drug exclusivity for Bylvay for the treatment of pruritis in patients ages 3 months or older with PFIC. In July 2021, the EMA granted the Company orphan drug exclusivity for Bylvay for the treatment of patients 6 months or older with PFIC. In September 2021, Bylvay was also granted marketing authorization by the UK Medicines and Healthcare Products Regulatory Agency, or MHRA, for the treatment of PFIC in patients 6 months or older. Bylvay is available by prescription to patients in the U.S. and became available by prescription to patients in Germany in September 2021. PFIC is a rare, life-threatening genetic disorder affecting young children and Bylvay is the first approved drug treatment in the disease.

We are also pursuing the development of Bylvay in biliary atresia and in Alagille syndrome (ALGS), each of which is a rare, life threatening disease that affects the liver and for which there is no approved pharmacologic treatment option. We initiated a pivotal clinical trial of Bylvay in biliary atresia, the BOLD trial, in the first half of 2020. At the end of 2021, we had enrolled over 50% of the targeted patients in the trial. We expect topline results from the BOLD trial in 2024. We also initiated a pivotal trial of Bylvay in ALGS, the ASSERT trial, in the fourth quarter of 2020.We expect topline results from the ASSERT trial by the end of 2022.

We are expanding development to compounds that are intended for adult liver and viral diseases. Our lead candidate for adult liver diseases, A3907, is a selective inhibitor of the apical sodium-dependent bile acid transporter (ASBT) that has, based on animal studies, high predicted oral bioavailability and systemic exposures in man. As a result, A3907 has the potential to not only affect the bile acid pool by increased bile acid excretion in the stools but also through other pathways, including increased urinary bile acid excretion. This unique approach may yield greater dosing flexibility, greater efficacy and lower rates of adverse events, such as diarrhea, associated with the non-systemic IBAT inhibitors acting locally in the intestine. In December 2021, we announced topline results from our Phase 1 clinical trial in healthy adult subjects to investigate the safety, tolerability, pharmacokinetics of orally administered A3907. In the top-line results the trial achieved both primary and secondary objectives. A3907 was safe and well tolerated in the Phase 1 clinical trial at systemic exposures that demonstrated therapeutic benefits in preclinical models. With the potential to inhibit ileal, renal and hepatic ASBT, we hope A3907 will provide the optimal balance of efficacy and tolerability in patients in multiple liver diseases. A composition of matter patent for A3907 has been granted. We expect to initiate a Phase 2 trial for A3907 in adult liver disease by the end of 2022.

We also have a preclinical program in adult liver and viral diseases. Our lead preclinical candidate for adult viral and liver diseases is A2342, a potent small molecule inhibitor of the sodium-taurocholate co-transporting peptide (NTCP). NTCP is a key transporter of bile acids into the liver cells and also serves as the entry mechanism for the hepatitis B (HBV) and hepatitis D (HDV) viruses. A2342 protects primary human hepatocytes from HBV infection in vitro. In addition, A2342 reduces markers of infection in HBV-infected humanized mice. A2342 has demonstrated target engagement in non-human primates with biomarker increases comparable to increases achieved in humans by a now commercial subcutaneous peptide NTCP inhibitor. A composition of matter patent for A2342 has been granted,

4

Table of Contents

and IND enabling studies are being completed. We expect to initiate a Phase 1 trial for A2342 in healthy volunteers by the end of 2022. Preclinical efforts with other bile acid modulator approaches continue.

The first IBAT inhibitor developed by Albireo is elobixibat, which was approved in Japan and Thailand for the treatment of chronic constipation and is marketed by our partner EA Pharma or its sublicensee in Thailand.

Bylvay — Our Lead Product for PFIC. 

Bylvay (odevixibat) was approved by the FDA on July 20, 2021 for the treatment of pruritis in patients ages 3 months or older with PFIC, and authorized by the European Medicines Agency on July 16, 2021 for the treatment of patients 6 months or older with PFIC. Bylvay was also granted marketing authorization by the MHRA on September 7, 2021 for the treatment of patients 6 months or older with PFIC. We also received a rare pediatric disease priority review voucher (PRV) from the FDA in connection with the U.S. approval of Bylvay. In September 2021, we sold the PRV for $105.0 million. Bylvay is available by prescription to patients in the U.S. and we announced in September 2021 that Bylvay became available by prescription to patients in Germany. In July 2021, the EMA granted the Company orphan drug exclusivity for Bylvay for the treatment of patients 6 months or older with PFIC. In October 2021, the FDA granted the Company orphan drug exclusivity for Bylvay for the treatment of pruritis in PFIC patients ages 3 months or older.

The precise prevalence of PFIC is unknown, and we are not aware of any patient registries or other method of establishing with precision the actual number of patients with PFIC in any geography. PFIC has been estimated to affect between one in every 75,000 children born worldwide. Based on the published incidence, published regional populations, and estimated median life expectancies, we estimate the prevalence of PFIC across the spectrum of the disease to be approximately 15,000 patients worldwide, not including China and India, but we are not able to estimate the prevalence of PFIC with precision. Apart from rights we granted to third parties in the below agreements, we hold global rights to Bylvay unencumbered. Our current plan is to commercialize Bylvay ourselves in the United States and Europe. We have entered into a fee for service promotional agreement with Travere Therapeutics, Inc. to promote Bylvay in the United States. The initial term of the arrangement is two years from launch of Bylvay, terminable at will by either party after one year following launch. We have also entered into license agreements with third parties to commercialize Bylvay in certain other jurisdictions, subject to regulatory approval in those jurisdictions including, Medison Pharma Ltd. for Israel, Gen İlaç ve Sağlık Ürünleri Sanayi ve Ticaret A.Ş. for Turkey, Genpharm Services for Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and the UAE, Jadeite Medicines Inc. for Japan, and Swixx Biopharma AG for Central and Eastern European Countries, and we are identifying potential partners for other regions. Bylvay is currently the only approved drug for the treatment of patients with PFIC. Ursodeoxycholic acid, or UDCA, is approved in France only for PFIC type 3, and in the United States and elsewhere for the treatment of primary biliary cholangitis, or PBC. However, many PFIC patients do not respond well to UDCA, undergo partial external bile diversion, or PEBD, surgery and often require liver transplantation. PEBD surgery is a life-altering and undesirable procedure in which bile is drained outside the body to a stoma bag that must be worn by the patient 24 hours a day.

Other indications under development for Bylvay.

We are also pursuing the development of Bylvay in patients with biliary atresia, another rare, life-threatening disease that affects the liver and for which there is no approved pharmacologic treatment option. In December 2018, the European Commission granted orphan designation to odevixibat for the treatment of biliary atresia, and in January 2019, the FDA granted orphan drug designation to odevixibat for the treatment of biliary atresia. We initiated the BOLD clinical trial, a global pivotal trial and the largest prospective intervention trial ever conducted in biliary atresia, in the first half of 2020. At the end of 2021, we had enrolled over 50% of the targeted patients in the trial. We expect topline results in 2024. We believe biliary atresia is one of the most common rare pediatric liver diseases, and is the leading cause of liver transplants in children. Our double-blind, placebo controlled pivotal trial in biliary atresia is designed to enroll approximately 200 patients at 70 sites globally. Patients will receive either placebo or odevixibat once daily at 120µg/kg. The primary endpoint is survival with native liver after two years of treatment.

5

Table of Contents

Biliary atresia is a partial or total blocking or absence of large bile ducts that causes cholestasis and resulting accumulation of bile that damages the liver. The estimated worldwide incidence of biliary atresia is between 6 and 10 for every 100,000 live births. We estimate the prevalence of biliary atresia to be approximately 18,000 patients across the U.S. and Europe, and approximately 27,000 combined in other jurisdictions worldwide, but we are not able to estimate the prevalence of biliary atresia with precision. There are currently no drugs approved for the treatment of biliary atresia. The current standard of care is a surgery known as the Kasai procedure, or hepatoportoenterostomy, in which the obstructed bile ducts are removed and a section of the small intestine is connected to the liver directly. However, only an estimated 25% of those initially undergoing the Kasai procedure will survive to their twenties without need for liver transplantation.

In addition, we initiated a pivotal trial of Bylvay in ALGS, the ASSERT trial, in the fourth quarter of 2020. The trial is expected to enroll approximately 45 patients aged 0 to 17 years of age with a genetically confirmed diagnosis of ALGS across 35 sites in North America, Europe, Middle East and Asia Pacific. We expect topline data to be available by the end of 2022. ALGS is a genetic condition associated with liver, heart, eye, kidney and skeletal abnormalities. In particular, ALGS patients have fewer than normal bile ducts inside the liver, which leads to cholestasis and the accumulation of bile and causes scarring in the liver. ALGS is estimated to affect between one in every 50,000 children born worldwide. We estimate the prevalence of ALGS to be approximately 12,000 patients across the U.S. and Europe, and approximately 13,000 combined in other jurisdictions worldwide, but we are not able to estimate the prevalence of ALGS with precision. Current treatment for ALGS is generally in line with current treatments for PFIC as described above. In August 2012, the European Commission granted orphan designation to odevixibat for the treatment of ALGS. In October 2018, the FDA granted orphan drug designation to odevixibat for the treatment of ALGS.

We continue to evaluate potential clinical development in other indications, including primary sclerosing cholangitis, which refers to swelling (inflammation), scarring, and destruction of bile ducts inside and outside of the liver. The first symptoms are typically fatigue, itching and jaundice, and many patients with sclerosing cholangitis also suffer from inflammatory bowel disease. The estimated incidence of primary sclerosing cholangitis is 9 cases per 100,000 people. There are currently no drugs approved for the treatment of sclerosing cholangitis. First-line treatment is typically off-label UDCA, although UDCA has not been established to be safe and effective in patients with sclerosing cholangitis in well controlled clinical trials.

The Role of Bile Acids and IBAT

The liver is responsible for many vital body functions, including the regulation of bile acid synthesis and metabolism. The liver uses cholesterol to produce bile acids, which are then transported to, and stored in, the gall bladder. In response to food ingestion, the gall bladder contracts and releases bile acids into the small intestine where they promote digestion and absorption of dietary fats and fat soluble vitamins A, D, E and K.

After completing digestion, bile acids bind to IBAT, which is sometimes referred to as the apical sodium bile acid transporter, or ASBT, at a location at the end of the small intestine known as the terminal ileum. As depicted below,

6

Table of Contents

IBAT then initiates the transport of bile acids across the intestinal wall through the portal vein back to the liver in the enterohepatic circulation process.

Graphic

In healthy persons, approximately 95% of bile acids recirculate back to the liver, with the remainder being excreted to the colon. The liver produces a small amount of new bile acids every day to make up for this loss.

In addition to their role in digestion, bile acids are important signaling molecules that help regulate a network of metabolic pathways throughout the GI system. Bile acids bind to receptors in the colon that promote the release of intestinal hormones, such as glucagon-like peptide-1, or GLP-1, that can stimulate insulin release from the pancreas and, over time, decrease levels of plasma hemoglobin A1c, or HbA1c, a measure of glucose. In the liver, bile acids bind to other receptors that regulate bile acid production from cholesterol. Under normal conditions, bile acids bind to these receptors and inhibit the synthesis of new bile acids. As bile acid levels are lowered, the liver produces needed bile acids from cholesterol, which requires increased uptake of cholesterol and results in the decrease of cholesterol levels in the liver and otherwise in circulation in the body.

Cholestatic liver disease results in the accumulation of elevated bile acids in the liver and in the serum. Elevated bile acid levels are linked with progressive liver disease. In addition, although a direct causative correlation has not been definitely established, there is substantial clinical support linking elevated serum bile acids to pruritus, a challenging symptom impacting patients with cholestatic liver disease.

Interruption of enterohepatic circulation in patients with PFIC or ALGS surgically via the partial external biliary diversion, or PEBD, procedure has been shown to lower serum bile acid levels, relieve pruritus, improve clinical outcomes and delay the progression of serious liver disease. Bylvay is designed to treat patients with PFIC and other cholestatic liver diseases pharmacologically by inhibiting IBAT to reduce bile acids in the liver and serum, while at the same time reducing pruritus. In addition to the beneficial effects that may be achievable through IBAT inhibition, Bylvay is minimally absorbed into the bloodstream, resulting in minimal systemic exposure of the drug to the body.

Our Strategy

Our goal is to be a leader in the development and commercialization of novel therapeutics for orphan pediatric cholestatic liver diseases and disorders where there is high unmet medical need, while also leveraging our expertise in

7

Table of Contents

bile acid modulation to treat other liver and GI diseases and disorders. To achieve our goal, we intend to pursue the following strategies.

Continue to commercialize Bylvay for patients with PFIC in the United States and Europe. Bylvay was approved by the FDA on July 20, 2021 for the treatment of pruritis in patients ages 3 months or older with PFIC, and authorized by the European Medicines Agency on July 16, 2021 for the treatment of patients 6 months or older with PFIC. Bylvay was also granted marketing authorization by the MHRA on September 7, 2021 for the treatment of patients 6 months or older with PFIC. Bylvay is available by prescription to patients in the U.S., and in September 2021, Bylvay became available by prescription to patients in Germany. We plan to launch Bylvay in additional markets in 2022.
Maximize the benefit and commercial potential of Bylvay by expanding development to additional orphan pediatric cholestatic indications. Beyond PFIC, we also believe Bylvay can benefit children suffering from other cholestatic diseases and disorders. We initiated a pivotal clinical trial with Bylvay for the treatment of biliary atresia, the BOLD trial, in the first half of 2020. At the end of 2021, we had enrolled over 50% of the targeted patients in the trial. We expect topline results from the BOLD trial in 2024. We estimate that biliary atresia impacts an aggregate of 18,000 patients in the United States and Europe, with another 27,000 patients in other jurisdictions worldwide, and is the cause of over 50% of liver transplants in children. We also initiated a pivotal trial for Bylvay as a treatment for ALGS, the ASSERT trial, in the fourth quarter of 2020 and expect topline results from that trial at the end of 2022.
Continue to develop the capability to commercialize Bylvay to treat orphan pediatric liver diseases through a targeted sales force in the United States and certain key markets in Europe and in collaboration with licensees and distribution partners in selected other regions. Having received marketing approval in the United States, the European Union and Great Britain for Bylvay to treat patients with PFIC, we have been building the capabilities to effectively commercialize Bylvay in the approved indication(s) in the applicable regions. The commercial organization remains modest in size in order to target the relatively small number of specialists in the United States, Europe and other markets who treat children with cholestatic liver disease. We have entered into select collaboration, distribution and other marketing arrangements with third parties to obtain marketing authorizations and commercialize Bylvay in the approved indication(s) in Israel, Turkey, the GCC countries, Central and Eastern European countries and Japan. We continue to assess potential collaboration partners in other key markets. We have entered into a fee for service promotional agreement with Travere Therapeutics, Inc. for promotional support for Bylvay in the United States. The initial term of the arrangement is two years from launch of Bylvay, terminable at will by either party after one year following launch.
Collaborate selectively to develop and commercialize product candidates targeting nonorphan indications, potentially including any future product candidate to treat adult liver diseases. We intend to selectively seek alliances and collaborations to assist us in furthering the development or commercialization of product candidates targeting large primary care markets that must be served by large sales and marketing organizations. These product candidates may include A3907, A2342 and any potential future product candidate that arises from our preclinical program in adult liver diseases.

8

Table of Contents

Our Pipeline

A picture containing table

Description automatically generated

Bylvay

Bylvay (odevixibat) was approved by the FDA on July 20, 2021 for the treatment of pruritis in patients ages 3 months or older with PFIC, and authorized by the EMA on July 16, 2021 for the treatment of patients 6 months or older with PFIC. Bylvay was also granted marketing authorization by the MHRA on September 7, 2021 for the treatment of patients 6 months or older with PFIC. Bylvay is available in the U.S. and became available by prescription to patients in Germany in September 2021. PEDFIC 2, our ongoing long term, open label extension study to evaluate long-term outcomes, includes a cohort of patients who completed 24 weeks in PEDFIC 1 or moved into PEDFIC 2 after 12 weeks in PEDFIC 1, as well as an additional cohort of PFIC patients who were not eligible for PEDFIC 1. In addition to PFIC, we initiated a pivotal clinical trial in biliary atresia in the first half of 2020 and a pivotal trial for Bylvay as a treatment for ALGS in the fourth quarter of 2020.

Bylvay is a highly potent and selective inhibitor of IBAT that is designed to reduce bile acid reabsorption from the small intestine to the liver, and therefore reduce levels of bile acids in the serum and liver and increase excretion of bile acids via the colon. We believe that reducing liver and serum bile acid levels may reduce bile acid-related liver damage to improve liver function and alleviate symptoms of PFIC and other cholestatic liver diseases, including pruritus. Moreover, at therapeutic doses, Bylvay has minimal systemic exposure, acts locally in the gut and, based on preclinical testing, appears to be excreted substantially intact in the feces, which may reduce the risk of systemic side effects and undesirable drug-drug interactions compared with drugs that have broad distribution in the body. Odevixibat has been granted orphan drug designation for PFIC, PBC, biliary atresia and ALGS in the United States and the European Union.

Approved Indication for Bylvay

PFIC. Bylvay is approved for the treatment of pruritus in PFIC in the U.S. and for PFIC in Europe. PFIC is a rare genetic disorder that causes progressive, life-threatening liver disease, which may start early after birth or at a young age and rapidly progress to end-stage liver disease. PFIC is commonly associated with elevated serum bile acids. Prominent symptoms of PFIC include pruritus, which is associated with severe sleep disturbance and diminished overall quality of life, and poor growth. Prior to the approval of Bylvay, first-line treatment in PFIC was typically off-label UDCA, which is approved in France only for PFIC type 3. UDCA is itself a type of bile acid that is thought to act by diluting the toxic effects in the liver and bile ducts of a different type of bile acids, known as hydrophobic bile acids, which are often elevated in cholestatic liver disease. Third-party retrospective analyses published in 2009 and 2010 indicate that, following treatment with UDCA, many PFIC patients require PEBD surgery and PFIC patients will often ultimately require liver transplantation. Although success rates vary, published third-party studies have shown that PEBD surgery can slow and, in some cases, stop the progression of liver disease and lead to reduced pruritus and improved sleep. We

9

Table of Contents

believe these outcomes validate our approach of reducing liver and serum bile acids with an IBAT inhibitor such as Bylvay to treat PFIC.

The precise prevalence of PFIC is unknown, and we are not aware of any patient registries or other method of establishing with precision the actual number of patients with PFIC in any geography. PFIC has been estimated to affect between one in every 75,000 children born worldwide. Based on the published incidence, published regional populations, and estimated median life expectancies, we estimate the prevalence of PFIC across the spectrum of the disease to be approximately 15,000 patients worldwide, not including China and India, but we are not able to estimate the prevalence of PFIC with precision. We hold global rights to Bylvay. Our current plan is to commercialize Bylvay ourselves in the United States and certain key markets in Europe. We have entered into select collaboration, distribution and other marketing arrangements with third parties to commercialize Bylvay in the approved indication(s) in Israel, Turkey, the GCC countries, Central and Eastern European countries and Japan. We continue to assess potential collaboration partners in other key markets.

PFIC, type 1, which is sometimes referred to as “Byler disease” or “FIC1 deficiency,” is caused by impaired bile secretion due to mutations in the ATP8B1 gene that result in an imbalance of molecules known as phospholipids that is associated with cholestasis and elevated bile acids in the liver. Children affected by PFIC, type 1 usually develop cholestasis in the first months of life and, in the absence of surgical treatment, progress to cirrhosis and end-stage liver disease before the end of the first decade of life. PFIC, type 1 is especially common in the Old Order Amish population in the United States, as well as the Inuit population of Greenland.

PFIC, type 2, which is sometimes referred to as “Byler syndrome” or “BSEP deficiency,” is caused by impaired bile salt secretion due to mutations in the ABCB11 gene that result in the buildup of bile salts in liver cells. Children with PFIC, type 2 often develop liver failure within the first few years of life and are at increased risk of developing hepatocellular carcinoma, the most common form of liver cancer.
PFIC, type 3, which typically presents in the first years of childhood with progressive cholestasis, is caused by mutations in the ABCB4 gene. Mutations in the ABCB4 gene lead to a lack of phospholipids available to bind to bile acids, resulting in a buildup of bile acids that damages liver cells.

The TJP2 gene, NR1H4 gene or Myo5b gene mutations have also been proposed to be causes of PFIC. In addition, some patients with PFIC do not have a mutation in any of the ATP8B1, ABCB11, ABCB4, TJP2, NR1H4 or Myo5b genes. In these cases, the cause of the condition is unknown.

Biliary Atresia Indication for Bylvay

Biliary atresia. Biliary atresia is a partial or total blocking or absence of large bile ducts that irreversibly prevents bile flow from the liver to the small intestine, causing cholestasis and resulting accumulation of bile that damages the liver. The damage leads to scarring, loss of liver tissue and cirrhosis, which makes it difficult for the liver to remove toxins from the blood and deteriorates the liver. Biliary atresia is life threatening.

There are currently no drugs approved for the treatment of biliary atresia. The current standard of care is the Kasai procedure. The chance of a successful Kasai procedure is highest if performed before a patient is two months of age. However, even with early intervention, scarring of the liver can continue, resulting in cirrhosis and eventually the need for transplantation. Only an estimated 25% of those initially undergoing the Kasai procedure will survive to their twenties without need for liver transplantation.

The estimated worldwide incidence of biliary atresia is between 6 and 10 for every 100,000 live births. Of all biliary atresia patients, we believe Bylvay will primarily benefit those who have undergone a Kasai procedure that has been sufficiently successful to obviate the need for liver transplant within the first year of life. We estimate the prevalence of biliary atresia to be approximately 18,000 patients across the U.S. and Europe, and 27,000 combined in other jurisdictions worldwide, but we are not able to estimate the prevalence of biliary atresia with precision.

10

Table of Contents

The exact cause of biliary atresia is unknown, but it is thought to result from an event in the womb around the time of birth. Possible triggers may include viral or bacterial infection, an immune system malfunction, a genetic mutation, a problem during liver or bile duct development or exposure to toxic substances. In January 2019, the FDA granted orphan designation to odevixibat for the treatment of biliary atresia. The European Commission granted orphan drug designation to odevixibat for the treatment of biliary atresia in December of 2018. We initiated the BOLD clinical trial, a global pivotal trial in biliary atresia, in the first half of 2020. Our double-blind, placebo controlled pivotal trial is designed to enroll approximately 200 patients at 70 sites globally. Patients will receive either placebo or 120µg/kg Bylvay odevixibat once daily. The primary endpoint is survival with native liver after two years of treatment. At the end of 2021, we had enrolled over 50% of the targeted patients in the trial. We anticipate having topline results available from this trial in 2024.

ALGS. ALGS is a genetic condition associated with liver, heart, eye, kidney and skeletal abnormalities. In particular, ALGS patients have fewer than normal bile ducts inside the liver, which leads to cholestasis and the accumulation of bile and causes scarring in the liver. Symptoms include jaundice, pruritus, poor growth and specific facial features and typically develop in the first two years of life.

We estimate the prevalence of ALGS to be approximately 12,000 patients across the U.S. and Europe, and approximately 13,000 combined in other jurisdictions worldwide, but we are not able to estimate the prevalence of ALGS with precision.

The estimated worldwide incidence of ALGS is one in every 50,000 newborns born worldwide. ALGS is predominately caused by mutations in a gene called Jagged1. In a small number of cases, ALGS results from mutations in a gene called Notch2. In October 2018, the FDA granted orphan drug designation to odevixibat for the treatment of ALGS. In the fourth quarter of 2020, we initiated the ASSERT global pivotal trial for Bylvay as a treatment for ALGS. We expect topline data to be available by the end of 2022, before the announcement of the topline results from the BOLD clinical trial.

Potential Additional Target Indications for Bylvay

Primary Sclerosing cholangitis. Primary sclerosing cholangitis refers to swelling (inflammation), scarring, and destruction of bile ducts inside and outside of the liver. The first symptoms are typically fatigue, itching and jaundice, and many patients with sclerosing cholangitis also suffer from inflammatory bowel disease. The estimated incidence of primary sclerosing cholangitis is 9 cases per 100,000 people. There are currently no drugs approved for the treatment of sclerosing cholangitis. First-line treatment is typically off-label UDCA, although UDCA has not been established to be safe and effective in patients with primary sclerosing cholangitis in well controlled clinical trials.

Long Term Extension Study for Bylvay in PFIC

PEDFIC 2, our long term, open label extension study, includes a cohort of patients who completed 24 weeks in PEDFIC 1 or moved into PEDFIC 2 after 12 weeks in PEDFIC 1, as well as an additional cohort of PFIC patients who were not eligible for PEDFIC 1. Patients in PEDFIC 2 receive Bylvay 120 µg/kg once per day over 72 weeks. Primary outcome measures in PEDFIC 2 are change in pruritus as indexed by caregiver reported observed scratching using our proprietary PRUCISION instrument, and change in sBAs, in each case from baseline over 72 weeks. Interim data from 69 patients through 24 weeks of treatment in PEDFIC 2 was presented at the November 2020 AASLD. The interim results show that the reductions in sBAs and/or pruritus observed in patients receiving Bylvay in PEDFIC 1 was maintained or increased during continued Bylvay treatment in PEDFIC 2. For patients who were treatment naïve to Bylvay (patients who received placebo in PEDFIC 1 or patients who enrolled directly into PEDFIC 2), reductions in sBAs and pruritus were similar to those observed during Bylvay treatment in PEDFIC 1.  Continued treatment with Bylvay in PEDFIC 2 resulted in increased growth rates and catch-up growth in children with PFIC. 

At the November 2021 AASLD, we presented data from an additional interim data cut as of December 4, 2020. The data showed continued long term clinical benefit across PFIC types. Overall, 84 patients received Bylvay during the pooled analysis period, and the overall median (range) exposure from the first dose of Bylvay was 53 (3−128) weeks.

11

Table of Contents

sBA responders had larger improvements in pruritus than sBA non-responders or partial responders as defined by those who did not meet sBA response criteria. Approximately 40% of patients met criteria for sBA response (≥70% reduction in sBAs or sBAs ≤70 μmol/L) during Bylvay treatment. When treatment response was defined by sBA and/or pruritus criteria (≥70% reduction in sBAs or sBAs ≤70 μmol/L), approximately 60% of patients treated with Bylvay achieved a treatment response. In addition, there are a number of patients that are partial responders. We also presented additional evidence of Bylvay reducing disease burden and improving quality of life. From baseline to week 72, responders had mean improvement in hepatic health parameters in transaminases and total bilirubin levels, quality of sleep and growth, with greater improvement observed in responders compared with non-responders. The data showed benefit across PFIC types. During up to 54 weeks of Bylvay treatment, patients with PFIC3 (n=5) and PFIC6 (n=1) experienced clinical benefits, including reductions in sBAs and improvement in pruritus symptoms, growth and sleep parameters. The observed safety and tolerability profile of Bylvay was consistent across studies, treatment groups and doses, regardless of PFIC classification or subtype. No drug-related serious adverse events were reported in either PEDFIC 1 or PEDFIC 2 at the time of the interim data cut.

Elobixibat

Our product candidate elobixibat is licensed for the treatment of chronic constipation and other functional diseases in Japan and other select markets in Asia to EA Pharma. In January 2018, the Japanese Ministry of Health, Labour and Welfare, or MHLW, approved a new drug application filed by EA Pharma for elobixibat for the treatment of chronic constipation in Japan. EA Pharma co-markets elobixibat in Japan with another company, Mochida, and co-promotes elobixibat with Eisai in Japan under the trade name GOOFICE®.

We have commercial rights to elobixibat in the United States, Europe and all other territories not licensed to EA Pharma. We do not have any current plan to seek a license or other partnering transaction with a third party for elobixibat for chronic constipation in the United States and Europe. Whether or not we elect to seek such a transaction, we do not anticipate that we will conduct future clinical trials of elobixibat as a treatment for chronic constipation independently.

Elobixibat is, like Bylvay, an IBAT inhibitor. In August 2020, we announced topline results from our Phase 2 clinical trial as a treatment for NAFLD and NASH and based on the results of the trial, we decided not to pursue further development of elobixibat in NAFLD or NASH.

Clinical Development and Clinical Trials of Elobixibat

Prior to Albireo Limited’s inception in 2008, elobixibat was evaluated by its predecessor owner, AstraZeneca, in various preclinical studies and Phase 1 single ascending dose and multiple ascending dose clinical trials. In Phase 1 clinical development, elobixibat was generally well tolerated in healthy volunteers and showed minimal systemic exposure. Subsequently, we conducted a two-year nonclinical carcinogenicity toxicology study that did not result in any findings of concern and we or our former licensee conducted various additional Phase 1 and early Phase 2 clinical trials to assess the pharmacokinetics and various effects of elobixibat. Findings from these studies indicated, among other things, favorable effects of elobixibat on colonic transit and on low-density lipoprotein, or LDL or “bad” cholesterol.

In 2010, we completed a multicenter, double blind, placebo controlled Phase 2b clinical trial of elobixibat as a treatment for chronic idiopathic constipation, or CIC, in the United States.

The primary endpoint of the trial was change in number of weekly spontaneous bowel movement, or SBMs from baseline to the first treatment week for patients who received one of three doses of elobixibat (5, 10 or 15 mg) compared with patients who received a placebo. The results demonstrated a dose response in favor of elobixibat among all three dose groups and were statistically significant in the 10 mg (p < 0.002) and 15 mg (p < 0.001) dose groups.

Secondary efficacy endpoints of the trial included evaluations of changes in mean weekly number of SBMs and complete spontaneous bowel movements, or CSBMs, time to first SBM or CSBM, overall constipation response and

12

Table of Contents

reduction in C4 and LDL cholesterol levels. The 10 mg and 15 mg elobixibat doses met all of these secondary endpoints with statistical significance.

All doses of elobixibat were generally well tolerated in the clinical trial.

In 2015 our licensee, EA Pharma, completed a multicenter, double blind, placebo controlled Phase 2b clinical trial of elobixibat as a treatment for chronic constipation in Japan.

The primary endpoint of the trial was change in number of weekly SBMs from baseline to the first treatment week for patients who received low, mid or high doses of elobixibat compared with patients who received a placebo. In the trial, both the mid and high dose groups of elobixibat showed a highly statistically significant advantage on change from baseline in weekly SBM frequency compared with placebo (p < 0.001). The findings in favor of elobixibat were substantially the same on a secondary endpoint of the trial assessing change from baseline in weekly CSBM frequency.

All doses of elobixibat were generally well tolerated in the trial, and no SAEs were reported.

In October 2016, we announced positive results from a Phase 3 clinical trial of elobixibat as a treatment for chronic constipation conducted by EA Pharma in Japan. The trial was a multicenter, double blind, placebo controlled trial in which patients with chronic constipation received a fixed dose of elobixibat or placebo once daily for two weeks. In the trial, elobixibat met the primary endpoint, which was change in the number of weekly SBMs from baseline to the first treatment week compared with placebo, with high statistical significance. Elobixibat also met all secondary efficacy endpoints in the trial assessed statistically, including assessments of change in frequency of CSBMs, time to first SBM, severity of constipation and stool consistency, with high statistical significance.

There were no SAEs reported in the trial.

Two Phase 3 clinical trials conducted by a former licensee of ours to evaluate the efficacy and safety of elobixibat as a treatment for CIC, known as Echo 1 and Echo 2, ended in 2014. Our former licensee stopped Echo 1 and Echo 2 early citing an issue related to the distribution of study drug to study sites that was unrelated to the performance of elobixibat. Subsequent analysis by our former licensee determined the issue to have affected only Echo 2 and a small number of patients. As a result of the early termination of the trials, each of Echo 1 and Echo 2 enrolled substantially fewer than the number of patients contemplated by the trial’s statistical plan. A third Phase 3 clinical trial conducted by our former licensee to evaluate the long-term safety of elobixibat, known as Echo 3, ended in 2015.

In 2019 we initiated a double-blind, placebo controlled Phase 2 trial designed to assess the safety and efficacy of elobixibat 5 mg in NASH/NAFLD patients over 16 weeks, as measured by liver steatosis and various biomarkers. Based on the results of the trial, we decided not to pursue further development of elobixibat in NAFLD or NASH.

A3907

Our lead candidate for adult liver diseases, A3907, is a selective inhibitor of the apical sodium-dependent bile acid transporter (ASBT) where systemic bioavailability has been demonstrated in preclinical and clinical studies. As a result, A3907 has the potential to not only affect the bile acid pool by increased bile acid excretion in the stools but also through other pathways, including increased urinary bile acid excretion. This unique approach may yield greater dosing flexibility, greater efficacy and lower rates of adverse events associated with the category, such as diarrhea, in adult patients with liver diseases. We have completed a Phase 1 clinical trial in healthy subjects. We expect to initiate a Phase 2 clinical trial by the end of 2022.

Phase 1 Trial

In November 2021, we announced topline data from a Phase 1 trial of A3907. The Phase 1 trial was a randomized, double-blind, placebo-controlled, single- and seven-day multiple-dose study was conducted in 54 and 22, respectively, healthy subjects. Doses evaluated were 1-162 mg in the single ascending dose portion, and 9-67.5 mg in the multiple

13

Table of Contents

ascending dose portion. Primary objectives were safety and tolerability, secondary objectives were evaluation of pharmacokinetics, and there were multiple exploratory endpoints.

The study met its primary objectives with data showing A3907 overall to be safe and well tolerated, with no serious adverse events (SAEs) or discontinuations due to treatment emergent adverse events (TEAEs). All TEAEs were mild, the most common were mainly abdominal symptoms such as loose stools, and all participants finished the trial protocol. No clinically significant effects in clinical chemistry, hematology, physical examinations or ECG. The study also met its secondary objectives with dose-related plasma exposure up to 81 mg dose, with no accumulation. Exposure levels were within the range that show effects in animal disease models. Single doses of A3907 showed dose proportional increases in plasma exposure up to 81 mg with no further increase at a dose of 162 mg. The study showed target engagement with 7alpha-hydroxy-4-cholesten-3-one (C4) increases and low-density lipoprotein cholesterol (LDL-C) reductions, with C4 increases indicating elevation in bile acid excretion, while LDL-C reduction indicating elevated synthesis of bile acids from cholesterol.

Preclinical Programs

A2342

Our lead preclinical candidate for adult viral and liver diseases, A2342, is an oral systemic sodium-taurocholate co-transporting peptide, or NTCP inhibitor, which is a potent small molecule that blocks entry of bile acids into the liver. We plan to initiate a Phase 1 study with A2342 by the end of 2022.  Preclinical efforts with other bile acid modulator approaches continue.

License and Royalty Monetization Agreements

Agreement with EA Pharma

We entered into a license agreement with EA Pharma (formerly known as Ajinomoto Pharmaceuticals Co., Ltd.) for the development and commercialization of elobixibat in specified countries in Asia in April 2012.

Pursuant to the agreement, we granted EA Pharma an exclusive license under patents and other technology owned or licensed by us to develop and commercialize elobixibat in Japan and certain Asian Pacific markets for all prophylactic or therapeutic uses of a pharmaceutical product for specified GI diseases and disorders, symptoms of constipation of all causes, or postoperative ileus or for use in colonoscopy cleansing procedures. The agreement also provides that the scope of the license may be expanded to include specified liver diseases, if we or an affiliate or licensee takes specified development actions outside of EA Pharma’s licensed territory with elobixibat in that specified liver disease, or files an application for regulatory approval of elobixibat outside of EA Pharma’s licensed territory for that specified liver disease, or otherwise approves that EA Pharma conduct a clinical trial in that specified liver disease.

Payment Terms. As of February 15, 2022, we have received $49.9 million in upfront and milestone payments from EA Pharma under the agreement. We are eligible to receive additional amounts of up to $4.9 million if a specified regulatory event is achieved for elobixibat. In addition, subject to the terms of the royalty interest acquisition agreement, or RIAA, with HealthCare Royalty Partners III, L.P., or HCR, described below, we may become eligible under the license agreement to receive up to $17.4 million if specified sales milestones are achieved for elobixibat and we also receive stepped royalties beginning in the high single digits on all future net sales of elobixibat.

EA Pharma’s obligation under the license agreement to pay royalties for elobixibat expires on a country-by-country basis on the later of expiration of the patent rights in a country that have a specified scope and that we either licensed to EA Pharma or, subject to a specified term limit, are developed by EA Pharma, alone or together with us, in the course of its activities under the agreement or expiration of regulatory exclusivity for elobixibat in that country. The Japanese patent rights with respect to elobixibat that we licensed to EA Pharma expire between 2026 and 2029. In addition, we have two pending patent applications on specific crystal polymorphs of elobixibat that, if issued in Japan, will expire in 2034 and 2035, respectively. Royalty rates are subject to reduction under the agreement in specified

14

Table of Contents

circumstances, including in any country if elobixibat is subject to generic competition that exceeds a specified level, if the bulk price for unformulated elobixibat purchased from us for use in Japan exceeds a specified threshold or if EA Pharma licenses patent rights from any third party under circumstances where it is legally required to do so to commercialize elobixibat in its licensed field in a particular country in its licensed territory.

Development and Commercialization. EA Pharma is responsible for funding and using commercially reasonable efforts to execute the development and commercialization of elobixibat in its licensed field and licensed territory pursuant to agreed territory development and commercialization plans that are updated from time to time. In Japan, EA Pharma co-markets elobixibat with Mochida pursuant to a sublicense agreement and co-promotes elobixibat with Eisai. A joint development committee and a joint commercialization committee, each comprising representatives of each company, oversees activities under the agreement.

EA Pharma is responsible for commercial manufacture and supply of elobixibat in its licensed territory.

Restrictions. EA Pharma is not permitted to conduct clinical development or commercialize elobixibat outside of its licensed field of use or licensed territory. We are not permitted to commercialize elobixibat for any field of use in EA Pharma’s licensed territory. In addition, if we determine to develop elobixibat in a liver disease outside of EA Pharma’s licensed territory, our development is subject to specified restrictions on clinical trial design. After the first commercial sale of elobixibat in any country in EA Pharma’s licensed field, neither we nor EA Pharma may commercialize a different product for the treatment of chronic constipation or IBS-C in that country, subject to specified exceptions.

Term and Termination. Either we or EA Pharma can terminate the agreement in its entirety or on a country-by-country basis if the other party materially breaches the agreement and the breach is not cured within a specified period. Also, either we or EA Pharma can terminate the agreement in its entirety if a specified bankruptcy-related event with regard to the other party occurs. EA Pharma also has the right to terminate the agreement in its entirety or on a country-by-country basis (except for Japan) for any reason upon 180 days’ notice. The rights and obligations of the parties that survive termination of the agreement vary depending on the basis for the termination.

Royalty Monetization Agreement with HCR

In December 2017, the Company entered into a royalty interest acquisition agreement (RIAA) with HealthCare Royalty Partners III, L.P. (HCR) pursuant to which it sold to HCR the right to receive all royalties from sales in Japan and sales milestones achieved from any covered territory potentially payable to the Company under the Agreement, up to a specified maximum “cap” amount of $78.8 million, based on the funds the Company received from HCR. In January 2018, the Company received $44.5 million from HCR, net of certain transaction expenses, under the RIAA. On June 8, 2020, the parties entered into an amendment to the RIAA pursuant to which HCR agreed to pay the Company an additional $14.8 million, net of certain transactions expenses, in exchange for the elimination of the (i) $78.8 million cap amount on HCR’s rights to receive royalties on sales in Japan and sales milestones for elobixibat in certain other territories that may become payable by EA Pharma and (ii) the $15.0 million payable to the Company if a specified sales milestone is achieved for elobixibat in Japan. The Company is obligated to make royalty interest payments to HCR under the RIAA only to the extent it receives future Japanese royalties, sales milestones or other specified payments from EA Pharma. Although the Company sold its rights to receive royalties from the sales of elobixibat in Japan, as a result of its ongoing involvement in the cash flows related to these royalties, the Company will continue to account for these royalties as revenue. Upon receipt of the payments from HCR the Company recorded net cash totaling $59.3 million as a liability related to sale of future royalties (royalty obligation). The royalty obligation will be amortized using the effective interest rate method.

The RIAA requires us to take certain actions with respect to the elobixibat royalties and sales milestones and with respect to our license agreement with EA Pharma and contains certain representations and warranties, covenants, indemnification obligations and other provisions that are customary for a royalty monetization transaction. In addition, for protective purposes only, we (specifically, Albireo Pharma, Inc., Albireo AB and Elobix AB) have agreed to grant HCR a precautionary security interest in specified assets related to elobixibat, but only in the event that, notwithstanding

15

Table of Contents

the parties’ intentions, the transfer contemplated by the RIAA is held by a court of competent jurisdiction not to be a true sale.

We record estimated royalties due for the current period in accrued other expenses until the payment is received from EA Pharma at which time we then remit payment to HCR. In order to determine the accretion of the royalty obligation, we are required to estimate the total amount of future royalty payments to be received and submitted to HCR. The sum of these amounts less the $59.3 million proceeds we received will be recorded as interest expense over the life of the royalty obligation. At December 31, 2021, our estimate of our total interest expense resulted in an annual effective interest rate of approximately 18.1%.

Terminated License Agreement with Ferring International Center S.A.

We entered into a license agreement with Ferring International Center S.A., or Ferring, for the development and commercialization of elobixibat outside of the territories licensed to EA Pharma in July 2012, following completion of our Phase 2b clinical trial of elobixibat to treat CIC. In March 2015, Ferring terminated the agreement, effective in September 2015. As a result of the termination of the agreement, all licenses that we granted to Ferring under the license agreement terminated and commercial rights to elobixibat in Ferring’s licensed territory reverted to us. In addition, Ferring was required, among other things, to assign to us all rights to all regulatory submissions and approvals controlled by Ferring pertaining to elobixibat in the licensed territory and to grant to us an exclusive right of reference to data, and specified licenses to data and technology, related to elobixibat for the development and commercialization of elobixibat in its licensed field. Notwithstanding the termination of the license agreement, Ferring may be entitled to low single-digit royalty payments on net sales of elobixibat on a country-by-country and product-by-product basis in specified circumstances.

Patents and Proprietary Rights

We actively seek to protect the proprietary technology that we consider important to our business, including compositions and forms and their methods of use in the United States, Europe 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 December 31, 2021, our patent estate included 37 issued patents, 4 allowed applications and 17 pending patent applications in the United States and approximately 50 counterpart patents and patent applications in other jurisdictions, including 11 European regional issued patents and 9 pending Patent Cooperation Treaty, or PCT, applications which allow us to seek corresponding patent protection worldwide. The actual protection afforded by a patent varies from country to country and depends upon many factors, including the type of patent, the scope of its coverage and the availability of legal remedies in a particular jurisdiction.

16

Table of Contents

We consider the following United States, European (EP) and, in the case of elobixibat, Japanese (JP) patents to be particularly important to the protection of our commercial products and pre-clinical- and clinical-stage product candidates.

Product 

    

Summary Description

    

Expiration Date

Odevixibat

Composition of matter of odevixibat

September 2022

Method of using certain IBAT inhibitor(s) to treat certain liver diseases

November 2031

Method of using certain IBAT inhibitor(s) in combination with

a bile acid binder to treat certain liver diseases

November 2031 (EP

pending in US)

Crystal modifications of odevixibat

June 2039

(US pending in EP)

Formulations of odevixibat

June 2039

(pending in US and EP)

Elobixibat

Composition of matter of elobixibat

August 2022 (US); November 2026 (JP, with PTE)

Method of using an IBAT inhibitor to treat Chronic Idiopathic Constipation or

Irritable Bowel Syndrome with Constipation

April 2024

(US and EP);

March 2029

(JP, with PTE)

Crystal modifications of elobixibat

April 2034

Crystal modifications of elobixibat

October 2035

Formulations of elobixibat

June 2035 (US)

Process for manufacturing

March 2039 (US, pending in EP and JP)

Method of using certain IBAT inhibitor(s) to treat NASH

November 2031

A3907

Composition of matter of A3907

February 2040

(US, pending in EP)

A2342

Composition of matter of A2342

December 2040 (US, Pending PCT)

17

Table of Contents

We also have issued patents and pending patent applications with equivalent or substantially comparable protection for our product candidates in jurisdictions internationally that we consider key pharmaceutical markets.

Seven of our patents that cover compositions of matter and methods of using Bylvay have been listed in the FDA’s publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.”

Except when specifically indicated, the patent expiration dates referenced above do not reflect any potential patent term extension (PTE) that we may receive for the United States under The United States Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Act, or similar patent term extension legislation in Europe and Japan. 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 term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of FDA approval. 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. Typically, only one patent applicable to an approved drug is eligible for an extension, and, with limited exceptions, 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.

In the European Economic Area (EEA; the European Union member countries plus Iceland, Liechtenstein and Norway), Regulation (EC) No 469/2009 generally permits an extension of the patent term for a drug as compensation for the patent term lost during the regulatory review process by the European Medicines Agency, or EMA, or the national drug agencies. Similar extensions are available in Great Britain and Switzerland. The term of a supplementary protection certificate, or SPC, corresponds to the period between the filing date of the patent and the date of the first Marketing Authorization, reduced by a period of 5 years. An SPC may extend the patent term for an approved drug up to five years, but the remaining patent term may not exceed 15 years from the date of the first Marketing Authorization. Only one patent that covers the approved drug is eligible for an SPC. Applications for an SPC are reviewed and approved by the national patent offices, and must be lodged within six months of the authorization date for the drug in each country (or within six months of the grant of the patent, in case the Marketing Authorization is granted first).

In Japan, the Japanese Pharmaceutical Affairs Law generally permits the extension of the patent term for a drug as compensation for patent term lost during the regulatory review process by the Japanese Pharmaceuticals and Medical Devices Agency (PMDA). The patent term extension corresponds to the period from the date of the start of clinical trials or the date of patent registration, whichever is later, until one day prior to the date of approval for the drug. The term of a patent can be extended for up to five years, irrespective of the remaining natural term of the patent as of the date of approval. Each patent that covers the active ingredient in the approved drug, or a method of using the approved drug in the approved indication, is eligible for the extension, which means that, for any particular drug, multiple patents may be extended. The extension must be applied for prior to expiration of the patent and within three months from the date of approval. The Japanese Patent Office reviews and approves applications for patent term extension.

Sales and Marketing

Following approval of Bylvay by the FDA, EMA and MHRA, we have built a sales and distribution organization that we believe will be necessary to effectively support the commercialization of Bylvay in the United States, and Europe. We believe that our commercial organization can be modest in size and targeted to the relatively small number of specialists in the United States, Europe and other markets who treat children with orphan cholestatic liver disease. We plan to continue to expand this to other key international markets where Bylvay may be approved for PFIC or any other pediatric cholestatic liver disease or disorder. In addition to our Chief Commercial Officer, we have hired a President of U.S and a President of International, and continue to build sales and account teams in both jurisdictions. We have also hired employees in Great Britain, Ireland, Germany, Spain, Portugal, Italy and France who will support the commercialization of Bylvay ex-US. We have entered into a fee for service promotional agreement with Travere Therapeutics, Inc. for promotional support for Bylvay in the United States. The initial term of the arrangement is two years from launch of Bylvay, terminable at will by either party after one year following launch.

18

Table of Contents

We have entered into select collaboration, distribution and other marketing arrangements with third parties to apply for marketing authorizations and commercialize Bylvay in the approved indication(s) in Israel, Turkey, the GCC countries, Central Eastern European countries and Japan. We continue to assess potential collaboration partners in other key markets.

Manufacturing

We do not own or operate, and currently have no plans to establish, manufacturing facilities for the production of clinical or commercial quantities of odevixibat, elobixibat, A3907, A2342 or any of our other product candidates. We currently rely, and expect to continue to rely, on third parties for the manufacture of our product candidates and any products that we may develop.

We currently engage a single third-party manufacturer to provide the active pharmaceutical ingredient, or API, for odevixibat and our product candidates, A3907 and A2342. We also currently engage single third-party manufacturers to produce the final drug product formulation of each of Bylvay, A3907 and A2342 for use in our clinical trials.

We obtain the supplies of our API and drug products from these manufacturers pursuant to agreements that include specific supply timelines, quality and volume expectations. We obtain the supplies of our product candidates from these manufacturers under master services contracts and specific work orders. However, we do not have long-term supply arrangements in place for our product candidates. We do not currently have arrangements in place for redundant supply or a second source for API for any of odevixibat, elobixibat, A3907 or A2342. If any of our current manufacturers becomes unavailable to us for any reason, we believe that there are a number of potential replacements, although we would likely incur significant delay in identifying and qualifying such replacements.

Odevixibat, elobixibat, A3907 and A2342 are organic compounds of low molecular weight, and are referred to as “small molecules.” We have selected these compounds based on their potential efficacy and safety, although they are also associated with reasonable cost of goods. We expect to continue to develop product candidates that can be produced cost-effectively at contract manufacturing facilities.

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, government agencies and private and public research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.

Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient enrollment for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with larger or more established companies.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain marketing approvals for their products more rapidly than we obtain approval for our products. In addition, our ability to compete may be affected because in some cases insurers or other third-party payors seek to encourage the use of generic products. This may have the effect of making branded products less attractive, from a cost perspective, to buyers.

19

Table of Contents

The key competitive factors affecting the success of our product candidates are likely to be their efficacy, safety, tolerability, convenience, price and the availability of coverage and reimbursement from government and other third-party payors.

The competition in our target indications includes the following.

PFIC and other pediatric cholestatic liver diseases and disorders. For many cholestatic liver diseases and disorders, there are no approved therapies. Bylvay is the first drug treatment approved for patients with PFIC.

Mirum Pharmaceuticals, Inc.’s IBAT inhibitor, LIVMARLI (maralixibat) was approved by the FDA for treatment of cholestatic pruritis in patients one year of age or older with ALGS on September 29, 2021. Mirum also submitted a marketing authorization application (“MAA”) for the treatment of cholestatic liver disease in patients with ALGS to the European Medicines Agency (“EMA”) and announced that it expects potential approval in the second half of 2022. Mirum is conducting a Phase 3 clinical trial in PFIC and disclosed that it expects to announce topline data in the second half of 2022. Additionally, Mirum is conducting a Phase 2 trial for maralixibat in biliary atresia and disclosed that it expects to announce topline data from that trial in 2023. Mirum is also conducting Phase 2 trials of its IBAT inhibitor, volixibat, in primary sclerosing cholangitis, intrahepatic cholestasis of pregnancy and PBC. GlaxoSmithKline is conducting a Phase 3 trial of linerixibat for the treatment of cholestatic pruritis in patients with PBC. The FDA granted orphan drug designation to linerixibat for the treatment of PBC in September 2019.

A number of other drugs, including UDCA, a bile acid which is approved in France only for PFIC type 3, rifampin, an antibiotic derivative, and naltrexone, an opioid antagonist, are used off-label for patients suffering from cholestatic liver disease. Additionally, surgical interventions, such as PEBD surgery, and external liver filtering procedures are also employed in an attempt to lower bile acid levels, manage pruritus and improve measures of liver function.

In addition, Intercept Pharmaceuticals’ OCALIVA (obeticholic acid), is approved in the U.S. in combination with UDCA, or as a monotherapy for patients unable to tolerate UDCA, to treat PBC. OCALIVA is also in Phase 2 development at Intercept as a treatment for biliary atresia. In July 2019, Genfit SA received orphan designations from the FDA and EMA for its PPAR alpha/delta agonist, (elafibranor), for the treatment of PBC. Genfit is conducting a Phase 3 trial for elafibranor in PBC. CymaBay Therapeutics initiated a Phase 3 study (RESPONSE) in early 2021 for Seladelpar for the treatment of PBC. Seladelpar has received Breakthrough Therapy Designation (FDA) and PRIME status (EMEA); Orphan Drug Designation in U.S. and Europe. Gilead Sciences, Inc.’s FXR agonist, cilofexor, is in Phase 3 development for PSC.

Human Capital

As of February 15, 2022, we employed 130 full-time employees, of whom 32 hold Ph.D., M.D., or Pharm.D. degrees, or the foreign equivalent. Of these employees, 66 were engaged in research and development and 31 were engaged in general and administrative functions and 33 were engaged in commercial activities. Our headquarters are in Boston, MA, and we have an office in the UK and a research site in Gothenburg Sweden. Our employees in Sweden are subject to a collective bargaining agreement. We consider our relationship with our employees to be positive. We expect to continue to add additional employees in 2022, with a focus on further expanding our geographic reach as we continue the global launches of Bylvay.

The Company recognizes that our industry is specialized and dynamic, and a significant aspect of our success is our continued ability to execute our human capital strategy of attracting, engaging, developing and retaining highly skilled talent. There is fierce competition both within our industry and in the geographic locations in which we have offices for highly skilled talent, and we offer a robust set of benefits, career-enhancing learning experiences and initiatives aligned with our mission, vision, and values in order to attract qualified prospective employees and to retain and motivate our employees. We offer competitive compensation for our employees and strongly embrace a pay for performance philosophy in setting and adjusting compensation.

20

Table of Contents

Our Code of Business Conduct and Ethics clearly outlines our unwavering commitment to diversity and inclusion, where all employees are welcomed in an environment designed to make them feel comfortable, respected, and accepted regardless of their age, race, national origin, gender, religion, disability or sexual orientation. We have a set of policies explicitly setting forth our expectations for nondiscrimination and a harassment-free work environment. We are also a proud equal opportunity employer and cultivate a highly collaborative and entrepreneurial culture.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory requirements, require the expenditure of substantial time and financial resources.

Review and Approval of Drugs in the United States

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations. Failure to comply with the applicable U.S. requirements at any time during the product development process, the approval process or after approval may subject an applicant or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice, or DOJ, or other governmental entities.

An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s good laboratory practice, or GLP, regulations;
submission to the FDA of an IND, which must take effect before human clinical trials may begin;
approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated;
performance of adequate and well-controlled human clinical trials in accordance with good clinical practices, or GCP, to establish the safety and efficacy of the proposed drug product for each proposed indication;
satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;
preparation and submission to the FDA of an NDA;
review of the product by an FDA advisory committee, where appropriate or if applicable;
satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing Practices, or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

21

Table of Contents

payment of user fees and securing FDA approval of the NDA; and
compliance with any post-approval requirements, including Risk Evaluation and Mitigation Strategies, or REMS, and post-approval studies required by the FDA, if applicable.

Preclinical Studies

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

Human Clinical Trials in Support of an NDA

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can be initiated or restarted (in cases when the trial is placed on clinical hold after it has already begun).

In addition, an IRB representing each institution that is participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct a continuing review and reapprove the trial at least annually. The IRB must review and approve, among other things, the trial protocol and informed consent information to be provided to clinical trial subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials, including details of the protocol and eventually study results, also must be submitted within specific timeframes to the National Institutes of Health for public dissemination on the ClinicalTrials.gov data registry.

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

Phase 1. The drug is initially introduced into healthy human subjects or, in certain indications such as cancer, patients with the target disease or condition, in order to be tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage.
Phase 2. The drug is administered to a limited patient population to identify possible adverse effects and safety risks, in order to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.
Phase 3. The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in one or more well-controlled clinical trials in order to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the drug, and to provide adequate information for the labeling of the drug.

22

Table of Contents

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if SAEs occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other clinical trials or animal or in vitro testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, if the clinical trial is not being conducted in accordance with the clinical protocol or GCP or if the drug has been associated with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.

Submission of an NDA to the FDA

Assuming successful completion of required clinical testing and other requirements, the results of the preclinical studies and clinical trials, 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, which requests approval to market the drug product for one or more indications. Under federal law, the fee for the submission of an NDA for which clinical data is required exceeds $3.1million for FY2022, and the sponsor of an approved NDA is also subject to an annual program fee, currently exceeding $369,000 per program. These fees are typically increased annually, but exemptions and waivers may be available under certain circumstances (such as a waiver for the first human drug application submitted by a qualifying small business and exemptions for orphan products).

The FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by the 74th day after the FDA’s receipt of the submission whether the application is 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. After the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. Most such applications are meant to be reviewed within ten months from the date the NDA is accepted for filing, and most applications for “priority review” products are meant to be reviewed within six months from the date the NDA is accepted for filing. The review process may be extended by the FDA for three additional months to consider new information or in the case of a clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections cover all facilities associated with an NDA submission, including drug component manufacturing (such as active pharmaceutical ingredients), finished drug product manufacturing, and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent production of the drug product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.

In addition, as a condition of approval, the FDA may require an applicant to develop a REMS.  REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. REMS are tailored to the specific risk/benefit profile of a drug and can include requirements such as medication guides for patients, detailed communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU may include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, restricted distribution, and the use of patient registries. The FDA may require a REMS as a condition of approval or post-approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS and the specific components that are involved can materially affect the potential market and profitability of a product.

23

Table of Contents

The FDA often refers an application for a new drug to an advisory committee. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making final approval decisions about a particular NDA.

Fast Track, Breakthrough Therapy and Priority Review Designations

The FDA is authorized to designate certain products for expedited development or review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs include fast track designation, breakthrough therapy designation and priority review designation.

Specifically, the FDA may grant a product the fast track designation if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For fast track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a fast track product’s NDA before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA’s time period goal for reviewing a fast track product application does not begin until the last section of the NDA is submitted. In addition, the fast track designation may be withdrawn by the sponsor or rescinded by the FDA if the designation is no longer supported by data emerging in the clinical trial process.

In 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act, or FDASIA. This law established a new regulatory program for products designated as “breakthrough therapies.” A product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to designated breakthrough therapies, including: holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.

Finally, the FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines at the time that the marketing application is submitted, on a case-by-case basis, whether the proposed drug represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, or evidence of safety and effectiveness in a new subpopulation. A priority review designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA’s goal for taking action on a marketing application from ten months to six months.

Accelerated Approval Pathway

The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that generally provides a meaningful therapeutic advantage to patients over existing treatments and based upon a demonstration that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a drug when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the

24

Table of Contents

availability or lack of alternative treatments. Drugs granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.

For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval when the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate long-term clinical benefit of a drug.

The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. For example, accelerated approval has been used extensively in the development and approval of drugs for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large clinical trials to demonstrate a clinical or survival benefit.

The accelerated approval pathway is usually contingent on a sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug’s clinical benefit. As a result, a product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or to confirm the predicted clinical benefit of the product during post-marketing studies, would allow the FDA to withdraw approval of the drug. All promotional materials for product candidates being considered and approved under the accelerated approval program are subject to prior review by the FDA.

Rare Pediatric Disease Priority Review Voucher

The FDA may grant rare pediatric disease designation for indications in the treatment or prevention of a rare disease or condition that affects fewer than 200,000 individuals in the United States and that is a serious or life-threatening disease that primarily affects individuals aged from birth to 18 years, including age groups often called neonates, infants, children and adolescents. The FDA granted us a rare pediatric disease priority review voucher, or PRV following the approval of Bylvay for the treatment of pruritis in PFIC in July 2021. We subsequently sold the PRV for $105.0 million. A PRV can be redeemed to receive priority review under an expedited timeframe for a subsequent marketing application for a different product. A PRV may also be sold or transferred from the initial sponsor to another sponsor and may be further transferred any number of times before it is used. The United States Congress recently extended the FDA’s authority to award rare pediatric disease PRVs until 2024 and until 2026 for products that receive rare pediatric disease designation by 2024.

The FDA’s Decision on an NDA

On the basis of the FDA’s evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue either an approval letter or a complete response letter (CRL). An approval letter authorizes commercial marketing of the product with specific prescribing information and for specific indications. A CRL generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in response to the CRL in either two or six months depending on the type of information included. Even with the submission of this additional information, however, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

25

Table of Contents

If the FDA approves a product, it may limit the approved indications for use for the product; require that contraindications, warnings or precautions be included in the product labeling; require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess the drug’s safety after approval; require testing and surveillance programs to monitor the product after commercialization; or impose other conditions, including distribution restrictions or other risk management mechanisms, including 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-market studies or surveillance programs. After approval, many 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.

Post-Approval Requirements

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

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

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

restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;
fines, warning letters or holds on post-approval clinical trials;
refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license 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.

The FDA strictly regulates 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 label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant penalties.

26

Table of Contents

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution. Most recently, the Drug Supply Chain Security Act, or DSCSA, was enacted with the aim of building an electronic system to identify and trace certain prescription drugs distributed in the United States. The DSCSA mandates phased-in and resource-intensive obligations for pharmaceutical manufacturers, wholesale distributors, and dispensers over a 10-year period that is expected to culminate in November 2023.

Abbreviated New Drug Applications for Generic Drugs

In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. In support of such applications, a generic manufacturer may rely on the preclinical and clinical testing conducted for a drug product previously approved under an NDA, known as the reference listed drug, or RLD. Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug.”

Upon approval of an ANDA, the FDA indicates whether the generic product is “therapeutically equivalent” to the RLD in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.

Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA until any applicable period of nonpatent exclusivity for the RLD has expired. The FDCA provides a period of five years of nonpatent data exclusivity for a new drug containing a new chemical entity. In cases where such exclusivity has been granted, an ANDA may not be submitted to the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years after the original product approval. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication.

Hatch-Waxman Patent Certification and the 30-Month Stay

Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA applicant submits its application to the FDA, the applicant is required to certify to the FDA concerning any patents listed for the RLD in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. To the extent that the Section 505(b)(2) NDA applicant is relying on studies conducted for an already approved product, the applicant also is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Specifically, the applicant for a follow-on drug product must certify with respect to each patent that:

the required patent information has not been filed;
the listed patent has expired;

27

Table of Contents

the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or
the listed patent is invalid, unenforceable or will not be infringed by the new product.

A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involving indications for which the ANDA applicant is not seeking approval).

If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA owner and patent holders once the ANDA in question has been accepted for filing by the FDA. The NDA owner and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent or a decision in the infringement case that is favorable to the ANDA applicant.

Pediatric Clinical Trials and Exclusivity

Under the Pediatric Research Equity Act of 2003 an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product 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. With enactment of the FDASIA in 2012, sponsors must also submit pediatric trial plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric trial or trials the applicant plans to conduct, including trial objectives and design, any deferral or waiver requests and other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.

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. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.

Pediatric exclusivity is another type of nonpatent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the nonpatent and orphan exclusivity. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application.

Orphan Drug Designation and Exclusivity

The FDA has granted orphan drug designation to odevixibat for the treatment of ALGS, biliary atresia and PBC, and the approved product Bylvay has been granted a period of orphan drug exclusivity as a result of having been designated as an orphan drug for the treatment of PFIC prior to its U.S. marketing approval in July 2021. Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or

28

Table of Contents

condition (generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product). A company must request orphan product designation before submitting an NDA. If the designation request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product with orphan status receives the first FDA approval for the disease or condition for which it has such designation, the product generally will receive orphan product exclusivity. Orphan product exclusivity means that the FDA may not approve any other applications for the same product for the same indication for seven years, except in certain limited circumstances. Competitors may receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for the same product but for a different indication. If a drug or drug product designated as an orphan product ultimately receives marketing approval for an indication broader than what was designated in its orphan product application, it may not be entitled to exclusivity.

Patent Term Restoration and Extension

The term of a U.S. patent that covers a drug, biological product or approved medical device may also be eligible for patent term extension when FDA approval is granted, provided that certain statutory and regulatory requirements are met. The length of the patent term extension is related to the length of time the drug is under regulatory review while the patent is in force. For drugs, the Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration date set for the patent. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be granted an extension, and only those claims reading on the approved drug may be extended. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug, provided that statutory and regulatory requirements are met. The U.S. Patent and Trademark Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA.

Regulation Outside the United States

In order to market any product candidate outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not it obtains FDA approval for a product candidate, the company would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of a product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

Regulation and Marketing Authorization in the European Union

Clinical Trial Approval

Requirements for the conduct of clinical trials in the European Union including Good Clinical Practice, or GCP, are implemented in the Clinical Trials Directive 2001/20/EC and the GCP Directive 2005/28/EC. Pursuant to Directive 2001/20/EC and Directive 2005/28/EC, as amended, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, approval must be obtained from the competent national authority of an E.U. member state in which a trial is planned to be conducted, or in multiple member states if the clinical trial is to be conducted in a number of member states. To this end, a CTA is submitted, which must be supported by an investigational medicinal product dossier, or IMPD, and further supporting information prescribed by Directive 2001/20/EC and Directive 2005/28/EC and other applicable guidance documents. Furthermore, a

29

Table of Contents

clinical trial may only be started after a competent ethics committee has issued a favorable opinion on the clinical trial application in that country.

In April 2014, a new Clinical Trials Regulation, (EU) No 536/2014 was enacted to replace Clinical Trials Directive 2001/20/EC, and it became effective on January 31, 2022. To ensure that the rules for clinical trials are identical throughout the European Union, the new E.U. Clinical Trials Regulation is directly applicable in all E.U. member states. The extent to which ongoing clinical trials will be governed by the Clinical Trials Regulation will depend on the date the Clinical Trials Regulation became applicable and the duration of each individual clinical trial. If a clinical trial continues for more than three years from January 31, 2022, then the Clinical Trials Regulation will at that time begin to apply to it.

The new Regulation (EU) No 536/2014 aims to simplify and streamline the approval of clinical trial in the European Union. The main characteristics of the regulation include:

a streamlined application procedure via a single entry point, the E.U. portal;
a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures that will spare sponsors from submitting broadly identical information separately to various bodies and different member states;
a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts (Part I is assessed jointly by all member states concerned and Part II is assessed separately by each member state concerned);
strictly defined deadlines for the assessment of clinical trial application; and
the involvement of the ethics committees in the assessment procedure in accordance with the national law of the member state concerned but within the overall timelines defined by the Regulation (EU) No 536/2014.

PRIME Designation

The European Medicines Agency, or EMA, grants access to the Priority Medicines, or PRIME, program to investigational medicines for which it determines there to be preliminary data available showing the potential to address an unmet medical need and bring a major therapeutic advantage to patients. As part of the program, EMA provides early and enhanced dialogue and support to optimize the development of eligible medicines and speed up their evaluation, aiming to bring promising treatments to patients sooner. The EMA has granted access to the PRIME program at the “proof of concept” stage for Bylvay to treat PFIC.

Marketing Authorization

Authorization to market a product in the member states of the European Union proceeds under one of four procedures: a centralized authorization procedure, a mutual recognition procedure, a decentralized procedure or a national procedure.

Centralized Authorization Procedure

The centralized procedure enables applicants to obtain a marketing authorization that is valid in all E.U. member states based on a single application. Certain medicinal products, including products developed by means of biotechnological processes, must undergo the centralized authorization procedure for marketing authorization, which, if granted by the European Commission, is automatically valid in all 28 E.U. member states. The EMA and the European Commission administer this centralized authorization procedure pursuant to Regulation (EC) No 726/2004.

30

Table of Contents

Pursuant to Regulation (EC) No 726/2004, this procedure is mandatory for various types of products, including, among others, products that are designated as orphan medicinal products pursuant to Regulation (EC) No 141/2000.

The centralized authorization procedure is optional for other medicinal products if they contain a new active substance or if the applicant shows that the medicinal product concerned constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization is in the interest of patients in the European Union.

Administrative Procedure

Under the centralized authorization procedure, the EMA’s Committee for Human Medicinal Products, or CHMP, serves as the scientific committee that renders opinions about the safety, efficacy and quality of medicinal products for human use on behalf of the EMA. The CHMP is composed of experts nominated by each member state’s national authority for medicinal products, with an expert appointed to act as Rapporteur for the co-ordination of the evaluation with the possible assistance of a further member of the CHMP acting as a Co-Rapporteur. After approval, the Rapporteur(s) continue to monitor the product throughout its life cycle. The CHMP has 210 days to adopt an opinion as to whether a marketing authorization should be granted. The process usually takes longer in case additional information is requested, which triggers clock-stops in the procedural timelines. The process is complex and involves extensive consultation with the regulatory authorities of member states and a number of experts. When an application is submitted for a marketing authorization in respect of a drug that is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation, the applicant may pursuant to Article 14(9) Regulation (EC) No 726/2004 request an accelerated assessment procedure. If the CHMP accepts such request, the time-limit of 210 days will be reduced to 150 days but it is possible that the CHMP can revert to the standard time-limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. Once the procedure is completed, a European Public Assessment Report, or EPAR, is produced. If the opinion is negative, information is given as to the grounds on which this conclusion was reached. After the adoption of the CHMP opinion, a decision on the MAA must be adopted by the European Commission, after consulting the E.U. member states, which in total can take more than 60 days.

Conditional Approval

In specific circumstances, E.U. legislation (Article 14(7) Regulation (EC) No 726/2004 and Regulation (EC) No 507/2006 on Conditional Marketing Authorizations for Medicinal Products for Human Use) enables applicants to obtain a conditional marketing authorization prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization. Such conditional approvals may be granted for product candidates (including medicines designated as orphan medicinal products) if (1) the risk-benefit balance of the product candidate is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) the product fulfills unmet medical needs and (4) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions or specific obligations. The timelines for the centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.

Marketing Authorization under Exceptional Circumstances

Under Article 14(8) Regulation (EC) No 726/2004, products for which the applicant can demonstrate that comprehensive data (in line with the requirements laid down in Annex I of Directive 2001/83/EC, as amended) cannot be provided (due to specific reasons foreseen in the legislation) might be eligible for marketing authorization under exceptional circumstances. This type of authorization is reviewed annually to reassess the risk-benefit balance. The fulfillment of any specific procedures/obligations imposed as part of the marketing authorization under exceptional circumstances is aimed at the provision of information on the safe and effective use of the product and will normally not

31

Table of Contents

lead to the completion of a full dossier/approval. Bylvay received a marketing authorization under exceptional circumstances.

Market Authorizations Granted by Authorities of E.U. Member States

In general, if the centralized procedure is not followed, there are three alternative procedures as prescribed in Directive 2001/83/EC:

The decentralized procedure allows applicants to file identical applications to several E.U. member states and receive simultaneous national approvals based on the recognition by E.U. member states of an assessment by a reference member state.
The national procedure is only available for products intended to be authorized in a single E.U. member state.
A mutual recognition procedure similar to the decentralized procedure is available when a marketing authorization has already been obtained in at least one E.U. member state.

A marketing authorization may be granted only to an applicant established in the European Union.

Pediatric Studies

Prior to obtaining a marketing authorization in the European Union, applicants have to demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, a class waiver, or a deferral for one or more of the measures included in the PIP. The respective requirements for all marketing authorization procedures are set forth in Regulation (EC) No 1901/2006, which is referred to as the Pediatric Regulation. This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized. The Pediatric Committee of the EMA, or PDCO, may grant deferrals for some medicines, allowing a company to delay development of the medicine in children until there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may also grant waivers when development of a medicine in children is not needed or is not appropriate, such as for diseases that only affect the elderly population.

Before a marketing authorization application can be filed, or an existing marketing authorization can be amended, the EMA determines that companies actually comply with the agreed studies and measures listed in each relevant PIP.

In 2017, the PDCO agreed to our PIP for Bylvay as a treatment for PFIC.

Periods of Authorization and Renewals

A marketing authorization is valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any authorization which is not followed by the actual placing of the drug on the E.U. market (in case of centralized procedure) or on the market of the authorizing member state within three years after authorization ceases to be valid (the so-called sunset clause).

32

Table of Contents

Orphan Drug Designation and Exclusivity

The European Commission, following an evaluation by the EMA’s Committee for Orphan Medicinal Products, has designated odevixibat as an orphan medicinal product for the treatment of PFIC, as well as for the treatment of PBC and ALGS. Pursuant to Regulation (EC) No 141/2000 and Regulation (EC) No. 847/2000, the European Commission can grant such orphan medicinal product designation to products for which the sponsor can establish that it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 people in the European Union, or a life threatening, seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that sales of the drug in the European Union would generate a sufficient return to justify the necessary investment. In addition, the sponsor must establish that there is no other satisfactory method approved in the European Union of diagnosing, preventing or treating the condition, or if such a method exists, the proposed orphan drug will be of significant benefit to patients.

Orphan drug designation is not a marketing authorization. It is a designation that provides a number of benefits, including fee reductions, regulatory assistance, and the possibility to apply for a centralized E.U. marketing authorization, as well as ten years of market exclusivity following marketing authorization of the designated orphan drug. During this market exclusivity period, neither the EMA, the European Commission nor the member states can accept an application or grant a marketing authorization for a similar medicinal product. A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as those contained in an authorized orphan medicinal product and that is intended for the same therapeutic indication. A “similar active substance” is defined as an active substance that is identical or has the same principal molecular structural features (but not necessarily all of the same molecular features) and acts via the same mechanism as the authorized orphan medicinal product. The market exclusivity period for the authorized therapeutic indication may be reduced to six years if, at the end of the fifth year, it is established that the orphan designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. In addition, a competing similar medicinal product may in limited circumstances be authorized prior to the expiration of the market exclusivity period, including if it is shown to be safer, more effective or otherwise clinically superior to the already approved orphan drug. Furthermore, a product can lose orphan designation and the related benefits, prior to us having obtained a marketing authorization, if it is demonstrated that the orphan designation criteria are no longer met.

Regulatory Data Protection

E.U. legislation also provides for a system of regulatory data and market exclusivity. According to Article 14(11) of Regulation (EC) No 726/2004, as amended, and Article 10(1) of Directive 2001/83/EC, as amended, upon receiving marketing authorization, new chemical entities approved on the basis of complete independent data package benefit from eight years of data exclusivity and an additional two years of market exclusivity. Data exclusivity prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic (abbreviated) application. During the additional two-year period of market exclusivity, a generic marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic medicinal product can be marketed until the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder, or MAH, 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. Even if a compound is considered to be a new chemical entity and the innovator is able to gain the period of data exclusivity, another company nevertheless could also market another version of the drug if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical test, preclinical tests and clinical trials. However, products designated as orphan medicinal products enjoy, upon receiving marketing authorization, a period of ten years of orphan market exclusivity—see also “Orphan Drug Designation and Exclusivity.” Depending upon the timing and duration of the E.U. marketing authorization process, products may be eligible for up to five years’ supplementary protection certificates, or SPCs, pursuant to Regulation (EC) No 469/2009. Such SPCs extend the rights under the basic patent for the drug.

33

Table of Contents

Regulatory Requirements After a Marketing Authorization has been Obtained

We are required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products:

Pharmacovigilance and Other Requirements

The E.U. has stringent pharmacovigilance or safety reporting rules, pursuant to which post-authorization studies and additional monitoring obligations can be imposed. Other requirements relate, for example, to the manufacturing of products and APIs in accordance with good manufacturing practice standards. E.U. regulators may conduct inspections to verify our compliance with applicable requirements, and we will have to continue to expend time, money and effort to remain compliant. Noncompliance with E.U. requirements regarding safety monitoring or pharmacovigilance, or requirements related to the development of products for the pediatric population, can also result in significant financial penalties in the European Union. Similarly, failure to comply with the E.U.’s requirements regarding the protection of individual personal data can also lead to significant penalties and sanctions. Individual E.U. member states may also impose various sanctions and penalties in case we do not comply with locally applicable requirements.

Manufacturing

The manufacturing of authorized drugs, for which a separate manufacturer’s license is mandatory, must be conducted in strict compliance with the EMA’s cGMP requirements and comparable requirements of other regulatory bodies in the European Union, which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. The EMA enforces its cGMP requirements through mandatory registration of facilities and inspections of those facilities. The EMA may have a coordinating role for these inspections although the responsibility for carrying them out rests with the member states’ competent authority under whose responsibility the manufacturer falls. Failure to comply with these requirements could interrupt supply and result in delays, unanticipated costs and lost revenues, and could subject the applicant to potential legal or regulatory action, including but not limited to warning letters, suspension of manufacturing, seizure of product, injunctive action or possible civil and criminal penalties.

Marketing and Promotion

The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs or the general public, are strictly regulated in the European Union under Directive 2001/83/EC. The applicable regulations aim to ensure that information provided by holders of marketing authorizations regarding their products is truthful, balanced and accurately reflects the safety and efficacy claims authorized by the EMA or by the competent authority of the authorizing member state. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.

Patent Term Extension

In order to compensate the patentee for delays in obtaining a marketing authorization for a patented product, an SPC may be granted extending the exclusivity period for that specific product by up to five years. Applications for SPCs must be made to the relevant patent office in each E.U. member state and the granted certificates are valid only in the member state of grant. An application has to be made by the patent owner within six months of the first marketing authorization being granted in the European Union (assuming the patent in question has not expired, lapsed or been revoked) or within six months of the grant of the patent (if the marketing authorization is granted first). In the context of SPCs, the term “product” means the active ingredient or combination of active ingredients for a medicinal product and the term “patent” means a patent protecting such a product or a new manufacturing process or application for it. The duration of an SPC is calculated as the difference between the patent’s filing date and the date of the first marketing authorization, minus five years, subject to a maximum term of five years.

34

Table of Contents

A six month pediatric extension of an SPC may be obtained where the patentee has carried out an agreed pediatric investigation plan, the authorized product information includes information on the results of the studies and the product is authorized in all member states of the European Union.

Pharmaceutical Coverage, Pricing and Reimbursement

Sales of products approved by the FDA 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 in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.

In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on investment in product development.

In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of our product candidate to currently available therapies (so called health technology assessment, or HTA) in order to obtain reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. E.U. member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various E.U. member states, and parallel distribution (arbitrage between low-priced and high-priced member states), can further reduce prices. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements.

Other Healthcare Law and Regulation

As we are commercializing Bylvay and may commercialize other product candidates, if approved, we are subject to additional healthcare statutory and regulatory requirements and enforcement by federal government and the states and foreign governments in the jurisdictions in which we conduct our business. Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of Bylvay and any other product candidates for which we may obtain marketing approval. Our arrangements with third-party payors and customers expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that constrain the business or financial

35

Table of Contents

arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval.

Violations of the fraud and abuse laws are punishable by criminal and civil sanctions, including, in some instances, exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid. Restrictions under applicable federal and state healthcare laws and regulations include the following:

the federal anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;

the federal anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH Act, and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
the federal transparency requirements under the Physician Payments Sunshine Act require manufacturers of FDA-approved drugs, devices, biologics and medical supplies covered by Medicare or Medicaid to report, on an annual basis, to the Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals and physician ownership and investment interests; and
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by nongovernmental third-party payors, including private insurers.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, or the relevant compliance guidance promulgated by the federal government, in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures to the extent that those laws impose requirements that are more stringent than the Physician Payments Sunshine Act. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Corporate Information

We were incorporated in the State of Delaware in December 2003 under the name “Global Positioning Group, Ltd.” and subsequently changed our name to “Biodel Inc.” On November 3, 2016, we completed a share exchange transaction in which Albireo Limited became a wholly-owned subsidiary of the Company. As a result of the share exchange transaction, our corporate name was changed to “Albireo Pharma, Inc.” and the business of Albireo Limited became our business.

36

Table of Contents

Our internet address is http://www.albireopharma.com. The information contained on, or that can be accessed through, our website is not a part of or incorporated by reference in this Annual Report on Form 10-K. 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 Media & Investors section of our website as soon as reasonably practicable after such materials have been electronically filed with, or furnished to, the SEC.

Item 1A.

RISK FACTORS

Risk Factor Summary

We are providing the following summary of the risk factors contained in this Annual Report on Form 10-K to enhance the readability and accessibility of our risk factor disclosures. We encourage you to carefully review the full risk factors contained in this Annual Report on Form 10-K in their entirety for additional information regarding the material factors that make an investment in our securities speculative or risky. These risks and uncertainties include, but are not limited to, the following:

We have incurred significant losses since our inception. We expect to continue to incur losses and may never generate profits from operations or maintain profitability.
We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
We depend heavily on the commercial success of Bylvay, which was only recently launched for commercial sale in the United States, Great Britain and Germany. There is no assurance that our commercialization efforts in the U.S. and Europe with respect to Bylvay will be successful or that we will be able to generate revenues at the levels or within the timing we expect, or at the levels or within the timing necessary to support our goals for Bylvay.
If clinical trials of Bylvay or any of our other product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA or the EMA, or do not otherwise produce favorable results satisfactory to the FDA or EMA, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of the applicable product candidate.
Favorable results seen to date in clinical trials of Bylvay, including our Phase 3 trial of Bylvay in patients with PFIC, may not be predictive of favorable results in our ongoing PEDFIC 2 open label extension study in PFIC, our ongoing BOLD clinical trial of Bylvay in biliary atresia or our ongoing ASSERT clinical trial of Bylvay in ALGS.
If we experience delays or difficulties in completing the enrollment of patients in our pivotal clinical trials of Bylvay in patients with biliary atresia and ALGS, our receipt of marketing approval for Bylvay in those indications could be delayed or prevented.
If the commercial opportunity in PFIC is smaller than we anticipate, our future revenue from Bylvay may be adversely affected and our business may suffer.
If we are unable to establish sales and marketing capabilities or enter into further agreements with third parties to market and sell Bylvay or any of our other current or potential future product candidates, we may not be successful in commercializing the applicable product candidate if it receives marketing approval.
We face substantial competition, which may result in others discovering, developing or commercializing products to treat our target indications or markets before or more successfully than we do.

37

Table of Contents

Use of third parties to manufacture our product candidates may increase the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.
Even if we complete the necessary clinical trials, the marketing approval process is expensive, time consuming and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product candidates. If we are not able to obtain, or if there are delays in obtaining, required marketing approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.
The outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, continues to adversely impact our business, including our preclinical studies and clinical trials and the commercialization of any approved product.

The terms of our loan and security agreement with Hercules Capital, Inc. require us to meet certain operating covenants and place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business.

Risk Factors

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Annual Report on Form 10-K, including our consolidated financial statements and related notes thereto, before deciding to invest in our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since our inception. We expect to continue to incur losses and may never generate profits from operations or maintain profitability.

Since inception, we have incurred significant operating losses. Our net loss was approximately $34.0 million for the year ended December 31, 2021 and approximately $107.6 million for the year ended December 31, 2020. We had an accumulated deficit of $300.9 million as of December 31, 2021. To date, we have financed our operations primarily through issuances of shares of common stock, preference shares or convertible loan notes, upfront fees paid upon entering into or amending license agreements, payments received upon the achievement of specified milestone events under the license agreements, grants, venture debt borrowings, the HCR royalty monetization transactions, and the sale of the rare pediatric disease priority review voucher, or PRV, that we received from the FDA in connection with the approval of our Bylvay. We have devoted substantially all of our efforts to research and development, including clinical trials. Bylvay is our only drug that has been approved for sale, although our licensee, EA Pharma has received approval in Japan and Thailand of our product candidate elobixibat to treat chronic constipation. We expect to continue to incur significant expenses and operating losses for at least the next few years as we continue our development of, and seek marketing approvals for, our product candidates, continue the commercialization of Bylvay for its approved indications, and add infrastructure and personnel to support our product development and commercialization efforts and operations as a public company in the United States. The net losses we incur may fluctuate significantly from quarter to quarter and year to year.

38

Table of Contents

Our ability to generate profits from operations and thereafter to remain profitable depends heavily on:

our ability to effectively commercialize Bylvay for its approved indications;
the costs, design, duration and any potential delays of the pivotal clinical trial of Bylvay in biliary atresia and pivotal trial of Bylvay in ALGS;
the scope, number, progress, initiation, duration, cost, results and timing of clinical trials and nonclinical studies of our current or future product candidates;
whether and to what extent milestone events are achieved under our license agreement with EA Pharma or any potential future licensee or collaborator;
the outcomes and timing of regulatory reviews, approvals or other actions;
our ability to obtain marketing approval for our product candidates;
our ability to establish and maintain additional licensing, collaboration or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;
the success of any other business, product or technology that we acquire or in which we invest;
our ability to maintain, expand and defend the scope of our intellectual property portfolio;
our ability to manufacture any approved products on commercially reasonable terms;
our ability to continue to build and maintain a sales and marketing organization or suitable third-party alternatives for Bylvay or any other approved product;
the number and characteristics of product candidates and programs that we pursue.
the current and potential impacts of the COVID-19 pandemic on our business;
the costs of acquiring, licensing or investing in businesses, product candidates and technologies;
our need and ability to hire additional management and scientific and medical personnel;
the costs to operate as a public company in the United States, including the need to implement and maintain additional financial and reporting systems and other internal systems and infrastructure for our business;
market acceptance of our product candidates, to the extent any are approved for commercial sale; and
the effect of competing technological and market developments.

Neither we nor a licensee may ever succeed in obtaining marketing approval for, or commercializing, our product candidates besides Bylvay for the treatment of patients with PFIC or elobixibat as a treatment for chronic constipation in Japan and Thailand and, even if we do, may never generate revenues that are significant enough to generate profits from operations. Even if we do generate profits from operations, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to generate profits from operations and remain profitable would decrease our value and could impair our ability to raise capital, expand our business, maintain our research and development efforts,

39

Table of Contents

diversify our product offerings or continue our operations. A decline in our value could also cause you to lose all or part of your investment.

We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We expect our research and development expenses to increase substantially in future periods, particularly as we advance the development of our lead product Bylvay beyond its development as a treatment for patients with PFIC into other pediatric cholestatic liver diseases and disorders, such as our development of Bylvay as a treatment for biliary atresia and as a treatment for ALGS. In addition, we expect that our research and development expenses will increase as we continue the development of our other product candidates and if we initiate additional preclinical programs for potential future product candidates. In addition, for Bylvay, and if we obtain marketing approval for any of our other product candidates that are not then subject to licensing, collaboration or similar arrangements with third parties, we expect to continue to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. Furthermore, we expect to incur additional costs associated with operating as a public company in the United States. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any commercialization efforts.

Our future capital requirements will depend on many factors, including:

our commercialization plans and expectations for commercializing Bylvay globally;
our ability to continue to build and maintain a sales and marketing organization for the commercialization of Bylvay in patients with PFIC, or a sales and marketing organization or suitable third-party alternatives for any other product candidate, if approved;
the costs, design, duration and any potential delays of the pivotal trial of Bylvay in biliary atresia or the pivotal trial of Bylvay in ALGS;
the same factors that our ability to generate profits from operations and thereafter to remain profitable depend heavily on, as described above under “Risks Related to Our Financial Position and Need for Additional Capital. We have incurred significant losses since our inception. We expect to continue to incur losses and may never generate profits from operations or maintain profitability.”;
the scope, number, progress, duration, cost, results and timing of clinical trials and nonclinical studies of our current or future product candidates;
the outcomes and timing of regulatory reviews, approvals or other actions;
our ability to obtain marketing approval for our product candidates;
our ability to establish and maintain additional licensing, collaboration or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;
the success of any other business, product or technology that we acquire or in which we invest;
our ability to maintain, expand and defend the scope of our intellectual property portfolio;
our ability to manufacture Bylvay and any other approved products on commercially reasonable terms;

40

Table of Contents

the number and characteristics of product candidates and programs that we pursue;
the costs of acquiring, licensing or investing in businesses, product candidates and technologies;
our need and ability to hire additional management and scientific and medical personnel;
the costs to operate as a public company in the United States, including the need to implement additional financial and reporting systems and other internal systems and infrastructure for our business;
market acceptance of Bylvay and our other product candidates, to the extent any are approved for commercial sale; and
the effect of competing technological and market developments.

Conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues are derived from sales of Bylvay, which is in the early stages of commercialization as it first became commercially available for sale by us in July 2021. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. Additional financing may not be available to us on acceptable terms, or at all. The unavailability of additional financing on acceptable terms, or at all, would have an adverse effect on your investment.

41

Table of Contents

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

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, licensing, collaboration or similar arrangements, grants and debt financings. We do not have any committed external source of funds. On May 7, 2020, we filed a universal shelf registration on Form S-3 with the SEC, which was declared effective on May 18, 2020, pursuant to which we registered for sale up to $200 million of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine. As of December 31, 2021, $40.0 million of securities remain available for issuance under the shelf registration statement. We refer to this registration statement as the 2020 Form S-3. On February 25, 2021, we filed an automatic shelf registration statement on Form S-3 with the SEC, which became effective upon filing, pursuant to which we registered for sale an unlimited amount of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, so long as we continue to satisfy the requirements of a “well-known seasoned issuer” under SEC rules, which we refer to as the 2021 Form S-3. Because we are no longer a well-known seasoned issuer, the 2021 Form S-3 will no longer be available for us to offer and sell securities pursuant to the 2021 Form S-3 following the filing of this Annual Report on Form 10-K. On February 25, 2021, we also entered into a new sales agreement with Cowen and Company, LLC, which we refer to as the 2021 Sales Agreement, with respect to an at-the-market offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $100.0 million. Subsequently in July 2021, we sold 7,508 shares of our common stock for net proceeds of approximately $0.2 million pursuant to the 2021 Sales Agreement. As of December 31, 2021, $99.7 million of securities remained available for issuance under the 2021 Sales Agreement. Since the 2021 Form S-3 is no longer available, unless and until we register the offer and sale of securities pursuant to the 2021 Sales Agreement in the future, we will not be able to make any further sales of securities under the 2021 Sales Agreement.

On August 31, 2021, we entered into a definitive agreement to sell the rare pediatric disease priority review voucher (“PRV”) that we received from the FDA in connection with the approval of the Company’s product Bylvay, for cash proceeds of $105.0 million. On September 28, 2021, we completed our sale of the PRV and received net proceeds of $103.4 million, after deducting commission costs, which was recorded as a gain from sale of priority review voucher, net of transaction costs.

We may seek to raise additional capital at any time. 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 holder of our common stock. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends or other distributions.

If we raise additional funds through licensing, collaboration or similar arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research and development programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

The continuing outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, continues to adversely impact our business, including our commercialization efforts and our preclinical studies and clinical trials.

Public health crises such as pandemics or similar outbreaks could adversely impact our business. In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019 (COVID-19), surfaced in Wuhan, China. Since then, COVID-19 has spread to countries across the world, including the United States.

42

Table of Contents

As a result of the COVID-19 outbreak, or similar pandemics, we have and may in the future experience disruptions that could severely impact our business, commercialization efforts preclinical studies and clinical trials, including:

our commercial organization having reduced personal interactions with physicians and customers and our need to conduct some promotional activities virtually;

delays or difficulties in enrolling patients in our clinical trials;

delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

delays or disruptions in preclinical studies or clinical trials due to unforeseen circumstances at contract research organizations and vendors along their supply chain;

increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced to quarantine, or not being willing to travel to clinical trial sites;

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (particularly any procedures that may be deemed non-essential), which may impact the integrity of subject data and clinical study endpoints;

interruption or delays in the operations of the FDA and comparable foreign regulatory agencies, which may impact approval timelines, as described further below under “Risks Related to the Development and Commercialization of Our Product Candidates – Inadequate funding for the FDA, the SEC and other government agencies, or a work slowdown or stoppage at those agencies as part of a broader federal government shutdown, 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 business functions on which the operation of our business may rely, which could negatively impact our business.”

interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;

increases in cybersecurity risks, data accessibility concerns, and risks of communication disruptions due to our reliance on employees working from home; and

limitations on employee resources that would otherwise be focused on the conduct of our commercial activities or preclinical studies and clinical trials, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, continued reliance on working from home or mass transit disruptions.

These and other factors arising from the COVID-19 pandemic could continue to adversely impact our ability to commercialize Bylvay for its approved indications and conduct clinical trials and our business generally, and could continue to have an adverse impact on our operations and financial condition and results.

In addition, the trading prices for our common stock and the securities of other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through

43

Table of Contents

sales of our common stock or such sales may be on unfavorable terms. The COVID-19 outbreak continues to rapidly evolve. We are continuing to monitor and assess the effects of the COVID-19 pandemic on our business, commercialization efforts, preclinical studies and clinical trials. However, we cannot at this time accurately predict what effects these conditions will ultimately have on our operations due to uncertainties relating to variants such as Omicron, the severity of the disease, the duration of the outbreak, and the length of the travel restrictions and business closures imposed by the governments of impacted countries. In addition, the COVID-19 pandemic could continue to adversely affect the economies and financial markets of many countries, which could result in an economic downturn that could affect demand for our products and likely impact our operating results.

The terms of our loan and security agreement with Hercules Capital require us to meet certain operating covenants and place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business.

On June 8, 2020, we entered into a loan and security agreement, or the Loan Agreement, with Hercules Capital, Inc., in its capacity as administrative and collateral agent for itself and the other Lenders party to the Loan Agreement. The loan advanced under the Loan Agreement, or the Term Loan, is secured by a security interest covering our assets, other than our intellectual property and other customary collateral exclusions. The Loan Agreement contains customary affirmative and negative covenants and events of default. Affirmative covenants include, among others, covenants requiring us to maintain our legal existence and comply with all applicable laws, deliver certain financial reports, maintain a minimum cash balance, and maintain insurance coverage. Negative covenants include, among others, covenants restricting us from transferring any part of our business or intellectual property, incurring additional indebtedness, engaging in mergers or acquisitions, repurchasing shares, paying dividends or making other distributions, making investments, and creating other liens on our assets, including our intellectual property, in each case subject to customary exceptions. If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility. These restrictions may include, among other things, limitations on borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens, pay dividends, redeem capital stock or make investments. If we default under the terms of the Loan Agreement or any future debt facility, the Lenders may accelerate all of our repayment obligations and take control of our pledged assets, potentially requiring us to renegotiate our agreement on terms less favorable to us or to immediately cease operations. Further, if we are liquidated, the Lenders’ right to repayment would be senior to the rights of the holders of our common stock. The Lenders could declare a default upon the occurrence of any event that it interprets as a material adverse effect as defined under the Loan Agreement. Any declaration by the Lenders of an event of default could significantly harm our business and prospects and could cause the price of our common stock to decline. If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.

Repayment of the Term Loan will require a significant amount of cash, and we may not have sufficient cash flow from our business to make payments on our indebtedness.

Our ability to pay the principal of and/or interest on the Term Loan depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service the Term Loan or other future indebtedness and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt and implement one or more alternatives, such as selling assets, restructuring indebtedness or obtaining additional debt financing or equity financing on terms that may be onerous or highly dilutive. Our ability to refinance the Term Loan or other future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations, including the Term Loan.

Risks Related to the Development and Commercialization of Our Product Candidates

In order to execute our business plan and achieve profitability, we need to effectively commercialize Bylvay, which received FDA approval for the treatment of pruritis in patients with PFIC and EMA authorization for the treatment of PFIC.

44

Table of Contents

Bylvay is our only drug that has been approved for sale, although our licensee, EA Pharma has received approval in Japan and Thailand of our product candidate elobixibat to treat chronic constipation. Bylvay has been approved for the treatment of a pruritis in patients with PFIC in the United States and for the treatment of PFIC in the European Union and Great Britain. We are focusing a significant portion of our activities and resources on Bylvay, and we believe our prospects are highly dependent on, and a significant portion of the value of our company relates to, our ability to successfully commercialize Bylvay for patients with PFIC.

Successful commercialization of Bylvay is subject to many risks. We have never, as an organization, launched or commercialized any other product, and there is no guarantee that we will be able to successfully commercialize Bylvay for its approved indications. There are numerous examples of failures to meet high expectations of market potential, including by pharmaceutical companies with more experience and resources than us. We continue to build our commercial organization and have hired our U.S. and German sales forces and will need to further develop our commercial organization in order to successfully commercialize Bylvay. We expect that continued commercial success of Bylvay for patients with PFIC will depend on many factors, including the following:

 

the efficacy, cost, approved use, and side-effect profile of Bylvay regimens relative to competitive treatment regimens for patients with PFIC;

the effectiveness of our commercial strategy for the marketing of Bylvay, including our pricing strategy and the effectiveness of our efforts to obtain adequate third-party reimbursements;

maintaining and successfully monitoring commercial manufacturing arrangements for Bylvay with third-party manufacturers to ensure they meet our standards and those of regulatory authorities, including the FDA, which extensively regulate and monitor pharmaceutical manufacturing facilities;

our ability to meet the demand for commercial supplies of Bylvay;

the acceptance of Bylvay by patients, the medical community and third-party payors; and

the effect of recent or potential health care legislation in the United States.

While we believe that Bylvay for the treatment of patients with PFIC has a commercially competitive profile, we cannot accurately predict the amount of revenue that will be generated from the sale of Bylvay. If we do not effectively commercialize Bylvay, we will not be able to execute our business plan and may not be able to achieve profitability. If our revenues, market share and/or other indicators of market acceptance of Bylvay do not meet the expectations of investors or public market analysts, the market price of our common stock would likely decline.

We depend heavily on the commercial success of Bylvay, which was only recently launched for commercial sale in the United States, Great Britain and Germany. There is no assurance that our commercialization efforts in the U.S. and Europe with respect to Bylvay will be successful or that we will be able to generate revenues at the levels or within the timing we expect, or at the levels or within the timing necessary to support our goals.

Our business currently depends heavily on our ability to successfully commercialize Bylvay in the U.S. and Europe in its approved indications. We may never be able to successfully commercialize Bylvay or meet our expectations with respect to revenues. There is no guarantee that the infrastructure, systems, processes, policies, personnel, relationships and materials we have built in preparation for the launch and commercialization of Bylvay in the U.S. and Europe will be sufficient for us to achieve success at the levels we expect. Additionally, healthcare providers may not accept a new treatment paradigm for patients with PFIC. We may also encounter challenges related to reimbursement of Bylvay, even if we have positive early indications from payors, including potential limitations in the scope, breadth, availability, or amount of reimbursement covering Bylvay. Similarly, healthcare settings or patients may determine that the financial burdens of treatment are not acceptable. Our results may also be negatively impacted if we have not adequately sized our field teams or our physician segmentation and targeting strategy is inadequate or if we encounter deficiencies or inefficiencies in our infrastructure or processes. Any of these issues could impair our ability to

45

Table of Contents

successfully commercialize Bylvay or to generate substantial revenues or profits or to meet our expectations with respect to the amount or timing of revenue or profits. Any issues or hurdles related to our commercialization efforts may materially adversely affect our business, results of operations, financial condition and prospects. There is no guarantee that we will be successful in our launch or commercialization efforts with respect to Bylvay.

If we do not obtain regulatory approval of Bylvay for other indications in the United States or Europe, we will not be able to market Bylvay for other indications, which will limit our commercial revenues.

Bylvay has been approved for the treatment of a pruritis in patients with PFIC in the United States and for the treatment of PFIC in the European Union and Great Britain. We are also pursuing the development of Bylvay in biliary atresia and in Alagille syndrome (ALGS), each of which is a rare, life threatening disease that affects the liver and for which there is no approved pharmacologic treatment option. We initiated a pivotal clinical trial of Bylvay in biliary atresia, the BOLD trial, in the first half of 2020, and at the end of 2021, we had enrolled over 50% of the targeted patients in the trial. We expect topline results from the BOLD trial in 2024. We also initiated a pivotal trial of Bylvay in ALGS, the ASSERT trial, in the fourth quarter of 2020. We expect topline results from the ASSERT trial by the end of 2022. Bylvay our other most advanced product candidates are entering Phase 2 or in earlier-stage development. While Bylvay has been approved in the United States, the European Union and Great Britain for the treatment of patients with PFIC, Bylvay has not been approved for any other indications, and it has not been approved in any other jurisdictions for this indication or for any other indication. In order to market Bylvay for other indications or in other jurisdictions, we must obtain regulatory approval for each of those indications and in each of the applicable jurisdictions, and we may never be able to obtain such approval.

Our ability to generate product revenues depends on the successful commercialization of Bylvay as a treatment for patients with PFIC. Our ability to generate product revenues also depends on the successful development and commercialization of Bylvay to treat patients with biliary atresia or ALGS or A3907 or A2342 to treat adult liver and viral diseases. The success of each of these product candidates will depend on a number of factors, including the following:

receipt of marketing approval for Bylvay for indications beyond the treatment of patients with PFIC and marketing approvals for other product candidates from applicable regulatory authorities;
our ability to obtain additional capital, whether from potential future licensing, collaboration or similar arrangements or from any future offering of our debt or equity securities;
our ability to identify and enter into potential future licenses or other collaboration arrangements with third parties and the terms of the arrangements;
completion of clinical development with successful outcomes;
establishing commercial manufacturing arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and regulatory exclusivity;
protecting our rights in our intellectual property portfolio;
establishing sales, marketing and distribution capabilities;
generating commercial sales of Bylvay, A3907 or A2342, as applicable, if and when approved, whether alone or in collaboration with others;
acceptance of Bylvay, A3907 or A2342, as applicable, if and when approved, by patients, the medical community and third-party payors;

46

Table of Contents

effectively competing with other therapies; and
maintaining an acceptable safety profile of Bylvay, A3907 or A2342, as applicable, following approval.

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 Bylvay, A3907 or A2342, which would materially harm our business.

If the sales and marketing capabilities we have established or our third-party relationships for the commercialization of Bylvay are not effective, Bylvay may not be successfully commercialized.

Prior to the commercial launch of Bylvay in July 2021, we had no experience as a company in marketing drugs or with respect to pricing and obtaining adequate third-party reimbursement for drugs. We continue to build our commercial organization and capabilities in the United States and Europe in order to market Bylvay for the treatment of patients with PFIC. We will need to successfully complete the expansion of our capabilities and/or enter into arrangements with third parties to sell and market Bylvay for the treatment of patients with PFIC and, if approved, our other product candidates. If our sales and marketing capabilities or our third-party relationships for the commercialization of our products are not effective, our business could be materially harmed.

We have generated limited revenue from product sales and there is no guarantee that our revenue from the sale of Bylvay will be substantial.

Our ability to generate revenue from product sales and achieve profitability depends on our ability to successfully commercialize Bylvay for the treatment of patients with PFIC in the United States and Europe and to complete the development of and obtain regulatory approvals necessary to commercialize Bylvay in other indications and our other product candidates. We have a limited operating history on which to evaluate our business and prospects. To date, we have generated limited product revenues from Bylvay and we cannot guarantee that Bylvay will be successfully commercialized or that any of our product candidates currently in development will ever become marketable products.

We must demonstrate that our product candidates satisfy rigorous standards of safety and efficacy for their intended uses before the FDA and other regulatory authorities in the European Union and elsewhere will approve them for commercialization. Significant additional research, preclinical testing and clinical testing are required before we can file applications with the FDA or other regulatory authorities for approval of our drug candidates. In addition, to compete effectively, our drugs must be easy to administer, cost-effective and economical to manufacture on a commercial scale. We may not achieve any of these objectives.

We initiated a pivotal clinical trial of Bylvay in biliary atresia, the BOLD trial, in the first half of 2020, and at the end of 2021, we had enrolled over 50% of the targeted patients in the trial. We expect topline results from the BOLD trial in 2024. We also initiated a pivotal trial of Bylvay in ALGS, the ASSERT trial, in the fourth quarter of 2020. We expect topline results from the ASSERT trial by the end of 2022. We cannot be certain that the clinical development of our product candidates in preclinical testing or clinical development will be successful, that we will receive the regulatory approvals required to commercialize them or that any of our other research and drug discovery programs will yield a drug candidate suitable for investigation through clinical trials.

If clinical trials of Bylvay or any of our other product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA, or the EMA, or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of the applicable product candidate.

In connection with obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical trials are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of

47

Table of Contents

testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials. In particular, the small number of subjects and patients in our early clinical trials may make the results of these clinical trials less predictive of the outcome of later clinical trials. The design of a clinical trial can determine whether its results will support approval of a product candidate, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed. There is no assurance that we will be able to design and execute a clinical trial to support marketing approval. 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.

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

be delayed in obtaining marketing approval for our product candidates;
not obtain marketing approval at all;
obtain approval for indications or patient populations that are not as broad as we intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;
be subject to additional post-marketing testing requirements or restrictions; or
have the product removed from the market after obtaining marketing approval.

Favorable results seen to date in clinical trials of Bylvay, including our Phase 3 trial of Bylvay in patients with PFIC, may not be predictive of favorable results in our ongoing PEDFIC 2 open label extension study in PFIC, our ongoing BOLD clinical trial of Bylvay in biliary atresia or our ongoing ASSERT clinical trial of Bylvay in ALGS.

A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later-stage clinical trials, even after promising results in earlier trials or in preclinical studies. Similarly, companies have experienced disappointing outcomes in later phases of a multiphase clinical trial, even after promising results in an early phase of the trial. For example, if PEDFIC 2, our ongoing long term, open label extension study to evaluate long-term outcomes of Bylvay in PFIC patients, is not successful, it could have a material adverse effect on our business and our ability to successfully commercialize Bylvay in its approved indications. In addition, if the favorable findings seen in our clinical trials in PFIC are not replicated in any other ongoing or future trial of Bylvay in biliary atresia, ALGS or any other pediatric cholestatic liver disease or disorder, we may not obtain marketing approval for Bylvay to treat such indication, in which case our business would be materially and adversely affected.

If we experience delays or difficulties in the enrollment of patients in our pivotal clinical trials of Bylvay in patients with biliary atresia and ALGS, our receipt of marketing approval for Bylvay in those indications could be delayed or prevented.

Recruiting patients for orphan pediatric liver diseases is challenging. We have previously experienced enrollment delays in our clinical trials of Bylvay. If we are unable to locate and enroll a sufficient number of eligible patients to participate in clinical trials of our product candidates, we may not be able to initiate or continue the clinical trials. In particular, if we experience enrollment delays in our pivotal trials of Bylvay in patients with biliary atresia and ALGS, our cash resources may not be sufficient to enable us to fund the trial to completion, which could cause our value to decline and limit our ability to obtain additional financing.

48

Table of Contents

Potential clinical trial participants may not be adequately diagnosed or identified with the diseases that we are targeting and may not meet the inclusion criteria for our trials. Biliary atresia, ALGS and other pediatric cholestatic liver diseases or disorders for which we may develop Bylvay are rare diseases or disorders with a limited patient populations, which could result in slow enrollment of clinical trial participants. Further, there are only a limited number of specialist physicians that treat these diseases and disorders, and major clinical centers that treat these diseases and disorders are concentrated in a few geographic regions.

Patient enrollment is affected by many factors, including:

size of the target patient population;
severity of the disease or disorder under investigation;
eligibility criteria for the clinical trial in question;
other clinical trials being conducted at the same time involving patients who have the disease or disorder under investigation;
perceived risks and benefits of the product candidate under study;
approval and availability of other therapies to treat the disease or disorder that is being investigated in the clinical trial;
willingness or unwillingness to participate in a placebo controlled clinical trial;
efforts to facilitate timely enrollment in clinical trials;
patient referral practices of physicians;
the ability to monitor patients adequately during and after treatment; and
proximity and availability of clinical trial sites for prospective patients.

Our inability to enroll a sufficient number of patients in our ongoing or future clinical trials of Bylvay, or any of our other product candidates, would result in significant delays or may require us to abandon one or more clinical trials altogether.

If the commercial opportunity in PFIC is smaller than we anticipate, our future revenue from Bylvay may be adversely affected and our business may suffer.

If the size of the commercial opportunities in any of our target indications is smaller than we anticipate, we may not be able to achieve profitability and growth. Bylvay has been approved for the treatment of a pruritis in patients with PFIC in the United States and for the treatment of PFIC in the European Union and Great Britain. We are also developing Bylvay as a treatment for patients with other pediatric cholestatic liver diseases and disorders, such as biliary atresia and ALGS. PFIC and these other diseases and disorders are each rare, with a limited patient population. We are not aware of any available patient registries for PFIC, and we rely on various estimates and assumptions to estimate the addressable PFIC population. If the commercial opportunity in PFIC is smaller than we anticipate, whether because our estimates of the addressable patient population prove to be incorrect or for any other reason, our future revenue from Bylvay may be adversely affected and our business may suffer.

It is critical to our ability to grow and become profitable that we successfully identify patients with PFIC and any other rare cholestatic liver diseases and disorders that we may target in the future. Our projections of the number of

49

Table of Contents

people who have PFIC or our other potential target cholestatic liver diseases and disorders, as well as the subset who have the potential to benefit from treatment with Bylvay, are based on a variety of sources, including third-party estimates and analyses in the scientific literature, and may prove to be incorrect. Further, new information may emerge that changes our estimate of the prevalence of these diseases or the number of patient candidates for Bylvay. The effort to identify patients with PFIC or our other potential target indications is ongoing, and we cannot accurately predict the number of patients for whom treatment might be possible. Additionally, the addressable patient population for Bylvay may be limited or may not be amenable to treatment with Bylvay, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business. Further, even if we obtain significant market share for Bylvay, we may never achieve profitability because the potential target patient population for Bylvay is small.

If we experience any of a number of possible unforeseen events in connection with our clinical trials, potential marketing approval or commercialization of our product candidates, or entry into licensing, collaboration or similar arrangements, could be delayed or prevented.

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

clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;
we may be unable to recruit and enroll a sufficient number of patients in our clinical trials to ensure adequate statistical power to detect any statistically significant treatment effects;
our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
regulators, institutional review boards or independent ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
we may experience delays in reaching, or we may fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
we may have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks or undesirable side effects;
regulators, institutional review boards or independent ethics committees may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
the cost of clinical trials of our product candidates may be greater than we anticipate;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and
our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators, institutional review boards or independent ethics committees to suspend or terminate the clinical trials.

50

Table of Contents

For example, in March 2015, Ferring International Center S.A., or Ferring, stopped early two Phase 3 clinical trials of elobixibat that Ferring had been conducting pursuant to a now-terminated license agreement with us due to an issue related to the distribution of study drug to study sites that was unrelated to the performance of elobixibat. We were unable as a result of the stopping of the trials to obtain data for the total number of patients for which the trials were designed, and the abbreviated trials are not sufficient to support an application for marketing approval.

Our product development costs will increase if we experience delays in testing or marketing approvals. We do not know whether any preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates, which may harm our business and results of operations.

If serious or unacceptable side effects are identified during the development of Bylvay, A3907, A2342 or any other product candidate, we may need to abandon or limit our development of that product candidate.

Bylvay has been approved only for the treatment of a pruritis in patients with PFIC in the United States and for the treatment of PFIC in the European Union and Great Britain. All of our other product candidates (and Bylvay for the treatment of indications beyond patients with PFIC) are in clinical or preclinical development (other than elobixibat for chronic constipation, which has been approved in Japan and Thailand) and their risk of failure is high. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive marketing approval. If our product candidates are associated with undesirable side effects or have other unexpected, unacceptable characteristics, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many investigational products that initially showed promise in clinical or earlier stage testing have later been found to cause side effects or other safety issues that prevented further development.

For example, the investigator for the investigator-initiated Phase 2 clinical trial of Bylvay in PBC determined to conclude the trial prior to its intended completion, citing gastrointestinal side effects. If the GI side effects cited by the investigator in the PBC trial are predictive of an inadequate tolerability profile of Bylvay, the overall commercial opportunity for Bylvay may be lower than we expect. Even though we have received regulatory approval for Bylvay for its approved indications, if the approved dose of Bylvay is not well tolerated, Bylvay may not achieve market acceptance by physicians, patients, third-party payors or others in the medical community, which would materially and adversely affect our business.

Although Bylvay has received marketing approval for the treatment of patients with PFIC, and even if Bylvay receives marketing approval for other indications, or if A3907, A2342 or any potential future product candidate of ours receives marketing approval, the approved product may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.

Although Bylvay has received marketing approval for the treatment of patients with PFIC, and even if Bylvay receives marketing approval for other indications, or if A3907, A2342 or any potential future product candidate of ours receives marketing approval, the approved product may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If an approved product does not achieve an adequate level of acceptance, we may not generate significant product revenues or any profits from operations. The degree of market acceptance of our products and product candidates, if approved for commercial sale, will depend on a number of factors, including:

the efficacy and potential advantages compared to alternative treatments or competitive products;
the prevalence and severity of any side effects;

51

Table of Contents

whether physicians will be willing to prescribe Bylvay to patients with PFIC notwithstanding that the primary endpoint in our Phase 3 clinical trial of Bylvay in patients with PFIC was change in pruritus (FDA) or serum bile acid responder rate (EMA), as opposed to a direct measure of reducing or eliminating progressive liver disease;
the ability to offer our product candidates for sale at competitive prices;
convenience and ease of administration compared to alternative treatments;
the willingness of the target patient population to try and adhere to new therapies and of physicians to prescribe these therapies;
the strength of marketing and distribution support;
the adequacy of supply of our product candidates;
the availability of third-party coverage and adequate reimbursement;
the timing of any such marketing approval in relation to other product approvals;
support from patient advocacy groups; and
any restrictions on concomitant use of other medications.

Our ability to negotiate, secure and maintain third-party coverage and reimbursement for our products or product candidates may be affected by political, economic and regulatory developments in the United States, the European Union and other jurisdictions. Governments continue to impose cost containment measures, and third-party payors are increasingly challenging prices charged for medicines and examining their cost effectiveness, in addition to their safety and efficacy. These and other similar developments could significantly limit the degree of market acceptance of Bylvay, A3907, A2342 or any potential future product candidate of ours that receives marketing approval.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell Bylvay or any of our other current or potential future product candidates, we may not be successful in commercializing the applicable product candidate if it receives marketing approval.

We have limited experience as a company in the sale or marketing of pharmaceutical products. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource these functions to third parties. We are continuing to build and will seek to maintain the capabilities to commercialize Bylvay in the United States and Europe for its approved indications. Outside of the United States and Europe, we plan to selectively utilize collaboration, distribution or other marketing arrangements with third parties to commercialize Bylvay. Also, we intend to selectively seek licensing, collaboration or similar arrangements to assist us in furthering the development or commercialization of product candidates, such as A3907 or A2342, targeting large primary care markets that must be served by large sales and marketing organizations. There are risks involved with establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If a commercial launch for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize our products on our own include:

our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;

52

Table of Contents

the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.

If we enter into arrangements with third parties to perform sales and marketing services, our product revenues or the profitability of these product revenues are likely to be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into or maintaining arrangements with third parties to sell and market our product candidates or may be unable to do so on terms that are acceptable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish and maintain sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our products or product candidates.

We face substantial competition, which may result in others discovering, developing or commercializing products to treat our target indications or markets before or more successfully than we do.

The development and commercialization of new drug products is highly competitive. We face competition with respect to Bylvay and other product candidates and any products we may seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide.

Competitors may also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining approvals from regulatory authorities and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies that may be complementary to or necessary for our programs.

Our commercial opportunities could be reduced or eliminated if our competitors develop and commercialize products that are more effective, safer, have fewer or less severe side effects, are approved for broader indications or patient populations, or are more convenient or less expensive than any products that we develop and commercialize. Our competitors may also obtain marketing approval for their products more rapidly than we may obtain approval for our products, which could result in our competitors establishing a strong market position before we are able to enter the market.

In particular, we are aware of other companies that are developing product candidates that, like Bylvay and elobixibat, act via IBAT inhibition. As noted above, Mirum’s IBAT inhibitor, LIVMARLI (maralixibat) was approved by the FDA for treatment of cholestatic pruritis in patients one year of age or older with ALGS on September 29, 2021. Mirum also submitted a MAA for the treatment of cholestatic liver disease in patients with ALGS to the EMA and announced that it expects potential approval in the second half of 2022. Mirum is conducting a Phase 3 clinical trial in PFIC and disclosed that it expects to announce topline data in the second half of 2022. Additionally, Mirum is conducting a Phase 2 trial for maralixibat in biliary atresia and disclosed that it expects to announce topline data from

53

Table of Contents

that trial in 2023. Mirum is also conducting Phase 2 trials of its IBAT inhibitor, volixibat, in primary sclerosing cholangitis, intrahepatic cholestasis of pregnancy and PBC.

For PFIC and many other cholestatic liver diseases, there are currently no approved drug treatments other than Bylvay, which has been approved for the treatment of a pruritis in patients with PFIC in the United States and for the treatment of PFIC in the European Union and Great Britain.
First-line treatment for PFIC is typically off-label ursodeoxycholic acid, or UDCA, which is approved in France only for PFIC type 3, and in the United States and elsewhere for the treatment of PBC. PFIC patients often require surgical intervention such as PEBD surgery or liver transplant. As noted above, Mirum has announced that FDA approved LIVMARLI™ (maralixibat) oral solution for the treatment of cholestatic pruritus in patients with ALGS one year of age and older. LIVMARLI is a minimally absorbed IBAT inhibitor and is the first and only FDA-approved medication in ALGS. In addition, Intercept Pharmaceuticals’ OCALIVA (obeticholic acid), is approved in the U.S. in combination with UDCA, or as a monotherapy for patients unable to tolerate UDCA, to treat PBC. OCALIVA is also in Phase 2 development at Intercept as a treatment for biliary atresia. GlaxoSmithKline is conducting a Phase 3 trial of linerixibat for the treatment of cholestatic pruritis in patients with PBC. The FDA granted orphan drug designation to linerixibat for the treatment of PBC in September 2019. In July 2019, Genfit SA received orphan designations from the FDA and EMA for its PPAR alpha/delta agonist, (elafibranor), for the treatment of PBC. Genfit is conducting a Phase 3 trial for elafibranor in PBC. CymaBay Therapeutics initiated a Phase 3 study (RESPONSE) in early 2021 for Seladelpar for the treatment of PBC. Seladelpar has received Breakthrough Therapy Designation (FDA) and PRIME status (EMEA); Orphan Drug Designation in U.S. and Europe. Gilead Sciences, Inc.’s FXR agonist, cilofexor, is in Phase 3 development for PSC.
For the pruritus that is characteristic of many cholestatic liver diseases, symptomatic off-label treatment with: UDCA; bile acid sequestrants, such as generic cholestyramine (marketed as, Efensol, Ipocol, Kolestran, Lipocol, Olestyr, Prevalite or Quantalan in various countries), marketed by Upsher-Smith Laboratories, Inc., Par Pharmaceutical Companies, Inc. and Sandoz, the generic pharmaceuticals division of Novartis AG; rifampin, an antibiotic derivative; or naltrexone, an opioid antagonist.

For Bylvay, and if we are able to commercialize A3907, A2342 or any other product candidate that we develop, the product may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.

The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted and, in some markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

Our ability to commercialize Bylvay, A3907, A2342 or any other product candidate successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. and E.U. healthcare industries and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list

54

Table of Contents

prices and are challenging the prices charged for medical products. We cannot be sure that coverage and reimbursement will be available for Bylvay, A3907, A2342 or any other product that we commercialize and, if coverage and reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for Bylvay may be particularly difficult because of the higher prices typically associated with drugs directed at smaller populations of patients. In addition, third-party payors are likely to impose strict requirements for reimbursement of a higher priced drug, and any launch of a competitive product is likely to create downward pressure on the price initially charged. If reimbursement is not available or is available only to a limited degree, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the applicable regulatory authority. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, intellectual property, manufacturing, sale and distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. In the United States, third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. In the European Union, reference pricing systems and other measures may lead to cost containment and reduced prices. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

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

In some countries, particularly the member states of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various E.U. member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, we may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product or product candidate to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on prices or reimbursement levels within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.

We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk with respect to commercial sales of Bylvay and any other products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

reduced resources of our management to pursue our business strategy;

55

Table of Contents

decreased demand for any products that we may develop;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants or sites;
significant costs to defend the related litigation;
substantial monetary awards to clinical trial participants or patients;
loss of revenue;
increased insurance costs; and
the inability to commercialize Bylvay and any other products that we may develop.

We have separate liability insurance policies that cover each of our clinical trials, as well as a global product/clinical trial policy. These policies provide coverage in varying amounts, with the global policy having a per occurrence and aggregate limit of $10 million. The amount of insurance that we currently hold may not be adequate to cover all liabilities that we may incur. We will need to increase our insurance coverage when and if we begin conducting more expansive clinical development of, or commercializing, Bylvay, A3907, A2342 or any potential future product candidate of ours. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

We may expend our limited resources to pursue a particular product candidate and fail to capitalize on product candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we focus on specific products or product candidates. Currently, we are focusing our resources predominantly on Bylvay. As a result, we may forego or delay pursuit of opportunities with potential future product candidates that later could prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates may not yield any additional, commercially viable products.

We have historically based our research and development efforts on IBAT inhibitors, including Bylvay and elobixibat, to treat cholestatic liver diseases and CIC and on our proprietary formulations of, A3907 and A2342, as potential treatments for adult liver or viral diseases. Notwithstanding our investment to date and anticipated future investment, Bylvay is the only marketed drug we have developed using these approaches. As a result of pursuing the development of product candidates using our proprietary technologies, we may fail to develop product candidates or address indications based on other scientific approaches that may offer greater commercial potential or for which there is a greater likelihood of success. Research programs to identify new product candidates require substantial technical, financial and human resources. These programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development.

If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through licensing, collaboration or other royalty or similar arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through licensing, collaboration or other royalty or similar arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

56

Table of Contents

Inadequate funding for the FDA, the SEC and other government agencies, or a work slowdown or stoppage at those agencies as part of a broader federal government shutdown, 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 business 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 can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, funding of 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 and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, 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 recurs, 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. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

Separately, the FDA has announced its commitment to achieving timely reviews of applications for medical products during the COVID-19 pandemic in line with its user fee performance goals; however, the FDA may not be able to continue its current pace and review timelines could be extended, including where a pre-approval inspection or an inspection of clinical sites is required and due to the COVID-19 pandemic and travel restrictions FDA is unable to complete such required inspections during the review period. In March 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities and most inspections of foreign manufacturing facilities. Since that time, the FDA has developed a risk-based prioritization system for resuming on-site inspections, to be used for identifying the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities, based on local conditions and the prevalence of the virus. The FDA has also employed remote interactive evaluations and used alternative tools such as remote records requests, as outlined in its “Resiliency Roadmap for FDA Inspectional Oversight” that was first issued in May 2021 and updated in November 2021. Due to the rapid spread of the COVID-19 Omicron variant at the end of 2021, the FDA announced certain inspections, such as domestic and foreign preapproval, surveillance, and for-cause inspections that are not deemed mission-critical, would be postponed through February 4, 2022, and that the agency would reassess plans to resume foreign inspections. Should FDA determine that an inspection is necessary for approval of an NDA and an inspection cannot be completed during the review cycle due to restrictions on travel, and the FDA does not determine a remote interactive evaluation to be adequate, the FDA has stated that it generally intends to issue a complete response letter or defer action on the application until an inspection can be completed. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, 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. Future government shutdowns could also impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

57

Table of Contents

Risks Related to Our Dependence on Third Parties

We rely on EA Pharma for the successful commercialization of elobixibat in Japan, and through EA Pharma’s sublicensee in Thailand, and other select markets in Asia. If EA Pharma or its sublicensee does not successfully commercialize elobixibat in Japan and Thailand, we may not receive any future payments under our license agreement with EA Pharma.

We entered into a license agreement with EA Pharma (formerly known as Ajinomoto Pharmaceuticals) for elobixibat in April 2012. In January 2018, the Japanese Ministry of Health, Labour and Welfare, or MHLW, approved a new drug application filed by EA Pharma for elobixibat for the treatment of chronic constipation. EA Pharma co-markets elobixibat in Japan with another company, Mochida Pharmaceutical Co., Ltd, or Mochida, and co-promotes elobixibat in Japan with Eisai Co., Ltd. Elobixibat is also approved in Thailand, where it is marketed by EA Pharma’s sublicensee.

In December 2017, the Company entered into a royalty interest acquisition agreement (RIAA) with HealthCare Royalty Partners III, L.P. (HCR) pursuant to which it sold to HCR the right to receive all royalties from sales in Japan and sales milestones achieved from any covered territory potentially payable to the Company under the Agreement, up to a specified maximum “cap” amount of $78.8 million, based on the funds the Company received from HCR to date. The Company received $44.5 million from HCR, net of certain transaction expenses, under the RIAA. On June 8, 2020, we entered into an amendment to the RIAA with HCR pursuant to which HCR agreed to pay us an additional $14.8 million, net of certain transactions expenses, in exchange for the elimination of the (i) $78.8 million cap amount on HCR’s rights to receive royalties on sales in Japan and sales milestones for elobixibat in certain other territories that may become payable by EA Pharma and (ii) $15.0 million payable to us if a specified sales milestone is achieved for elobixibat in Japan. The Company is obligated to make royalty interest payments to HCR under the RIAA only to the extent it receives future Japanese royalties, sales milestones or other specified payments from EA Pharma. Although the Company sold its rights to receive royalties from the sales of elobixibat in Japan, as a result of its ongoing involvement in the cash flows related to these royalties, the Company will continue to account for these royalties as revenue. Upon receipt of the payments from HCR the Company recorded the $59.3 million as a liability related to sale of future royalties (royalty obligation). The royalty obligation will be accreted using the effective interest rate method.

The Company records estimated royalties due for the current period in accrued other expenses until the payment is received from EA Pharma at which time the Company then remits payment to HCR. In order to determine the accretion of the royalty obligation, the Company is required to estimate the total amount of future royalty payments to be received and submitted to HCR. The sum of these amounts less the $59.3 million proceeds the Company received will be recorded as interest expense over the life of the royalty obligation. At December 31, 2021, the Company’s estimate of its total interest expense resulted in an annual effective interest rate of approximately 18.1%.

The Company periodically assesses the estimated royalty payments to HCR and to the extent such payments are greater or less than its initial estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the accretion of interest on the royalty obligation. There are a number of factors that could materially affect the amount and the timing of royalty payments, most of which are not within the Company’s control. Such factors include, but are not limited to, the rate of elobixibat prescriptions, the number of doses administered, the introduction of competing products, manufacturing or other delays, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to HCR are in U.S. dollars while sales of elobixibat are in Japanese yen, and sales never achieving forecasted numbers, which would result in reduced royalty payments and reduced non-cash interest expense over the life of the royalty obligation. To the extent future royalties result in an amount less than the liability, the Company is not obligated to fund any such shortfall.

EA Pharma is responsible for all commercialization of elobixibat in its licensed field (namely, all prophylactic or therapeutic uses of a pharmaceutical product for gastrointestinal diseases and disorders, symptoms of constipation of all causes or postoperative ileus, in colonoscopy cleansing procedures and, in specified circumstances, select liver diseases) in Japan and Thailand and for all future development and commercialization of elobixibat in its licensed field, and has

58

Table of Contents

substantial control over the conduct and timing of development efforts with respect to elobixibat in these countries. We have little control over the amount and timing of resources that EA Pharma devotes, or Mochida devotes, to the commercialization of elobixibat in Japan and Thailand or to the development of elobixibat in these other countries. If EA Pharma or, where applicable, Mochida or EA Pharma’s sublicensees, fails to devote sufficient financial and other resources, the commercialization of elobixibat in Japan and Thailand and the development and potential commercialization of elobixibat otherwise in EA Pharma’s licensed territory would be adversely affected. If this occurs, royalties that we could receive on any future elobixibat product sales could be delayed or reduced.

EA Pharma has the right to terminate the elobixibat agreement on a country-by-country basis or in its entirety for an uncured material breach by us or in specified bankruptcy or similar events. EA Pharma also has the right, with 180 days’ notice, to terminate the agreement in its entirety or on a country-by-country basis (except for Japan) for any reason.

If EA Pharma terminates the elobixibat license agreement at any time, for any reason, it would negatively impact both the likelihood that we would receive any future payments under our license agreement with EA Pharma and the development of elobixibat in EA Pharma’s licensed territory outside of Japan and Thailand, would materially harm our business and could accelerate our need for additional capital. In particular, we would be required to seek a replacement licensee for Japan under the RIAA.

If we do not pursue the development and potential commercialization of elobixibat for the treatment of CIC in the United States or Europe, whether through a licensing, collaboration or similar arrangement or otherwise, the revenue that we will generate based on elobixibat may be lower.

We have commercial rights to elobixibat in the United States, Europe and otherwise outside of the territories licensed to EA Pharma. We do not have any current plan to seek a license or other partnering transaction with a third party for elobixibat for CIC in the United States or Europe. The cost and duration of the additional clinical trial or trials that would be required by the FDA and EMA to support marketing approval of elobixibat to treat CIC is currently uncertain. Even if we were to seek to establish licensing, collaboration or similar arrangement with a third party for the United States or Europe, the uncertain regulatory requirements may interfere with our ability to do so on acceptable terms, or at all. We do not anticipate that we will conduct future clinical trials of elobixibat in CIC for the United States or Europe independently, whether or not we elect to seek a suitable third-party arrangement. If we do not enter into suitable third-party arrangements and do not ourselves conduct clinical trials of elobixibat in CIC for the United States or Europe, the revenue that we will generate based on elobixibat in CIC will be limited to future payments that we receive, if any, under our agreements with EA Pharma, which will reduce the overall commercial potential of elobixibat and may harm our business.

We rely on third parties to conduct our clinical trials and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such clinical trials.

We do not independently conduct clinical trials for our product candidates. We rely on third parties, such as contract research organizations, clinical data management organizations, medical institutions, clinical investigators and government agencies, to perform this function. Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our product development activities.

Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the clinical trial. Moreover, the FDA and foreign regulatory authorities require us to comply with standards, commonly referred to as Good Clinical Practice, or GCP, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity of data and confidentiality of clinical trial participants are protected. We are also required to register clinical trials subject to FDA regulation and, with some exceptions, post the results of completed clinical trials on a government-sponsored database, www.ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions. The National Institutes of Health

59

Table of Contents

also has announced plans to require sponsors to post results of clinical trials for unapproved products, including unfavorable results in clinical trials for unapproved uses of approved products.

Furthermore, third parties that we rely on for our clinical development activities may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. Our product development costs will increase if we experience delays in testing or obtaining marketing approvals.

In addition, currently there is a conflict involving Russia and Ukraine, and this may impact our contract research organizations, clinical data management organizations, and clinical investigators’ ability to conduct certain of our trials in Eastern European countries, and may prevent us from obtaining data on patients already enrolled at sites in these countries. This could negatively impact the completion of our clinical trials and/or analyses of clinical results, which may increase our product development costs and materially harm our business.

We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue.

Use of third parties to manufacture our product candidates or products may increase the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We do not own or operate manufacturing facilities for the production of clinical or commercial supplies of our product candidates. We have limited personnel with experience in drug manufacturing and lack the resources and the capabilities to manufacture any of our product candidates on a clinical or commercial scale. We currently rely on third parties for supply of the active pharmaceutical ingredients, or API, in our products and product candidates. Our strategy is to outsource all manufacturing of our product candidates and any approved products to third parties.

We do not currently have any agreements with third-party manufacturers for the long-term clinical or commercial supply of any of our product candidates. We currently engage a single third-party manufacturer to provide API for odevixibat and elobixibat. We also currently engage single third-party manufacturers to provide fill and finish services for the final drug product formulation of our products and product candidates. We may in the future be unable to enter into agreements for commercial supply with third-party manufacturers on acceptable terms, or at all. In addition, while we believe that there are alternative sources available to manufacture our products and product candidates, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without delays or additional expenditures. We cannot estimate these delays or costs with certainty but, if they were to occur, they could cause a delay in our development and commercialization efforts. If our third party manufacturing agreements are terminated or if the sources of supply from such arrangements are inadequate and we must seek supply agreements from alternative sources, we may be unable to enter into such agreements or do so on commercially reasonable terms, which could delay a product launch or subject our commercialization efforts to significant supply risk.

Even if we are able to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

reliance on the third party for regulatory compliance and quality assurance;
the possible breach of the manufacturing agreement by the third party;
the possible misappropriation of our proprietary information, including our trade secrets and know-how; and

60

Table of Contents

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

Manufacturers of our products and product candidates are obliged to operate in accordance with FDA-mandated current good manufacturing practices, or cGMP’s. The manufacture of pharmaceutical products in compliance with cGMPs requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, including difficulties with volume production, production costs and yields, laboratory testing, quality control, including stability of the product or product candidate, or quality assurance testing, or suffer shortages of qualified personnel, as well as compliance with strictly enforced cGMP requirements, other federal and state regulatory requirements and foreign regulations, any of which could result in our inability to manufacture sufficient quantities to meet clinical timelines for a particular product candidate, to obtain marketing approval for the product candidate or to commercialize the product or product candidate. If our manufacturers were to encounter any of these difficulties or otherwise fail to comply with their obligations to us or under applicable regulations, our ability to provide product for commercial sale or product candidates in our clinical trials would be jeopardized.

In addition, the facilities used by our contract manufacturers or other third party manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections conducted following our request for regulatory approval for our product candidates from the FDA. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our products or product candidates may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. The FDA or similar foreign regulatory agencies may also implement new standards at any time, or change their interpretation and enforcement of existing standards for manufacture, packaging or testing of products. We have little control over our manufacturers' compliance with these regulations and standards. A failure of any of our current or future contract manufacturers to establish and follow cGMPs and to document their adherence to such practices may lead to significant delays in clinical trials or in obtaining regulatory approval of product candidates or the ultimate launch of products, if approved, into the market. Failure by our current or future third-party manufacturers or us to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of the government to grant pre-market approval of drugs, delays, suspension or withdrawal of approvals, seizures or recalls of products, operating restrictions, and criminal prosecutions. If the safety of any product supplied is compromised due to our manufacturers' failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical studies, regulatory submissions, approvals or commercialization of our product candidates or approved products, entail higher costs or impair our reputation.

Our products and product candidates may compete with other products and product candidates for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.

If the third parties that we engage to manufacture product for our preclinical tests and clinical trials cease to continue to do so for any reason, we likely would experience delays in advancing these clinical trials while we identify and qualify replacement suppliers and we may be unable to obtain replacement supplies on terms that are favorable to us. In addition, if we are not able to obtain adequate supplies of our product candidates or the drug substances used to manufacture them, it will be more difficult for us to develop our product candidates and compete effectively. Furthermore, any delay or interruption in the supply of commercial quantities of approved product could have a material adverse impact on our revenue from product sales and any delay or interruption in the supply of clinical trial materials could delay the completion of our clinical trials, increase the costs associated with maintaining our clinical development programs and, depending upon the period of delay, require us to commence new clinical trials or redo work that has already been done, in either case at significant additional expense to us, or to terminate the clinical trials completely.

Our current and anticipated future dependence upon others for the manufacture of our products and product candidates may adversely affect our future profit margins and our ability to develop product candidates and commercialize any products that receive marketing approval on a timely and competitive basis.

61

Table of Contents

We may depend on additional collaborations, licenses or similar arrangements with third parties for the development and commercialization of some of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

We have licensed rights to develop and commercialize elobixibat for CIC and other gastrointestinal diseases and disorders to EA Pharma in Japan and other select markets in Asia. We have also entered into license agreements with third parties to commercialize Bylvay in certain other jurisdictions, subject to regulatory approval in those jurisdictions including, Medison Pharma Ltd. for Israel, Gen İlaç ve Sağlık Ürünleri Sanayi ve Ticaret A.Ş. for Turkey, Genpharm Services for Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and the UAE, Jadeite Medicines Inc. for Japan, and Swixx Biopharma AG for Central and Eastern European Countries, and we are identifying potential partners for other regions. We may in the future enter into other licensing, collaboration or similar arrangements for the development and commercialization of A3907, A2342 or any potential future product candidate of ours for any or all indications and for any or all territories, except for the rights granted to these third parties listed above and any other third parties to which we have then granted any rights.

Our likely counterparties for any licensing, collaboration or similar arrangement include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. To the extent we enter into such arrangements with third parties, we will likely have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of the applicable product candidate. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities and efforts to successfully perform the functions assigned to them in these arrangements.

Any licensing, collaboration or similar arrangement involving our product candidates would pose numerous risks to us, including the following:

collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations and may not perform their obligations as expected;
collaborators may deemphasize or not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus, including as a result of a sale or disposition of a business unit or development function, or available funding, or external factors such as an acquisition that diverts resources or creates competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
collaborators may independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;
a collaborator with marketing and distribution rights to multiple products may not commit sufficient resources to the marketing and distribution of our product relative to other products;
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;

62

Table of Contents

disputes may arise between us and a collaborator as to the ownership of intellectual property arising during the collaboration;
we may grant exclusive rights to our collaborators, which would prevent us from collaborating with others or make us a less attractive collaboration partner by narrowing the scope of potential collaborations into which we may enter;
disputes may arise between us and a collaborator that result in the delay or termination of the research, development or commercialization of our products or product candidates or that result in costly litigation or arbitration that diverts management attention and resources; and
collaborations may be terminated and, if terminated, may result in a need to identify and enter into a new licensing, collaboration or similar arrangement or obtain additional capital to pursue further development or commercialization of the applicable product candidates.

Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be delayed, diminished or terminated.

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

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

We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for 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. Those factors may include the design or results of clinical trials, the likelihood of approval by regulatory authorities, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of a product candidate, reduce or delay our development program or one or more of our other development programs, delay our 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 do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.

63

Table of Contents

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products 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 proprietary technology and products. We seek to protect our proprietary position by filing patent applications in the United States, in Europe and in certain additional jurisdictions related to our novel technologies and product candidates that are important to our business. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, if we license technology, products or product candidates from third parties in the future, these license agreements may not permit us to control the preparation, filing and prosecution of patent applications, or to maintain or enforce the patents, covering the licensed technology, products or product candidates. These agreements could also give our licensors the right to enforce the licensed patents without our involvement, or to decide not to enforce the patents at all. Therefore, in these circumstances, these patents and applications may not be prosecuted or enforced in a manner consistent with the best interests of our business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology, products or product candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents, narrow the scope of our patent protection or make enforcement more difficult or uncertain.

The laws of other countries may not protect our patent 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. Many companies have encountered significant difficulties in protecting and defending intellectual property rights in such foreign jurisdictions. The legal systems of certain countries, including certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biotechnology, which could make it difficult for us to stop the infringement of our patent rights or the marketing of competing products in violation of our intellectual property and proprietary rights generally. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. For this or other reasons, we may not pursue or obtain patent protection in all major markets or may not obtain protection that enables us to prevent the entry of third parties onto the market.

Additionally, 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.

Further, 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

64

Table of Contents

to our business, our competitive position may be impaired, and our business, financial condition, results of operations and prospects may be adversely affected.

Assuming the other requirements for patentability are met, currently, the first to file a patent application is generally entitled to the patent. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent. 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 know with certainty whether we were the first to make the inventions claimed in our U.S. patents or pending U.S. patent applications filed prior to March 16, 2013.

Moreover, we may be subject to a third party preissuance submission of prior art to the U.S. Patent and Trademark Office, or the USPTO, or become involved in opposition, derivation, reexamination, reissue, inter partes review, post grant review, interference proceedings or other patent office proceedings, court litigation or International Trade Commission proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation concerning our patent rights could reduce the scope of or prevent the enforceability of, or invalidate, our patent rights, allowing third parties to commercialize our technology or products, or equivalent or similar technology or products, and so to compete directly with us, without payment to us, or, where such proceedings involve third-party patents, result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened or narrowed by operation of any of the foregoing, such an event could dissuade companies from collaborating with us to license, develop or commercialize current or potential future product candidates of ours.

Even if our patent applications issue as patents, they may not issue in a form that will provide us with adequate protection to prevent competitors from competing with us or otherwise to provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar, improved or alternative technologies or products in a noninfringing manner. Moreover, method-of-treatment patent claims are more difficult to enforce than composition-of-matter claims for reasons including off-label sale, potential divided infringement issues and use of the subject compound in noninfringing manners. Physicians are permitted to prescribe an approved product for uses that are not described in the product’s labeling. Although off-label prescriptions may infringe our method-of-treatment patents, the practice is common across medical specialties and such infringement is difficult to prevent or prosecute. Off-label sales would limit our ability to generate revenue from the sale of our product candidates, if approved for commercial sale. In addition, if a third party were able to design around our dosage-form and formulation patents and create a different formulation and dosage form that is not covered by our patents or patent applications, we would likely be unable to prevent that third party from manufacturing and marketing our product.

In addition, other companies may attempt to circumvent any regulatory data protection or market exclusivity that we obtain under applicable legislation, such as orphan drug exclusivity in the United States, which may require us to allocate significant resources to preventing such circumvention. Legal and regulatory developments in the European Union and elsewhere may also result in clinical trial data submitted as part of a marketing authorization application becoming publicly available. Such developments could enable other companies to use our clinical trial data to assist in their own product development and to obtain marketing authorizations in the European Union and in other jurisdictions. Such developments may also require us to allocate significant resources to prevent other companies from circumventing or violating our intellectual property rights. Our attempts to prevent third parties from circumventing our intellectual property and other rights may ultimately be unsuccessful. We may also fail to take the required actions or pay the necessary fees to maintain our patents.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States, Europe and elsewhere. Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Future changes in U.S. statutory or case law beyond our control could affect some or all of the foregoing possibilities. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such

65

Table of Contents

candidates might expire before or shortly after such candidates are commercialized. This could be the case even after giving effect to patent term extensions and data exclusivity provisions preventing third parties from relying on clinical trial data filed by us for marketing approval in support of their own applications for such approval. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

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

Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required to file claims, which can be expensive and time consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property or that our patent and other intellectual property rights are invalid or unenforceable, including for antitrust reasons. As a result, in a patent infringement proceeding, a court or administrative body may decide that a patent of ours is invalid or unenforceable, in whole or in part, or may construe the patent’s claims narrowly and so refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the competitor technology in question. Even if we are successful in a patent infringement action, the unsuccessful party may subsequently raise antitrust issues and bring a follow-on action. Antitrust issues may also provide a bar to settlement or constrain the permissible settlement terms. Further, settlement agreements in the pharmaceutical sector are the subject of ongoing review by the antitrust authorities in the European Union.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our commercial success depends upon our ability and the ability of our current or potential future licensees or collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the intellectual property and other proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference, derivation, inter partes review, reexamination, reissue or post-grant review proceedings before the USPTO. The risks of being involved in such litigation and office proceedings may also increase as we commence commercialization of Bylvay and our other product candidates approach commercialization, and as our business gains greater visibility operating as a publicly traded company in the United States. Third parties may assert infringement claims against us based on existing or future intellectual property rights and so restrict our freedom to operate. Third parties may also seek injunctive relief against us, whereby they would attempt to prevent us from practicing our technologies altogether pending the outcome of any litigation against us. We may not be aware of all such intellectual property rights potentially relating to our product candidates prior to their assertion against us. For example, we have not conducted an in depth freedom-to-operate search or analysis for Bylvay. Any freedom-to-operate search or analysis previously conducted may not have uncovered all relevant patents and pending patent applications, and there may be pending or future patent applications that, if issued, would block us from commercializing Bylvay or any other product candidate. Thus, we do not know with certainty whether Bylvay or any other product candidate, or our commercialization of Bylvay or any such product candidate, does not and will not infringe any third party’s intellectual property.

If we are found to infringe a third party’s intellectual property rights, or in order to avoid or settle litigation, we could be required to obtain a license to enable us to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms, or at all. Even if we were able to obtain a license, it could be nonexclusive, thereby giving our competitors access to the same technologies that we have then licensed, and could require us to make substantial payments. Absent a license, we could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent or other intellectual property right. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that

66

Table of Contents

we have misappropriated the confidential information or trade secrets of third parties, or claims that we derived inventions from another, could have a similar negative impact on our business.

We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies. Although we try to ensure that our employees do not use the proprietary or otherwise confidential information or know-how of others in their work for us, we may be subject to claims that we or these employees have without authorization used or disclosed intellectual property, including trade secrets or other proprietary or confidential information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.

In addition, while we typically require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us and agreeing to cooperate and assist us with securing and defending our intellectual property, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. These assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

If we fail in prosecuting or 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 prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.

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

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. 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, sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Accordingly, costs and lost management time, as well as uncertainties resulting from the initiation and continuation of patent litigation or other proceedings, could have a material adverse effect on our ability to compete in the marketplace.

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

Depending upon the timing, duration and specifics of FDA marketing approval of Bylvay, A3907, A2342 or potential future product candidates of ours, if any, one or more of our U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, we may not be granted an extension if, for example, we fail to apply within applicable deadlines, we fail to apply prior to expiration of relevant patents or if we otherwise fail to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our products will be shortened and our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially. In the event that we are unable to obtain any

67

Table of Contents

patent term extension, the issued U.S. composition of matter patent for Bylvay is expected to expire in 2022 and the issued U.S. method of use patents for Bylvay are expected to expire in 2031, assuming they withstand any challenge. In the event that we are unable to obtain any patent term extension, the issued U.S. composition of matter patent for elobixibat is expected to expire in 2022, assuming it withstands any challenge. We expect that the other U.S. patents and patent applications for Bylvay and elobixibat, if issued, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, would expire from 2031 to 2039.

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 some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary and confidential information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into nondisclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. However, we cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets or that the agreements we have executed will provide adequate protection. Any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary or confidential information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate the trade secret, from using that technology or information to compete with us. If any of our trade secrets, particularly unpatented know-how, were to be obtained or independently developed by a competitor, our competitive position would be harmed.

Risks Related to Regulatory Approval and Marketing of Our Product Candidates

If we or any of our current or future partners violate the guidelines pertaining to promotion and advertising of Bylvay or any of our other product candidates, if approved, we or they may be subject to disciplinary action by the FDA's Office of Prescription Drug Promotion (OPDP) or other regulatory authorities.

The FDA's Office of Prescription Drug Promotion (OPDP), is responsible for reviewing prescription drug advertising and promotional labeling to ensure that the information contained in these materials is not false or misleading. There are specific disclosure requirements, and the applicable regulations mandate that advertisements cannot be false or misleading or omit material facts about the product. Prescription drug promotional materials must present a fair balance between the drug's effectiveness and the risks associated with its use. Most warning letters from OPDP cite inadequate disclosure of risk information.

OPDP prioritizes its actions based on the degree of risk to the public health, and often focuses on newly introduced drugs and those associated with significant health risks. There are two types of letters that OPDP typically sends to companies that violate its drug advertising and promotional guidelines: untitled letters and warning letters. In the case of an untitled letter, OPDP typically alerts the drug company of the violation and issues a directive to refrain from future violations, but does not typically demand other corrective action. A warning letter is typically issued in cases that are more serious or where the company is a repeat offender. Although we have not received any such letters from OPDP, we or any of our current or future partners may inadvertently violate OPDP's guidelines in the future and be subject to an OPDP untitled letter or warning letter, which may have a negative impact on our business.

68

Table of Contents

The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses for prescription drugs. If we are found or alleged to have improperly promoted our commercial product for off-label uses, we may become subject to significant liability.

The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products such as Bylvay. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. Promotional labeling for Bylvay, and for any other of our products that receive marketing approval, must be submitted to OPDP either at the time of first use or before the intended date of first use (for products marketed pursuant to accelerated approval). The agency also actively solicits reports from health care professionals about improper drug manufacturer promotional claims or activities. If we are found to have promoted Bylvay for any off-label use, we may become subject to significant liability and reputational harm. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of Bylvay or any of our product candidates, if approved in the future, to ensure compliance with these legal and regulatory requirements, we could become subject to significant liability, which would materially adversely affect our business and financial condition.

If prior to any marketing approval in the European Union of Bylvay to treat PFIC, Mirum’s maralixibat is approved in the European Union to treat ALGS or biliary atresia and at the time of approval maintains its designation as an orphan medicinal product, and if Bylvay is deemed to be a similar medicinal product, within the meaning of E.U. law, to maralixibat, we may not be able to obtain marketing approval of Bylvay in the European Union for a significant period of time. In addition, Bylvay may not be entitled to orphan drug exclusivity for Bylvay in the United States or European Union notwithstanding its current orphan designation.

Regulatory authorities in some jurisdictions, including the United States and European Union, may designate drugs for relatively small patient populations as orphan drugs. The FDA has granted orphan drug designation to odevixibat, which is an IBAT inhibitor, for the treatment of PFIC, biliary atresia, PBC and ALGS, and the European Commission has designated odevixibat as an orphan medicinal product for the treatment of PFIC, biliary atresia, PBC and ALGS. Mirum’s maralixibat, which has also been reported to be an IBAT inhibitor, has also been granted orphan drug designation by the FDA and as an orphan medicinal product by the European Commission.

Generally, if a designated orphan medicinal product receives the first marketing approval in the European Union for the orphan indication for which it has been designated and maintains under applicable criteria its designation as an orphan medicinal product at the time of approval, the product is entitled to a period of market exclusivity in the European Union. Subject to certain exceptions, this market exclusivity precludes the EMA from accepting another marketing application for a “similar medicinal product” for the same indication for 10 years, which can be reduced to six years if a drug no longer meets the criteria for orphan drug designation (including if the drug is sufficiently profitable so that market exclusivity is no longer justified). Under E.U. law, a “similar medicinal product” is a medicinal product that contains a similar active substance or substances as contained in the authorized orphan medicinal product and that is intended for the same therapeutic indication and a “similar active substance” is an active substance that is identical or has the same principal molecular structural features (but not necessarily all of the same molecular features) and acts via the same mechanism as the authorized orphan medicinal product.

If (1) prior to marketing approval, if any, of Bylvay to treat either ALGS or biliary atresia in the European Union, maralixibat is approved in the European Union to treat either ALGS or biliary atresia and at the time of approval maintains its designation as an orphan medicinal product, (2) Bylvay is deemed to be a similar medicinal product to maralixibat and (3) we are not able to establish that Bylvay provides a significant benefit to patients compared with maralixibat for the treatment of either ALGS or biliary atresia, we may not be able to obtain marketing approval of Bylvay in the European Union for at least several years. Mirum submitted a marketing authorization application (“MAA”) for the treatment of cholestatic liver disease in patients with ALGS to the European Medicines Agency (“EMA”) and announced that it expects potential approval in the second half of 2022. Mirum is also conducting a Phase 2 trial for maralixibat in biliary atresia and disclosed that it expects to announce topline data from that trial in 2023.

69

Table of Contents

Moreover, we may not be able to obtain orphan drug exclusivity in the United States or the European Union for Bylvay in any indication other than PFIC, notwithstanding the fact that Bylvay has been designated as an orphan drug in the United States or an orphan medicinal product in the European Union. With the U.S. marketing approval of Bylvay for the treatment of pruritis in patients with PFIC on July 20, 2021, we were granted the seven-year period of orphan drug exclusivity that runs through July 2028. However, the receipt of such regulatory exclusivity does not eliminate all possibility of competition during the seven-year protected period. For example, if a competitive product that is the same drug as Bylvay is shown to be clinically superior in the same use or indication, any orphan drug exclusivity that we have obtained in the United States will not block the approval of such competitive product. In addition, orphan drug exclusivity will not prevent the approval in the United States of a product that is the same drug as our approved product if the FDA finds that we cannot assure the availability of sufficient quantities of the drug to meet the needs of the persons with the disease or condition for which the drug received exclusive approval. Moreover, if prior to marketing approval, if any, of Bylvay to treat PFIC in the European Union, maralixibat or any other product is approved in the European Union to treat either ALGS or biliary atresia, Bylvay may not be entitled to orphan drug exclusivity if we are not able to establish that it provides a significant benefit to patients compared with maralixibat. Finally, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drug products can be approved for the same condition.

Even if we complete the necessary clinical trials, the marketing approval process is expensive, time consuming and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product candidates. If we are not able to obtain, or if there are delays in obtaining, required marketing approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.

Our products and product candidates, including Bylvay, A3907 and A2342, and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. Bylvay has been approved for the treatment of a pruritis in patients with PFIC in the United States and for the treatment of PFIC in the European Union and Great Britain. Other than these approvals of Bylvay, and the approval of elobixibat received by EA Pharma for the treatment of chronic constipation in Japan, we have not received approval to market Bylvay, A3907, A2342 or any other product candidate from regulatory authorities in any jurisdiction.

We have only limited experience in filing and supporting the applications necessary to obtain marketing approvals for product candidates and have relied on third-party contract research organizations to assist us in this process. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and effectiveness. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Regulatory authorities may determine that Bylvay, A3907, A2342 or any potential future product candidate of ours is not effective, is only moderately effective or has undesirable or unintended side effects, toxicities, safety profiles or other characteristics that preclude us from obtaining marketing approval or that prevent or limit commercial use.

The process of obtaining marketing approvals is expensive, may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product 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 product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical studies, clinical trials or other trials. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable. If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired.

70

Table of Contents

Additionally, on June 23, 2016, the electorate in Great Britain voted in favor of leaving the European Union, commonly referred to as “Brexit.” On March 29, 2017, the country formally notified the European Union of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. The withdrawal of Great Britain from the European Union took effect on January 31, 2020, the effective date of the withdrawal agreement, with a transition period that ended on December 31, 2020. Since a significant proportion of the regulatory framework in Great Britain was, prior to Brexit, derived from European Union directives and regulations, Brexit and the new Trade and Cooperation Agreement between the European Union and Great Britain that took effect on January 1, 2021 could materially impact the regulatory regime with respect to the approval of any product candidates in Great Britain. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing any product candidates in Great Britain and restrict our ability to generate revenue and achieve and sustain profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in Great Britain and/or European Union for our product candidates, which could significantly and materially harm our business.

Our failure to obtain marketing approval in jurisdictions other than the United States and Europe would prevent our product candidates from being marketed in these other jurisdictions. Any approval that we are granted for our product candidates in the United States or Europe would not assure approval of product candidates in the other or in any other jurisdiction.

In order to market and sell Bylvay, A3907, A2342 or any potential future product candidate of ours in jurisdictions other than the United States or Europe, we or a current or potential future licensee or collaborator must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ from that required to obtain FDA or EMA approval. The regulatory approval process outside the United States and Europe generally includes all of the risks associated with obtaining FDA and EMA approval. In addition, some countries outside the United States and Europe require approval of the sales price of a drug before it can be marketed. In many countries, separate procedures must be followed to obtain reimbursement. We or a current or potential future licensee or collaborator may not obtain marketing, pricing or reimbursement approvals outside the United States and Europe on a timely basis, if at all.

Approval by the FDA does not ensure approval by the EMA, approval by the EMA does not assure approval by the FDA, and approval of either or both of the FDA and EMA does not assure approval by regulatory authorities in other countries or jurisdictions. Likewise, approval by any regulatory authority in any country or jurisdiction outside the United States or Europe, such as Japan, does not assure approval by regulatory authorities in other countries or jurisdictions or by the FDA or EMA. We and any current or potential future licensee or collaborator may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our product candidates in any market. Marketing approvals in countries outside the United States and Europe do not ensure pricing approvals in those countries or in any other countries, and marketing approvals and pricing approvals do not ensure that reimbursement will be obtained.

Our ability to obtain and maintain conditional marketing authorizations in the European Union is limited to specific circumstances and subject to several conditions and obligations. A failure to renew any conditional approval that we obtain prior to full approval for the applicable indication would prevent us from continuing to market our products.

Conditional marketing authorizations in the European Union based on incomplete clinical data may be granted for a limited number of listed medicinal products for human use, including products designated as orphan medicinal products under E.U. law, if (1) the risk-benefit balance of the product is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) unmet medical needs will be fulfilled and (4) the benefit to public health of the immediate availability on the market of the medicinal product outweighs the risk inherent in the fact that additional data are still required. Specific obligations, including with respect to the completion of ongoing or new studies or trials, and with respect to the collection of pharmacovigilance data, may be specified in the conditional marketing authorization. Conditional marketing authorizations are valid for one year and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified

71

Table of Contents

conditions. Even if we obtain conditional approval for any product candidate, we may not be able to renew such conditional approval.

Even if we obtain marketing approval for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we manufacture or market our products and compliance with such requirements may involve substantial resources, which could materially impair our ability to generate profit.

Even if marketing approval of a product candidate is granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation, including the possible requirement to implement a risk evaluation and mitigation strategy or to conduct costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. We must also comply with requirements concerning advertising and promotion for any of our product candidates for which we obtain marketing approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we will not be able to promote any products we develop for indications or uses for which they are not approved. In addition, manufacturers of approved products and those manufacturers’ facilities are required to ensure that quality control and manufacturing procedures conform to cGMP, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We and our contract manufacturers are subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMP.

Accordingly, for Bylvay and to the extent we receive marketing approval for one or more of our other product candidates, we and our contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If we are not able to comply with post-approval regulatory requirements, we could have marketing approval for any of our products withdrawn by regulatory authorities and our ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Thus, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.

Bylvay and any other product candidate for which we obtain marketing approval will be subject to strict enforcement of post-marketing requirements and we could be subject to substantial penalties, including withdrawal of our products from the market, if we fail to comply with all regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.

Bylvay and any other product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include, but are not limited to, restrictions governing promotion of an approved product, submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, and requirements regarding the distribution of samples to physicians and recordkeeping.

The FDA closely regulates compliance with all requirements governing prescription drug products, including requirements pertaining to marketing and promotion of drugs in accordance with the provisions of the approved labeling and manufacturing of products in accordance with cGMP requirements. Violations of such requirements may lead to investigations alleging violations of the Food, Drug and Cosmetic Act and other statutes, including the False Claims Act and other federal and state health care fraud and abuse laws as well as state consumer protection laws. Our failure to comply with all regulatory requirements, and later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, may yield various results, including:

litigation involving patients taking our products;
restrictions on such products, manufacturers or manufacturing processes;

72

Table of Contents

restrictions on the labeling or marketing of a product;
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
warning or untitled letters;
withdrawal of the products from the market;
refusal to approve pending applications or supplements to approved applications that we submit;
recall of products;
fines, restitution or disgorgement of profits or revenues;
suspension or withdrawal of marketing approvals;
damage to relationships with any potential collaborators;
unfavorable press coverage and damage to our reputation;
refusal to permit the import or export of our products;
product seizure; or
injunctions or the imposition of civil or criminal penalties.

Our noncompliance, or noncompliance by any future licensee or collaborator, with regulatory requirements relating to safety monitoring or pharmacovigilance, to the development of products for the pediatric population or to the protection of personal information can lead to significant penalties and sanctions.

Fast track designation by the FDA may not actually lead to a faster development or regulatory review or approval process.

If a drug is intended for the treatment of a serious or life threatening condition and the drug demonstrates the potential to address unmet medical needs for the condition, the drug sponsor may apply for FDA fast track designation. The designation offers the sponsor opportunities for interactions with the FDA review team and the possibility of a rolling review for certain portions of the marketing application. We may seek fast track designation for current or potential future product candidates of ours. Even if the FDA grants fast track designation to one or more of these product candidates, we may not experience a faster development process, review or approval compared to conventional FDA procedures. In addition, the FDA may withdraw fast track designation that may in the future be granted to any of our product candidates if it believes that the designation is no longer supported by data from our clinical development program for that product candidate. Fast track designation alone does not guarantee qualification for the FDA’s priority review procedures.

Priority review designation by the FDA may not lead to a faster regulatory review or approval process and, in any event, does not assure FDA approval.

If the FDA determines that a product candidate intended to treat a serious disease, if approved, would provide a significant improvement in safety or effectiveness of the treatment of the disease, the FDA may designate the drug application for that product candidate for priority review. A priority review designation means that the goal for the FDA

73

Table of Contents

to review the marketing application is six months from the date of NDA acceptance for filing, rather than the standard review period of ten months from the date of NDA acceptance for filing. A priority review designation does not necessarily mean a faster regulatory review process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures. Receiving a priority review designation from the FDA does not guarantee approval of the drug application within the six-month review cycle or any time thereafter.

Our relationships with customers, healthcare providers and professionals and third-party payors is 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 play a primary role in the recommendation and prescription of Bylvay or any other product candidate, including A3907 or A2342, for which we obtain marketing approval. Our arrangements with customers, healthcare providers and professionals, and third-party payors may expose us to broadly applicable federal and state fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell or distribute Bylvay or any other product candidate for which we obtain marketing approval.

The federal anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid. This statute has been broadly interpreted to apply to manufacturer arrangements with prescribers, purchasers and pharmacy benefit managers, among others. Several other countries, including Great Britain, have enacted similar anti-kickback laws and regulations.

The federal False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. Both the government and qui tam relators have brought False Claims Act actions against pharmaceutical companies on the theory that their practices have caused false claims to be submitted to the government.

The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or for knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH Act, and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.

The federal Physician Payments Sunshine Act requirements under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, referred to together as the Affordable Care Act, require manufacturers of FDA-approved drugs, devices, biologics and medical supplies covered by Medicare or Medicaid to report to the Department of Health and Human Services information related to payments and other transfers of value made to or at the request of covered recipients, such as physicians and teaching hospitals, and physician ownership and investment interests in such manufacturers. Among other payments, the law requires payments made to physicians and teaching hospitals for clinical trials be disclosed.

Analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by nongovernmental third-party payors, including private insurers. Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, or the relevant compliance guidance promulgated by the federal government, in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures to the extent that those laws impose requirements that are more

74

Table of Contents

stringent than the Physician Payments Sunshine Act. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. Violation of certain of these laws could also result in exclusion, suspension and debarment from government funded healthcare programs. Exclusion, suspension or debarment would significantly impact our ability to commercialize, sell or distribute any product candidate for which we obtain regulatory approval. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain for any product that receives marketing approval.

In the United States and in some other jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of Bylvay for additional indications, A3907, A2342 or any potential future product candidates of ours, restrict or regulate post-approval activities, or affect our ability to profitably sell any product candidates, including Bylvay A3907, or A2342, for which we obtain marketing approval. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician administered drugs. In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class. Cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products. While the Medicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare Modernization Act may result in a similar reduction in payments from private payors.

In March 2010, the Affordable Care Act, or ACA, became law in the United States. The ACA was a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and as a result certain sections of the ACA have not been fully implemented or effectively repealed. However, following several years of litigation in the federal courts, in June 2021, the U.S. Supreme Court upheld the ACA when it dismissed a legal challenge to the ACA’s constitutionality. Further legislative and regulatory changes under the ACA remain possible, although the new federal administration under President Biden has signaled that it plans to build on the ACA and expand the number of people who are eligible for health insurance subsidies under it. It is unknown what form any such changes or any law would take, and how or whether it may affect the pharmaceutical industry as a whole or our business in the future. We expect that changes or additions to the ACA, the Medicare and Medicaid programs, such as changes allowing the federal government to directly negotiate drug prices, and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the healthcare industry in the United States.

75

Table of Contents

In addition, the Drug Supply Chain Security Act imposes new obligations on manufacturers of pharmaceutical products related to product tracking and tracing. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are unsure whether additional legislative changes will be enacted, or whether the current regulations, guidance or interpretations will be changed, or whether such changes will have any impact on our business.

In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or E.U. member state level may result in significant additional requirements or obstacles that may increase our operating costs.

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

We are subject to anti-corruption laws, as well as export control laws, data protection laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect our business, results of operations and financial condition.

Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, or the FCPA, and other anti-corruption laws that apply in countries where we do business and may do business in the future. The FCPA and these other laws generally prohibit us, our officers, and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We may in the future operate in jurisdictions that pose a high risk of potential FCPA violations and we may participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

We are also subject to other laws and regulations governing our international operations, including regulations administered by the government of the United States and authorities in the European Union, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws. In addition, various statutes and rules in the United States, Europe and elsewhere around the world regulate privacy and data protection, which affect our collection, use, storage, and transfer of information both abroad and in the United States. New laws and regulations are periodically being enacted in this area, which remains in a state of flux. Monitoring and complying with these laws requires substantial financial resources. In particular, the European Union’s General Data Protection Regulation, or GDPR, took effect in May 2018, and will require us to meet new and more stringent requirements regarding the handling of personal data about European Union residents. The GDPR is a complex law and the regulatory guidance is still evolving. Furthermore, many of the countries within the European Union have adopted or are still in the process of drafting supplementary data protection legislation in key fields where the GDPR allows for national variation, including the fields of clinical study and other health-related information. Failure to meet GDPR requirements could result in penalties of up to 4% of our worldwide revenue. While we have taken steps to comply with the GDPR, including reviewing our security procedures, updating our website, revising our clinical study informed consent forms, and entering into data processing agreements with relevant contractors, we cannot assure you that our efforts to remain in compliance will be fully successful.

76

Table of Contents

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 and California Consumer Privacy Act of 2018, or CCPA), 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, and the privacy regulatory area is in constant flux. The state of California, for example, adopted the CCPA, which went into effect beginning in January 2020. The CCPA has been characterized as the first “GDPR-like” privacy statute to be enacted in the United States because it mirrors a number of the key provisions of the GDPR. The CCPA established a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for residents of the State of California, imposing special rules on the collection of personal information from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. In November of 2020, California voters approved the California Privacy Rights Act which will be effective in January of 2023 and could impact our operations or that of our collaborators. Virginia and Colorado passed similar privacy laws in 2020 (effective in 2023), and other states have been considering similar privacy, and several federal privacy proposals are under consideration in the current session of Congress.

Applicable laws may conflict with each other, and by complying with the laws or regulations of one jurisdiction, we may find that we are violating the laws or regulations of another jurisdiction. Despite our efforts, we may not have fully complied in the past and may not in the future. If we become liable under laws or regulations applicable to us, we could be required to pay significant fines and penalties, our reputation may be harmed and we may be forced to change the way we operate. That could require us to incur significant expenses or to discontinue certain services, which could negatively affect our business.

There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance with the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the FCPA, other anti-corruption laws or Trade Control laws by U.S. or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition.

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology or loss of data, including any cyber security incidents, could compromise sensitive information related to our business, prevent us from accessing critical information or expose us to liability which could harm our ability to operate our business effectively and adversely affect our business and reputation.

In the ordinary course of our business, we, our contract research organizations and other third parties on which we rely collect and store sensitive data, including legally protected patient health information, personally identifiable information about our employees, intellectual property, and proprietary business information. We manage and maintain our applications and data utilizing on-site systems. These applications and data encompass a wide variety of business-critical information including research and development information and business and financial information.

The secure processing, storage, maintenance and transmission of this critical information is vital to our operations and business strategy. Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, breaches unauthorized access, interruptions due to employee error or malfeasance or other disruptions, or damage from natural disasters, terrorism, war and telecommunication and electrical failures. Any such event could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. We have measures in place that are designed to detect and respond to such security incidents and breaches of privacy and security mandates. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, government enforcement actions and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to conduct research, development and commercialization activities, process and prepare company financial information, manage various general and

77

Table of Contents

administrative aspects of our business and damage our reputation, in addition to possibly requiring substantial expenditures of resources to remedy, any of which could adversely affect our business. The loss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. In addition, there can be no assurance that we will promptly detect any such disruption or security breach, if at all. 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 our product research, development and commercialization efforts could be delayed.

Risks Related to Our Business Operations, Employee Matters and Managing Growth

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, is designed to prevent fraud. Pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, we are required to furnish a report by our management on the effectiveness of our internal control over financial reporting. As a non-accelerated filer, we are not required this year to obtain an attestation report on internal control over financial reporting from our independent registered public accounting firm. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 or any future testing by our independent registered public accounting firm may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. While our management concluded that our internal control over financial reporting is effective as of December 31, 2021, there is no assurance that we or our independent registered public accounting firm will not identify material weaknesses in the future, which could have a material adverse impact on our business and the trading price of our common stock.

Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on Ron Cooper, our President and Chief Executive Officer, and other principal members of our management and scientific teams. Although we have formal employment agreements with each of our executive officers, these agreements do not prevent our executives from terminating their employment with us at any time. We do not maintain “key person” insurance on any of our executive officers. The unplanned loss of the services of any of these persons could materially impact the achievement of our research, development and commercialization objectives.

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel, including in the United States and Sweden, will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous biotechnology and pharmaceutical companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

Over the last year as there has been a dramatic increase in workers leaving their positions throughout our industry, referred to as the “great resignation,” and the competition to attract, retain and replace such employees has intensified. Our ability to attract and retain employees may be negatively impacted by employees’ reactions to our health and safety

78

Table of Contents

policies related to COVID-19 vaccination, masks and/or flexibility to work remotely, particularly in the United States. Any failure to attract, recruit, train, retain, motivate and integrate qualified personnel could materially harm our operating results and growth prospects.

We expect to expand our capabilities and, as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs, finance and administration and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

We incur significant costs and demands as a result of operating as a public company.

We incur significant legal, accounting and other expenses to meet our obligations as a publicly traded company. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the Nasdaq Stock Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. 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 that are not currently anticipated. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, these rules and regulations may make it difficult and expensive for us to maintain director and officer liability insurance coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers, which may adversely affect investor confidence in us and could cause our business or stock price to suffer.

We are exposed to risks related to currency exchange rates.

We conduct a significant portion of our operations outside of the United States. Because our consolidated financial statements are presented in U.S. dollars, changes in currency exchange rates have had and could have in the future a significant effect on our operating results when our operating results are translated into U.S. dollars. Exchange rate fluctuations between local currencies, the euro and the dollar create risk in several ways, including the following: weakening of the dollar may increase the cost of overseas research and development expenses and the cost of sourced product components outside the United States; strengthening of the dollar may decrease the value of our revenues denominated in other currencies; the exchange rates on-nondollar transactions and cash deposits can distort our financial results; and commercial pricing and profit margins may be affected.

Our present and potential future international operations may expose us to business, political, operational and financial risks associated with doing business outside of the United States.

Our business is subject to risks associated with conducting business internationally. Although a majority of our operations and sales are located in the United States, Western Europe, and Asia, a portion of our sales and some of our operations, clinical trial sites and commercial network are located in other regions, such as Central and Eastern European Countries, which may be more susceptible to political and economic instability that could adversely affect our business, clinical trial activities and sales in such regions, including as a result of the conflict in Ukraine. Other risks related to our present and potential future international operations include but are not limited to:

79

Table of Contents

multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements, and other governmental approvals, permits and licenses;
failure by us to obtain and maintain regulatory approvals for the use of our products in various countries;
rejection or qualification of foreign clinical trial data by the competent authorities of other countries;
additional potentially relevant third-party patent and other intellectual property rights that may be necessary to develop and commercialize our products and drug candidates;
complexities and difficulties in obtaining, maintaining, enforcing and defending our patent and other intellectual property rights;
difficulties in staffing and managing foreign operations;
complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;
limits in our ability to penetrate international markets;
restrictions on traveling outside the United States;
financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations;
natural disasters, pandemics, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions, and implementation of tariffs;
certain expenses including, among others, expenses for travel, translation and insurance; and
regulatory and compliance risks that relate to anti-corruption compliance and record-keeping that may fall within the purview of the U.S. Foreign Corrupt Practices Act, its accounting provisions or its anti-bribery provisions or provisions of anti-corruption or anti-bribery laws in other countries.

Any of these factors could harm our ongoing international clinical operations and supply chain, as well as any future international expansion

The United Kingdom’s withdrawal from the European Union could adversely impact operations, make it more difficult for us to do business in Europe and impose additional regulatory costs and challenges in securing approval of our product candidates.

On January 31, 2020, the United Kingdom formally withdrew from the E.U. and entered into a new trade agreement with the E.U. that took effect on January 1, 2021. The withdrawal of the United Kingdom from the E.U. has created significant uncertainty about the future relationship between the United Kingdom and the E.U.

Brexit has caused, and may continue to cause, uncertainty in the global markets. The effects of Brexit will also depend on any additional agreements the United Kingdom reaches to retain access to E.U. markets. There is significant uncertainty about the future relationship between the United Kingdom and the EU, including with respect to the laws and regulations that will apply as the United Kingdom determines which E.U. laws to replace, including those governing

80

Table of Contents

manufacturing, labor, environmental, data protection/privacy, competition, medical sales and advertising and other matters applicable to the medical device industry. In addition, as a result of Brexit, the movement of goods between the United Kingdom and the remaining member states of the E.U. will be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure. Moreover, currency volatility could drive a weaker pound which could result in a decrease in the profitability of our sales in the United Kingdom. Any adjustments we make to our business and operations as a result of Brexit could result in significant expense and take significant time to complete.

While we have not experienced any material financial impact from Brexit to date, we cannot predict its future implications. The withdrawal of the United Kingdom from the E.U. and full implementation of a new trade agreement could result in changes that impact our business. Any impact from Brexit on our business and operations over the long term will depend, in part, on the outcome of tariff, tax treaties, trade, regulatory and other negotiations the United Kingdom conducts as well as its enactment, interpretation and enforcement of new laws and regulations, such as the United Kingdom Data Protection Act, which substantially implements the GDPR in the United Kingdom, and other United Kingdom data protection laws or regulations that may develop in the medium to longer term, affecting matters such as data transfers to and from the United Kingdom. We continue to monitor and review the impact of any resulting changes to E.U. or United Kingdom law that could affect our operations.

We are currently evaluating the potential impacts on our business of the new Trade and Cooperation Agreement, including provisions relating to the manufacturing of medicinal products. Any delays to manufacturing or our product supply chain, as a result of Brexit, the Trade and Cooperation Agreement, or otherwise, could have an adverse impact on our ability to successfully supply and commercialize product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenue and achieve and sustain profitability.

Risks Related to Our Common Stock

Our stock price is expected to continue to be volatile, and the market price of our common stock may drop.

The market price of our common stock could continue to be subject to significant fluctuations. Market prices for securities of pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of our common stock to fluctuate include:

the success of our commercialization of Bylvay in the United States and Europe for the treatment of patients with PFIC;
the progress, scope, cost, duration or results of our current and any future clinical trials of our product candidates;
the timing and success of submission, acceptance and approval of regulatory filings;
our ability to obtain regulatory approvals for our product candidates, delays or failures to obtain such approvals and any restrictions, limitations or warnings in the label of any approved product candidates;
failure of any of our product candidates, if approved, to achieve commercial success;
issues in manufacturing our approved products or product candidates;
the entry into, or termination of, licensing, collaboration or similar agreements, or other key agreements, and the agreement terms;
the initiation of, material developments in, or conclusion of litigation to enforce or defend any of our intellectual property rights or defend against the intellectual property rights of others;

81

Table of Contents

announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital commitments;
adverse publicity relating to the markets in which we compete, including with respect to other products and potential products in such markets;
the introduction of technological innovations or new therapies that compete with our product candidates or products;
the loss of key employees;
changes in estimates or recommendations by securities analysts, if any, who cover our common stock;
low trading volume;
general and industry-specific economic conditions that may affect our research and development expenditures;
changes in the structure of health care payment systems;
failure to maintain compliance with listing requirements of The Nasdaq Capital Market; and
period-to-period fluctuations in our financial results.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our common stock.

In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm our profitability and reputation.

We do not anticipate that we will pay any cash dividends in the foreseeable future.

We currently expect to retain our future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be the sole source of gain, if any, of our stockholders for the foreseeable future.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team.

82

Table of Contents

Among others, these provisions:

establish a classified board of directors such that not all members of the board are elected at one time;
allow the authorized number of our directors to be changed only by resolution of our board of directors;
limit the manner in which stockholders can remove directors from the board of directors;
establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
limit who may call stockholder meetings;
authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a stockholder rights plan or “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
require the approval of the holders of at least 75% of the votes that all of our stockholders would be entitled to cast to amend or repeal certain provisions of our certificate of incorporation or bylaws.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a person who owns 15% or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired 15% or more of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

Item 1B.

UNRESOLVED STAFF COMMENTS

None.

Item 2.

PROPERTIES

Our portfolio of commercial real estate leases consists of office space for our corporate headquarters in Boston, Massachusetts and for administrative space in Göteborg, Sweden, both of which are accounted for as operating leases. In December 2021, we subleased to Hi Marley, Inc. office space located at 10 Post Office Square, Boston, Massachusetts, our current principal executive offices. We also subleased from Institute for Healthcare Improvement office space located at 53 State Street, Boston, Massachusetts, which we plan to use as our new principal executive offices beginning in March 2022.

Item 3.

LEGAL PROCEEDINGS

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

Item 4.

MINE SAFETY DISCLOSURES

Not applicable.

83

Table of Contents

PART II

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is traded on The Nasdaq Capital Market under the symbol “ALBO”.

Stockholders

As of February 1, 2022, we had 19,349,643 outstanding shares of common stock and no outstanding shares of preferred stock. As of February 1, 2021, there were approximately 23 holders of record of our common stock.

Unregistered Sales of Securities

Not applicable.

Issuer Purchases of Equity Securities

In September 2021, 7,760 shares of common stock were delivered to the Company by a holder of Company stock options to pay the exercise price upon the exercise of the stock options based on the closing price of the Company’s common stock on the date prior to stock option exercise, $29.61 per share.

Item 6.

[RESERVED]

Not applicable

84

Table of Contents

Item 7.

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 our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this Annual Report on Form 10-K (see Part I, Item 1A) for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by any forward-looking statement contained in the following discussion and analysis.

Since inception, we have incurred significant operating losses. As of December 31, 2021, we had an accumulated deficit of $300.9 million. We expect to continue to incur significant expenses and operating losses as we continue our development of, and seek marketing approvals for, our product candidates, commercialize Bylvay for its approved indications, and prepare for and begin the commercialization of any future approved products, and add infrastructure and personnel to support our product development and commercialization efforts and operations as a public company in the United States.

As a commercial-stage company, our revenues, expenses and results of operations are likely to fluctuate significantly from quarter to quarter and year to year. We believe that period-to-period comparisons of our results of operations should not be relied upon as indicative of our future performance.

As of December 31, 2021, we had approximately $248.1 million in cash and cash equivalents.

Financial Operations Overview

The following discussion sets forth certain components of our consolidated statements of operations as well as factors that impact those items.

Revenue

We generate revenue primarily from the receipt of royalty revenue, upfront or license fees and milestone payments as well as product revenue following our commercial launch of Bylvay. License agreements with commercial partners generally include nonrefundable upfront fees and milestone payments. We recognize revenue on sales of Bylvay when a customer obtains control of the product, which occurs at a point in time and upon delivery, the receipt of which is dependent upon the achievement of specified development, regulatory or commercial milestone events, as well as royalties on product sales of licensed products, if and when such product sales occur, and payments for pharmaceutical ingredient or related procurement services. For these agreements, management applies judgment in the allocation of total agreement consideration to the performance obligations on a reliable basis that reasonably reflects the selling prices that might be expected to be achieved in stand-alone transactions. For additional information about our revenue recognition, refer to Note 1 to our audited consolidated financial statements included in this Annual Report on Form 10-K.

We commenced our commercial launch of Bylvay for the treatment of pruritus in patients with PFIC ages 3 months or older in the United States in July 2021 after we received FDA approval of Bylvay on July 20, 2021.

We sell Bylvay to a limited number of specialty pharmacies and a specialty distributor which dispense the product directly to patients. The specialty pharmacies and specialty distributor are referred to as our customers. We also sell Bylvay to our customers in the European Union, which includes a limited number of pharmacies. Bylvay was authorized by the European Medicines Agency on July 16, 2021 for the treatment of PFIC in patients 6 months or older. Bylvay was also granted marketing authorization by the UK Medicines and Healthcare Products Regulatory Agency (MHRA) in September 2021 for the treatment of PFIC in patients 6 months or older.

85

Table of Contents

Product Revenue, Net

The Company recognizes revenue on sales of Bylvay when a customer obtains control of the product, which occurs at a point in time and upon delivery. We provide the right of return to our customers for unopened product for a limited time before and after its expiration date.

Under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), we have written contracts with each of our customers that have a single performance obligation - to deliver products upon receipt of a customer order - and these obligations are satisfied when delivery occurs and the customer receives Bylvay. We evaluate the creditworthiness of each of our customers to determine whether collection is reasonably assured. The wholesale acquisition cost that we charge our customers for Bylvay is adjusted to arrive at our estimated net product revenues by deducting (i) estimated government rebates and discounts related to Medicaid and other government programs, (ii) estimated costs of incentives offered to certain indirect customers including patients, (iii) trade allowances, such as invoice discounts for prompt payment and customer fees, and (iv) allowance for sales returns.

For the year ended December 31, 2021, we recognized net sales of Bylvay of approximately $7.0 million. No revenue was recognized for the year ended December 31, 2020.

Royalty Revenue

For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

For the years ended December 31, 2021 and 2020, we recognized revenue of $18.6 million and $8.3 million, respectively, related to our agreement with EA Pharma. We expect that any future revenue recognized under our license agreement with EA Pharma will fluctuate from quarter to quarter and year to year as a result of royalties for the period from EA Pharma, as well as the uncertain timing of future milestone payments, if any.

In October 2021, Albireo entered into an agreement with Jadeite Medicines Inc. to license, develop and commercialize Bylvay within Japan. For the year ended December 31, 2021, we recognized revenue of $15 million related to an upfront payment which was received in December 2021. We identified 13 promised goods and services under our license agreement but concluded that there was only one performance obligation that was material in the context of the contract under ASC 606. Therefore, we allocated the full amount received against that performance obligation. Currently, Jadeite is commencing bridging and other clinical studies to obtain NDA filings and approval in Japan for PFIC, ALGS, and biliary atresia indications. Future royalty revenue recognized under our license agreement with Jadeite will not commence until after NDA approval. The next anticipated milestone payment will be received upon NDA filings in Japan for Bylvay and the timing of future milestone payments, if any, is uncertain.

Cost of Product Revenue

Cost of product revenue consists of manufacturing and quality headcount costs for sales of Bylvay. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval on July 20, 2021, certain of the Bylvay costs incurred during the year ended December 31, 2021 were expensed prior to July 20, 2021 and, therefore, are not included in costs of sales during the current period. These costs expensed prior to regulatory approval were determined to be immaterial after estimating the cost of sales, with or without such costs, compared to the net sales of Bylvay as a whole. Manufacturing costs, which totaled approximately $1.6 million, were not capitalized, and instead were expensed as research and development expenses from 2020 to July 2021.

86

Table of Contents

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of personnel costs (including salaries, benefits and stock-based compensation) for employees in research and development functions, costs associated with nonclinical and clinical development services, including clinical trials and related manufacturing costs, third-party contract research organizations, or CROs, and related services and other outside costs, including fees for third-party professional services such as consultants. Our nonclinical studies and clinical studies are performed by CROs. We expect to continue to focus our research and development efforts on nonclinical studies and clinical trials of our product candidates. As a result, we expect our research and development expenses to continue to increase for the foreseeable future.

Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs such as fees paid to CROs and others in connection with our nonclinical and clinical development activities and related manufacturing. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.

Successful development of our current and potential future product candidates is highly uncertain. Completion dates and costs for our programs can vary significantly by product candidate and are difficult to predict. As a result, we cannot estimate with any degree of certainty the costs we will incur in connection with development of any of our product candidates. We anticipate we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the results of ongoing and future clinical trials, our ability to enter into licensing, collaboration and similar arrangements with respect to current or potential future product candidates, the success of research and development programs and our assessments of commercial potential.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of personnel costs (including salaries, benefits and stock-based compensation) for our executive, finance and other administrative employees. In addition, selling, general and administrative expenses include fees for third-party professional services, including consulting, information technology, legal and accounting services. Other selling, general and administrative expenses include marketing expenses related to the commercial launch of Bylvay as well as corporate expenses.

Other Operating Expense (Income), Net

Other operating expense (income), net consists primarily of foreign currency exchange gains or losses associated with revaluation of intercompany loans.

Gain from sale of priority review voucher, net of transaction costs

Gain from sale of priority review voucher, net of transaction costs consists of cash proceeds recorded in connection with the sale of the rare pediatric disease priority review voucher (PRV) received from the FDA in connection with the approval of our product Bylvay.

Interest Expense, Net

Interest expense, net consists primarily of non-cash interest expense recorded in connection with the sale of future royalties, related to sales of elobixibat in Japan and Thailand in addition to both cash and non-cash interest expense associated with our note payable. In addition, interest expense, net includes interest income associated with our interest-bearing cash and cash equivalents.

87

Table of Contents

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates and assumptions on historical experience and on various assumptions that we believe are reasonable under the circumstances, and we evaluate them on an ongoing basis. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenues and expenses that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates and judgments. In addition, our reported financial condition and results of operations could vary if new accounting standards are enacted that are applicable to our business.

Our significant accounting policies are described in Note 1 to our audited consolidated financial statements for the year ended December 31, 2021 in this Annual Report on Form 10-K. Due to the commercialization of Bylvay, we implemented accounting policies related to product revenue recognition and inventory. We believe that our accounting policies relating to revenue recognition, inventory, research and development expenses, and accounting for the liability related to sale of future royalties are the most critical to understanding and evaluating our reported financial results. We have identified these policies as critical because they are important to the presentation of our financial condition and results of operations and require us to make judgments and estimates on matters that are inherently uncertain and may change in future periods. For more information regarding these policies, you should refer to Note 1 of our audited consolidated financial statements included in this Annual Report on Form 10-K.

Revenue Recognition

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services in accordance with ASC 606 Revenue from Contracts with Customers. To determine revenue recognition for contracts with its customers, the Company performs the following five step assessment: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines which goods and services are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Product Revenue, Net

The Company recognizes revenue on sales of Bylvay when a customer obtains control of the product, which occurs at a point in time and upon delivery. The Company sells Bylvay to a limited number of specialty pharmacies and a specialty distributor which dispense the product directly to patients. The specialty pharmacies and specialty distributor are referred to as the Company’s customers. The Company also sells Bylvay to its customers in the European Union, which includes a limited number of pharmacies.

The Company provides the right of return to its customers for unopened product for a limited time before and after its expiration date. We currently estimate product returns using available industry data as well as the Company’s visibility into the inventory remaining in the distribution channel.

The Company has written contracts with each of its customers that have a single performance obligation to deliver products upon receipt of a customer order and these obligations are satisfied when delivery occurs and the customer receives Bylvay. The Company evaluates creditworthiness of each of its customers to determine whether collection is

88

Table of Contents

reasonably assured. The wholesale acquisition cost that the Company charges its customers for Bylvay is adjusted to arrive at our estimated net product revenues by deducting components of variable consideration which include (i) estimated government rebates and discounts related to Medicaid and other government programs, (ii) estimated costs of incentives offered to certain indirect customers including patients, (iii) trade allowances, such as invoice discounts for prompt payment and customer fees, and (iv) allowance for sales returns.

Summarized information about changes in the aggregate customer discount accrual related to product sales, excluding co-pay which holds a prepaid balance as detailed in the Other Incentives section below, is as follows (in thousands):

Contractual

Government

Adjustments and

Rebates and

    

Returns

   

Chargebacks

    

Total

Balance at December 31, 2020

$

$

$

Current provisions relating to sales in the current year

929

714

1,643

Payments/returns relating to sales in the current year

(507)

(507)

Balance at December 31, 2021

$

422

$

714

$

1,136

Rebates and Discounts

The Company contracts with the Centers for Medicare & Medicaid Services and other government agencies in the U.S. to make Bylvay available to eligible patients. As a result, the Company estimates any rebates and discounts, including chargebacks related to 340b, and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. The Company’s estimates of rebates and discounts are based on the government mandated discounts, which are statutorily-defined and applicable to these government funded programs and assumptions developed using historical experience with actual payments and redemptions.

The Company contracts with national authorities in Europe to make Bylvay available to eligible patients. In jurisdictions in which final pricing is subject to ongoing negotiations with the government, the Company estimates the rebate expected to be due and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. The Company’s estimates of such liabilities are based on current invoice pricing and total prior units sold and assumptions developed using benchmarks of Bylvay pricing approved in other relevant European jurisdictions.

Other Incentives

Other incentives that the Company offers to indirect customers include co-pay assistance cards provided by the Company for patients who reside in states that permit co-pay assistance programs. The Company’s co-pay assistance program is intended to reduce each participating patient’s portion of the financial responsibility for Bylvay’s purchase price to a specified dollar amount. The Company estimates the amount of co-pay assistance provided to eligible patients based on the terms of the program when product is dispensed by the specialty pharmacies to the patients. These estimates are based on redemption information provided by third-party claims processing organizations.

Trade Allowances

The Company provides invoice discounts on Bylvay sales to its customers for prompt payment and records these discounts as a reduction to gross product revenues. These discounts are based on contractual terms. The Company also pays fees to its distributors for their services as well as data that they provide to the Company. Prompt payment allowances are recorded in accounts receivable, net on the consolidated balance sheets. The other customer fees are recorded as other current liabilities on the consolidated balance sheets.

89

Table of Contents

Trade Receivables, net

Accounts receivable, net related to product sales are recorded in accounts receivable, net on the consolidated balance sheets. An allowance for doubtful accounts is determined based on the Company’s assessment of the credit worthiness and financial condition of its customers, aging of receivables, as well as the general economic environment. Any allowance would reduce the net receivables to the amount that is expected to be collected. Payment terms for U.S. customers are typically 31 - 36 days from receipt of invoice and for European customers are typically 45 days from receipt of invoice.

Contract Revenue and Milestone Payments

At the inception of each arrangement that includes development milestone payments or upfront payment, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price, which includes any upfront payments, using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Once the estimated transaction price is established, the associated consideration is allocated to the performance obligations that have been identified in the respective agreement. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

Royalties

For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

In 2012, the Company entered into a license agreement (the Agreement) with EA Pharma Co., Ltd. (EA Pharma, formerly Ajinomoto Pharmaceuticals Co., Ltd.) to develop a select product candidate (elobixibat) for registration and subsequent commercialization in select markets. In conjunction with the Agreement, the Company granted EA Pharma an exclusive license to its intellectual property for development and commercialization activities in the designated field and territories. The Company has completed all of its performance obligations under the Agreement.

As of December 31, 2021, the Company is eligible to receive an additional regulatory-based milestone payment under the Agreement of $4.9 million if a specified regulatory event is achieved for elobixibat. The cash payments and any other payments for milestones and royalties from EA Pharma are non-refundable, non-creditable and not subject to set-off.

The Agreement will continue until the last royalty period for any product in the territory, which is defined as the period when there are no remaining patent rights or regulatory exclusivity in place for any products subject to royalties. EA Pharma may terminate the Agreement upon 180 days’ prior written notice to the Company. Either party may terminate the Agreement for the other party’s uncured material breach or insolvency and in certain other circumstances agreed to by the parties.

Cost of Product Revenue

Cost of product revenue consists of manufacturing and quality headcount costs for sales of Bylvay. Based on our policy to expense costs associated with the manufacture of our products prior to regulatory approval on July 20, 2021,

90

Table of Contents

certain of the Bylvay costs during year ended December 31, 2021 were expensed prior to July 20, 2021 and, therefore, are not included in costs of sales during the current period. These costs expensed prior to regulatory approval were determined to be immaterial after estimating the cost of sales, with or without such costs, compared to the net sales of Bylvay as a whole. Manufacturing costs, which totaled approximately $1.6 million, were not capitalized, and instead were expensed as research and development expenses from 2020 to July 2021.

Inventory

We value inventory at cost or, if lower, net realizable value, using the first-in, first-out method. We monitor standard costs on a quarterly basis and update them annually and as necessary to reflect changes in raw material costs and labor and overhead rates. During all periods presented in the accompanying consolidated financial statements, there have been no material adjustments related to a revised estimate of inventory valuations. A change in the estimated timing or amount of demand for our products could result in additional provisions for excess inventory quantities on hand.

Research and Development Expenses

Research and development expenses consist primarily of personnel costs (including salaries, benefits and stock-based compensation) for employees in research and development functions, costs associated with nonclinical and clinical development services, including clinical trials and related manufacturing costs, third-party contract research organizations, or CROs, and related services and other outside costs, including fees for third-party professional services such as consultants. Our nonclinical studies and clinical studies are performed by CROs. We expect to continue to focus our research and development efforts on nonclinical studies and clinical trials of our product candidates. As a result, we expect our research and development expenses to continue to increase for the foreseeable future.

Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs such as fees paid to CROs and others in connection with our nonclinical and clinical development activities and related manufacturing. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.

Successful development of our current and potential future product candidates is highly uncertain. Completion dates and costs for our programs can vary significantly by product candidate and are difficult to predict. As a result, we cannot estimate with any degree of certainty the costs we will incur in connection with development of any of our product candidates. We anticipate we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the results of ongoing and future clinical trials, our ability to enter into licensing, collaboration and similar arrangements with respect to current or potential future product candidates, the success of research and development programs and our assessments of commercial potential.

Monetization of Future Royalties

In December 2017, we entered into a royalty interest acquisition agreement (RIAA) with HealthCare Royalty Partners III, L.P. (HCR) pursuant to which we sold to HCR the right to receive all royalties from sales in Japan and sales milestones achieved from any covered territory potentially payable to us under the Agreement, up to a specified maximum “cap” amount of $78.8 million, based on the funds we received from HCR. In January 2018, we received $44.5 million from HCR, net of certain transaction expenses, under the RIAA. On June 8, 2020, the parties entered into an amendment to the RIAA pursuant to which HCR agreed to pay us an additional $14.8 million, net of certain transactions expenses, in exchange for the elimination of the (i) $78.8 million cap amount on HCR’s rights to receive royalties on sales in Japan and sales milestones for elobixibat in certain other territories that may become payable by EA Pharma and (ii) the $15.0 million payable to us if a specified sales milestone is achieved for elobixibat in Japan. We are obligated to make royalty interest payments to HCR under the RIAA only to the extent we receive future Japanese royalties, sales milestones or other specified payments from EA Pharma. Although we sold our rights to receive royalties from the sales of elobixibat in Japan, as a result of our ongoing involvement in the cash flows related to these royalties,

91

Table of Contents

we will continue to account for these royalties as revenue. Upon receipt of the payments from HCR we recorded net cash totaling $59.3 million as a liability related to sale of future royalties (royalty obligation). The royalty obligation will be amortized using the effective interest rate method.

We record estimated royalties due for the current period in accrued other expenses until the payment is received from EA Pharma at which time we then remit payment to HCR. In order to determine the accretion of the royalty obligation, we are required to estimate the total amount of future royalty payments to be received and submitted to HCR. The sum of these amounts less the $59.3 million proceeds we received will be recorded as interest expense over the life of the royalty obligation. At December 31, 2021, our estimate of total interest expense resulted in an annual effective interest rate of approximately 18.1%.

We periodically assess the estimated royalty payments to HCR and to the extent such payments are greater or less than our initial estimates or the timing of such payments is materially different than our original estimates, we will prospectively adjust the accretion of interest on the royalty obligation. There are a number of factors that could materially affect the amount and the timing of royalty payments, most of which are not within our control. Such factors include, but are not limited to, the rate of elobixibat prescriptions, the number of doses administered, the introduction of competing products, manufacturing or other delays, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to HCR are in U.S. dollars while sales of elobixibat are in Japanese yen, and sales never achieving forecasted numbers, which would result in reduced royalty payments and reduced non-cash interest expense over the life of the royalty obligation. To the extent future royalties result in an amount less than the liability, we are not obligated to fund any such shortfall.

Results of Operations

Years Ended December 31, 2021 and December 31, 2020

Result of Operations

Year Ended December 31, 

Change

2021

    

2020

    

$

(in thousands)

Revenue

Product revenue, net

$

6,993

$

$

6,993

Royalty revenue

18,586

8,308

10,278

License revenue

15,000

15,000

Total revenue

40,579

8,308

32,271

Cost of product revenue

1,356

1,356

Gross profit

39,223

8,308

30,915

Operating expenses

Research and development

82,522

76,777

5,745

Selling, general and administrative

69,569

42,448

27,121

Other operating expense (income), net

10,617

(14,646)

25,263

Total operating expenses

162,708

104,579

58,129

Operating loss

(123,485)

(96,271)

(27,214)

Other income (loss)

Gain from sale of priority review voucher, net of transaction costs

103,387

103,387

Interest expense, net

(13,932)

(11,362)

(2,570)

Net loss

$

(34,030)

$

(107,633)

$

73,603

92

Table of Contents

Revenue

Year Ended December 31,

Change

    

2021

    

2020

    

$

(in thousands)

Product revenue, net

$

6,993

$

$

6,993

Royalty revenue

18,586

8,308

10,278

License revenue

15,000

15,000

Total revenue

$

40,579

$

8,308

$

32,271

Product revenue, net was $7.0 million for the year ended December 31, 2021 due to Bylvay patient sales and initial inventory stocking at specialty pharmacies. Product revenue was $5.3 million in the United States and $1.7 million in international markets. There was no product revenue for the year ended December 31, 2020.

Royalty revenue was $18.6 million for the year ended December 31, 2021, compared with revenue of $8.3 million for the year ended December 31, 2020, an increase of $10.3 million. The increase relates to higher estimated royalty revenue and an achievement of a milestone in an amount of $8.6 million to be received from EA Pharma for elobixibat for the treatment of chronic constipation.

License revenue was $15.0 million for the year ended December 31, 2021 due to cash received related to the upfront fee from the Exclusive Licensing Agreement with Jadeite Medicines for Bylvay in Japan. There was no license revenue for the year ended December 31, 2020.

Year Ended December 31, 

Change

    

2021

    

2020

    

$

(in thousands)

Cost of product revenue

$

1,356

$

$

1,356

Cost of product revenue was $1.4 million for the year ended December 31, 2021. Following Bylvay approval certain manufacturing and quality headcount costs are now included in cost of product revenue. There were no material costs, as materials related to current product sold were expensed prior to approval. Bylvay was approved during 2021, so there was no cost of product revenue for the year ended December 31, 2020.

Research and development expenses

December 31, 

Change

    

2021

    

2020

    

$

In thousands

Research and development expenses

$

82,522

$

76,777

$

5,745

Research and development expenses were $82.5 million for the year ended December 31, 2021 compared with $76.8 million for the year ended December 31, 2020, an increase of $5.7 million. The increase in research and development expenses for the 2021 period were principally due to clinical programs and personnel expenses, including stock-based compensation as we continue to increase our headcount and program activities. The increase in program activities related to the ongoing phase 3 clinical trials for Bylvay in biliary atresia and Alagille Syndrome, including an extension study, as well as the Phase 1 study for A3907, and were partially offset by a decrease in Bylvay PFIC expenses related to the completion of the PEDFIC 1 study, elobixibat expenses due to the completion of the elobixibat Phase 2 trial in NASH, and preclinical programs expenses.

93

Table of Contents

The following table summarizes our principal product development programs and the out-of-pocket third-party expenses incurred with respect to each clinical-stage product candidate and our preclinical programs for the years ended December 31, 2021 and 2020.

December 31, 

Change

    

2021

    

2020

    

$

(in thousands)

Direct third-party project costs:

Bylvay - PFIC

$

22,809

$

33,276

$

(10,467)

Bylvay - biliary atresia and ALGS

21,025

9,523

11,502

Elobixibat

 

 

2,926

 

(2,926)

A3907

7,217

93

7,124

Preclinical

 

4,142

 

5,335

 

(1,193)

Total

$

55,193

$

51,153

$

4,040

Other project costs(1):

Personnel costs

$

25,955

$

22,933

$

3,022

Other costs(2)

 

1,374

 

2,691

 

(1,317)

Total

$

27,329

$

25,624

$

1,705

Total research and development costs

$

82,522

$

76,777

$

5,745

(1)Other project costs are leveraged across multiple programs.
(2)Other costs include facility, supply, consultant and overhead costs that support multiple programs.

Selling, general and administrative expenses

Year Ended

 

December 31, 

Change

    

2021

    

2020

    

$

(in thousands)

Selling, general and administrative

$

69,569

$

42,448

$

27,121

Selling, general and administrative expenses were $69.6 million for the year ended December 31, 2021 compared with $42.4 million for the year ended December 31, 2020, an increase of $27.1 million. The increase is attributable to personnel and related expenses as we continue to increase our headcount from 34 employees at December 31, 2020 to 65 employees at December 31, 2021, and commercialization activities related to Bylvay including our sales force and support for global expansion efforts.

Other operating expense (income), net

December 31, 

Change

2021

    

2020

    

$

    

In thousands

Other operating expense (income), net

$

10,617

$

(14,646)

$

25,263

Other operating expense (income), net totaled $10.6 million of expense for the year ended December 31, 2021 compared with $14.6 million of income for the year ended December 31, 2020, a difference of $25.3 million. The difference primarily relates to changes in foreign currency exchange rates in the two periods.

94

Table of Contents

Gain from sale of priority review voucher, net of transaction costs

Year Ended December 31, 

Change

    

2021

    

2020

    

$

(in thousands)

Gain from sale of priority review voucher, net of transaction costs

$

103,387

$

$

103,387

Gain from sale of priority review voucher, net of transaction costs totaled $103.4 million for the year ended December 31, 2021. There was no gain from the sale of priority review voucher, net for the year ended December 31, 2020.

Interest expense, net

December 31, 

Change

    

2021

    

2020

    

$

In thousands

Interest expense, net

$

(13,932)

$

(11,362)

$

(2,570)

Interest expense, net totaled $13.9 million of expense for the year ended December 31, 2021 compared with $11.4 million for the year ended December 31, 2020, a difference of $2.6 million. The difference was principally attributable to higher non-cash interest expense recorded in connection with the sale of future royalties related to sales of elobixibat in Japan, in addition to interest expense associated with our note payable.

Liquidity and Capital Resources

Sources of Liquidity

We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we commercialize Bylvay and continue the development of and seek regulatory approvals for Bylvay in other indications and for our other product candidates. We are subject to all of the risks applicable to the development of new pharmaceutical products and may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. We expect that we will need substantial additional funding to complete development of and potentially commercialize our other product candidates.

Our operations have historically been financed primarily through issuances of equity or convertible debt, upfront fees paid upon entering into license agreements, payments received upon the achievement of specified milestone events under license agreements, grants and venture debt borrowings and the HCR royalty monetization transactions. Our primary uses of capital are, and we expect will continue to be, personnel-related costs, third party expenses associated with our research and development programs, including the conduct of clinical trials, and manufacturing-related costs for our other product candidates as well as commercialization and pre-commercialization efforts.

As of December 31, 2021, our cash and cash equivalents were approximately $248.1 million.

During the first quarter of 2018, following the Japanese MHLW’s approval of elobixibat for the treatment of chronic constipation in January 2018, we received a $44.5 million payment, net of certain transaction expenses, from HCR under our RIAA. Additionally, this approval triggered a milestone payment to us from EA Pharma of $11.2 million. In June 2020, we entered into an amendment to the RIAA with HCR pursuant to which HCR agreed to pay us an additional $14.8 million, net of certain transaction expenses in exchange for the elimination of the (i) $78.8 million cap amount on HCR’s rights to receive royalties on sales in Japan and sales milestones for elobixibat in certain other territories that may become payable by EA Pharma and (ii) $15.0 million payable to us if a specified sales milestone is achieved for elobixibat in Japan. As of December 31, 2021, we have received approximately $59.3 million in upfront and milestone payments from EA Pharma under a license agreement for the development and commercialization of elobixibat in specified countries in Asia. We are eligible to receive additional amounts of up to $4.9 million under the amended agreement, if a specified regulatory event is achieved for elobixibat. To the extent we receive future Japanese royalties,

95

Table of Contents

sales milestones or other specified payments from EA Pharma, we are obligated to pay those amounts as royalty interest payments to HCR under the RIAA.

In February 2020, we completed an underwritten public offering of 2,190,750 shares of our common stock under our universal shelf registration statement for net proceeds of approximately $43.0 million.

On May 7, 2020, we filed a new universal shelf registration statement on Form S-3, or the 2020 Form S-3, with the SEC, which was declared effective on May 18, 2020, pursuant to which we registered for sale up to $200.0 million of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine. On May 7, 2020, we also entered into a sales agreement with Cowen and Company, LLC, or Cowen, with respect to an at-the-market offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million. This agreement terminated on September 9, 2020.

On September 14, 2020, we completed an underwritten public offering of 4,000,000 shares of our common stock under this registration statement. We received net proceeds from this offering of approximately $150.4 million, after deducting underwriting discounts and commissions, but before deducting offering expenses. As of December 31, 2021, $40.0 million of securities remain available for issuance under the 2020 Form S-3.

On June 8, 2020, we entered into a Loan and Security Agreement with several banks and other financial institutions or entities from time to time parties to the Loan and Security Agreement, as lenders, or collectively referred to as the Lender, and Hercules Capital, Inc., in its capacity as administrative agent and collateral agent for itself and Lender (in such capacity, the Agent or Hercules). The Loan and Security Agreement provides for term loans in an aggregate principal amount of up to $80.0 million to be delivered in multiple tranches, (the Term Loans). The tranches consist of (i) a term loan advance to us in an aggregate principal amount of up to $15.0 million, of which (A) we agreed to borrow an aggregate principal amount of $10.0 million on the date on which all conditions to the funding of the Term Loans by the Lender were met (the Closing Date), but we did not request that the Lender make an additional term loan advance to us in an aggregate principal amount of $5.0 million prior to December 15, 2020 as permitted under the agreement, (ii) subject to the achievement of certain initial performance milestones, or Performance Milestone I, we have the right to request that the Lender make additional term loan advances to us in an aggregate principal amount of up to $20.0 million from January 1, 2021 through December 15, 2021 in minimum increments of $10.0 million, and (iii) subject to the Lender’s investment committee’s sole discretion, we have the right to request that the Lender make additional term loan advances to us in an aggregate principal amount of up to $45.0 million through March 31, 2022 in minimum increments of $5.0 million. As of December 31, 2021, we borrowed an aggregate principal amount of $10.0 million and an aggregate principal amount of up to $45.0 million remains available for future borrowing through March 31, 2022 subject to approval of the Lender.

Under the Loan and Security Agreement, we also agreed to issue to Hercules warrants to purchase a number of shares of our common stock equal to 1% of the aggregate amount of the Term Loans that are funded, as such amounts are funded. On the Closing Date, we issued a warrant for 5,311 shares of our common stock. The warrants will be exercisable for a period of seven years from the date of the issuance of each warrant at a per-share exercise price equal to $18.83, subject to certain adjustments as specified in the warrants. The shares of common stock underlying the warrants were subsequently registered on Form S-3 with the SEC, which was declared effective on August 18, 2020.

On February 25, 2021, we filed an automatic shelf registration statement on Form S-3 with the SEC, which became effective upon filing, pursuant to which we registered for sale an unlimited amount of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, so long as we continue to satisfy the requirements of a “well-known seasoned issuer” under SEC rules, which we refer to as the 2021 Form S-3. Because we are no longer a well-known seasoned issuer, the 2021 Form S-3 will no longer be available for us to offer and sell securities pursuant to the 2021 Form S-3 following the filing of this Annual Report on Form 10-K. On February 25, 2021, we also entered into a new sales agreement with Cowen, which we refer to as the 2021 Sales Agreement, with respect to an at-the-market offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock

96

Table of Contents

having an aggregate offering price of up to $100.0 million. Subsequently in July 2021, we sold 7,508 shares of our common stock for net proceeds of approximately $0.2 million pursuant to the 2021 Sales Agreement. Since the 2021 Form S-3 is no longer available, unless and until we register the offer and sale of securities pursuant to the 2021 Sales Agreement in the future, we will not be able to make any further sales of securities under the 2021 Sales Agreement.

On August 31, 2021, we entered into a definitive agreement to sell the rare pediatric disease priority review voucher (“PRV”) that we received from the FDA in connection with the approval of the Company’s product Bylvay, for cash proceeds of $105.0 million. On September 28, 2021, we completed our sale of the PRV and received net proceeds of $103.4 million, after deducting commission costs, which was recorded as a gain from sale of priority review voucher, net of transaction costs.

Cash Flows

Years ended December 31, 2021 and December 31, 2020

December 31, 

    

2021

    

2020

(in thousands)

Net cash (used in) provided by:

 

  

 

  

Operating activities

$

(107,559)

 

$

(101,029)

Investing activities

 

102,922

 

(78)

Financing activities

 

2,759

 

220,276

Total

$

(1,878)

 

$

119,169

Effect of exchange rate changes on cash and cash equivalents

 

(1,287)

 

260

Net (decrease) increase in cash and cash equivalents

$

(3,165)

$

119,429

97

Table of Contents

Operating activities

Cash used in operating activities of $107.6 million for the year ended December 31, 2021 was primarily a result of our $34.0 million net loss from operations and a net decrease in assets and liabilities of $9.7 million. The net decrease in operating assets and liabilities for the year ended December 31, 2021 was primarily driven by decreases in other current and long-term liabilities and prepaid expenses and other current assets, offset by increases in accrued expenses, accounts receivables, net, accounts payable, inventory and other assets. This decrease was offset by non cash items, including $15.9 million of stock-based compensation expense, $12.5 million of accretion of liability related to sale of future royalties and $10.4 million of foreign currency adjustments. Cash used in operating activities of $101.0 million for the year ended December 31, 2020 was primarily a result of our $107.6 million net loss from operations and a net decrease in assets and liabilities of $4.7 million. The net decrease in operating assets and liabilities for the year ended December 31, 2020 was primarily driven by decreases in prepaid expenses and other current assets, decreases in accrued expenses, as well as decreases in other current and long-term liabilities. This decrease was offset by non-cash items, including $14.6 million of stock-based compensation expense, $14.6 million of foreign currency adjustments, and $10.8 million of accretion of liability related to sale of future royalties. 

Investing activities

Cash provided by investing activities of $102.9 million for the year ended December 31, 2021 was primarily related to net proceeds from the sale of the PRV offset by purchases of property and equipment. Cash used in investing activities of $0.1 million for the year ended December 31, 2020 was primarily related to the purchase of property and equipment.

Financing activities

Cash provided by financing activities of $2.8 million for the year ended December 31, 2021 was primarily related to proceeds from exercise of options. Cash provided by financing activities of $220.3 million for the year ended December 31, 2020 was primarily related to proceeds from the issuance of common stock, net of issuance costs of $193.3 million, proceeds from the HCR royalty agreement of $14.8 million, proceeds from the issuance of debt, net of issuance costs of $9.5 million, and proceeds from exercise of options of $2.8 million.

Funding Requirements

Cash used to fund operating expenses is affected by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. During the third quarter of 2021 an additional $103.4 million of net proceeds were received after deducting fees from the recently completed sale of the PRV. An additional $15 million cash upfront fee from the recently announced Japan licensing agreement was received in the fourth quarter of 2021. As a result, cash and cash equivalents are anticipated to be sufficient to fully fund the launches of Bylvay and the next stages of the early asset portfolio. The Company believes that its cash of $248.1 million at December 31, 2021 together with its current Bylvay revenue and operating expense projections will be sufficient to fund its current operating plan into 2024.

Our future funding requirements will depend on many factors, including the following:

future revenue from commercial sales of Bylvay for patients with PFIC;
the costs, design, duration and any potential delays of the pivotal clinical trial of Bylvay in biliary atresia and the pivotal clinical trial of Bylvay in ALGS;
the scope, number, progress, initiation, duration, cost, results and timing of clinical trials and nonclinical studies of our current or future product candidates;

98

Table of Contents

whether and to what extent milestone events are achieved under our license agreement with EA Pharma or any potential future licensee or collaborator;
the outcomes and timing of regulatory reviews, approvals or other actions;
our ability to obtain marketing approval for our product candidates;
our ability to establish and maintain additional licensing, collaboration or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;
the success of any other business, product or technology that we acquire or in which we invest;
our ability to maintain, expand and defend the scope of our intellectual property portfolio;
our ability to manufacture any approved products on commercially reasonable terms;
our ability to build and maintain a sales and marketing organization or suitable third-party alternatives for any approved product;
the number and characteristics of product candidates and programs that we pursue;
the current and potential impacts of the COVID-19 pandemic on our business;
the costs of acquiring, licensing or investing in businesses, product candidates and technologies;
our need and ability to hire additional management and scientific and medical personnel;
the costs to operate as a public company in the United States, including the need to implement and maintain financial and reporting systems and other internal systems and infrastructure for our business;
market acceptance of our product candidates, to the extent any are approved for commercial sale; and
the effect of competing technological and market developments.

We cannot be certain that we will be able to successfully commercialize Bylvay or that we will be able to establish and maintain distribution arrangements. Our failure or the failure of our distributors to successfully commercialize Bylvay could have a material adverse effect on our financial position or results of operations. In addition, we cannot be certain that we will be able to successfully complete our pre-commercialization activities or research and development programs or establish licensing, collaboration or similar arrangements for our product candidates. Our failure or the failure of any current or potential future licensee to complete research and development programs for our product candidates could have a material adverse effect on our financial position or results of operations.

We expect to continue to incur losses. Our ability to achieve and maintain profitability is dependent upon the successful development, regulatory approval and commercialization of our products and product candidates and achieving a level of revenues adequate to support our cost structure. We may never achieve profitability.

If the conditions for raising capital are favorable, we may seek to finance future cash needs through public or private equity or debt offerings or other financings. Additionally, if we need to raise additional capital to fund our operations, complete clinical trials, or potentially commercialize our product candidates, we may likewise seek to finance future cash needs through public or private equity or debt offerings or other financings. The necessary funding may not be available to us on acceptable terms or at all.

99

Table of Contents

We have an effective universal shelf registration statement on Form S-3 with the SEC, pursuant to which we registered for sale up to $200.0 million of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine. As of December 31, 2021, $40.0 million of securities remain available for issuance under the shelf registration statement, which we refer to as the 2020 Form S-3. On February 25, 2021, we filed an automatic shelf registration statement on Form S-3 with the SEC, pursuant to which we registered for sale an unlimited amount of any combination of our common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that we may determine, so long as we continue to satisfy the requirements of a “well-known seasoned issuer” under SEC rules, which we refer to as the 2021 Form S-3, including up to $100.0 million of our common stock pursuant to the sales agreement with respect to an at-the-market offering program. As of December 31, 2021, there remained $99.7 million of our common stock available for sale pursuant to the sales agreement. Because we are no longer a well-known seasoned issuer, the 2021 Form S-3 will no longer be available for us to offer and sell securities pursuant to the 2021 Form S-3 following the filing of this Annual Report on Form 10-K.

The sale of additional equity or convertible debt securities may result in significant dilution to our stockholders, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. The incurrence of additional debt financing would result in debt service obligations and the instruments governing such debt may provide for operating and financing covenants that would restrict our operations. We may also seek to finance future cash needs through potential future licensing, collaboration or similar arrangements. These arrangements may not be available on acceptable terms or at all, and we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate our development programs or obtain funds through third-party arrangements that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently.

Contractual Obligations

Our contractual obligations as of December 31, 2021 consisted primarily of obligations under the operating leases, note payable with Hercules and contractual obligations with CROs. The following table summarizes our material contractual obligations as of December 31, 2021 and the effect such obligations are expected to have on our liquidity and cash flows in future years:

Payments Due by Period

More than

    

Total

   

Less than 1 year

1-3 Years

3-5 Years

5 years

Contractual obligations:

in thousands

Operating leases (1)

$

16,677

$

1,772

$

4,887

$

4,907

5,111

Note payable (2)

10,695

10,695

Contractual obligations with CROs (3)

11,772

11,772

Total

$

39,144

$

13,544

$

15,582

$

4,907

$

5,111

(1)For a description of our operating leases, see “Note 5 Commitments and Contingencies” to our consolidated financial statements included in this Annual Report on Form 10-K.
(2)Represents the note payable with Hercules (including interest at an annual rate equal to Greater of 9.15% and 9.15% plus the prime rate of interest minus 3.25%.). For a description of the note payable with Hercules, see “Note 7 Note Payable” to our consolidated financial statements included in this Annual Report on Form 10-K.
(3)For a description of our contractual obligations with CROs, see “Note 5 Commitments and Contingencies” to our consolidated financial statements included in this Annual Report on Form 10-K.

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

100

Table of Contents

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ALBIREO PHARMA, INC.

Index to Consolidated Financial Statements and Financial Statement Schedules

    

Number

Report of Independent Registered Public Accounting Firm PCAOB ID 42

F-1

Consolidated Balance Sheets as of December 31, 2021 and 2020

F-3

Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020

F-4

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2021 and 2020

F-5

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021 and 2020

F-6

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020

F-7

Notes to Consolidated Financial Statements

F-8

101

Table of Contents

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

Item 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of December 31, 2021 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Such disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosures.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets of the Company that could have a material effect on the financial statements.

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

Under the supervision, and with the participation, of our management, including the CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management, including our CEO and CFO, has concluded that our internal control over financial reporting was effective as of December 31, 2021.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the fourth quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than the implementation of controls designed to address risks related to product revenue recognition and inventory.

102

Table of Contents

We are engaged in the process of design and implementation of internal control over financial reporting in a manner commensurate with the scale of our commercial operations, including the review of inventory held by third party providers.

Item 9B.

OTHER INFORMATION

Not applicable.

Item 9C.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

PART III

Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Management and Corporate Governance” and “Corporate Code of Conduct and Ethics” in our proxy statement for the 2022 annual meeting of stockholders.

Item 11.

EXECUTIVE COMPENSATION

The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Executive Officer and Director Compensation” in our proxy statement for the 2022 annual meeting of stockholders.

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our proxy statement for the 2022 annual meeting of stockholders.

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Certain Relationships and Related Person Transactions” and “Management and Corporate Governance” in our proxy statement for the 2022 annual meeting of stockholders.

Item 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Ratification of Appointment of Independent Registered Public Accounting Firm” in our proxy statement for the 2022 annual meeting of stockholders.

103

Table of Contents

PART IV

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Item 15(a)                      The following documents are filed as part of this Annual Report on Form 10-K:

Item 15(a)(1) and (2)    See “Index to Consolidated Financial Statements and Financial Statement Schedules” at Item 8 to this Annual Report on Form 10-K. Other financial statement schedules have not been included because they are not applicable or the information is included in the financial statements or notes thereto.

Item 15(a)(3)                 Exhibits

The following is a list of exhibits filed as part of this Annual Report on Form 10-K.

Exhibit
Number

   

Exhibit Description

   

Filed
Herewith

   

Incorporated by
Reference herein from
Form or Schedule

   

Filing Date

   

SEC File/
Reg.
Number

2.1

Amended and Restated Share Exchange Agreement, dated as of July 13, 2016, by and among the Registrant (formerly Biodel Inc.), Albireo Limited and the Sellers listed on Schedule I thereto.

8-K

(Exhibit 2.1)

7/13/2016

001-33451

3.1

Restated Certificate of Incorporation, as amended, of the Registrant.

X

3.2

Amended and Restated Bylaws of the Registrant.

S-8

(Exhibit 4.2)

7/6/2007

333-144407

4.1

Form of common stock certificate.

10-K

(Exhibit 4.1)

12/22/2016

001-33451

4.2

Description of the Registrant’s Securities.

X

4.3

Form of Warrant issued by the Registrant to Hercules Capital, Inc.

8-K

(Exhibit 10.2)

6/9/2020

001-33451

10.1*

Amended and Restated Employment Agreement, dated as of March 6, 2019, by and between the Registrant and Ronald H.W. Cooper.

10-K

(Exhibit 10.1)

3/6/2019

001-33451

10.2*

Employment Agreement, dated as of October 4, 2018, by and between the Registrant and Simon N. R. Harford.

10-Q

(Exhibit 10.3)

11/8/2018

001-33451

104

Table of Contents

Exhibit
Number

   

Exhibit Description

   

Filed
Herewith

   

Incorporated by
Reference herein from
Form or Schedule

   

Filing Date

   

SEC File/
Reg.
Number

10.3*

Amended and Restated Employment Agreement, dated as of March 6, 2019, by and between Albireo AB and Jan P. Mattsson, Ph.D.

10-K

(Exhibit 10.3)

3/6/2019

001-33451

10.4*

Amended and Restated Employment Agreement, dated as of March 6, 2019, by and between the Registrant and Martha J. Carter.

10-K

(Exhibit 10.4)

3/6/2019

001-33451

10.5*

Amended and Restated Employment Agreement, dated as of March 6, 2019, by and between the Registrant and Patrick Horn.

10-K

(Exhibit 10.5)

3/6/2019

001-33451

10.6*

Amended and Restated Employment Agreement, dated as of March 6, 2019, by and between the Registrant and Jason G. Duncan.

10-K

(Exhibit 10.6)

3/6/2019

001-33451

10.7*

Employment Agreement, dated as of March 25, 2019, by and between the Registrant and Pamela Stephenson.

10-Q

(Exhibit 10.1)

5/9/2019

001-33451

10.8*

Employment Agreement, dated as of October 31, 2019, by and between the Registrant and Michelle Graham.

10-Q

(Exhibit 10.1)

11/6/2019

001-33451

10.9*

Albireo Pharma, Inc. Incentive Compensation Recoupment Policy.

10-Q

(Exhibit 10.2)

11/4/2021

001-33451

10.10*

Albireo Pharma, Inc. 2018 Equity Incentive Plan, as amended.

8-K

(Exhibit 10.1)

6/21/2021

001-33451

10.11*

Form of Stock Option Agreement under the Albireo Pharma, Inc. 2018 Equity Incentive Plan.

10-Q

(Exhibit 10.2)

8/9/2018

001-33451

105

Table of Contents

Exhibit
Number

   

Exhibit Description

   

Filed
Herewith

   

Incorporated by
Reference herein from
Form or Schedule

   

Filing Date

   

SEC File/
Reg.
Number

10.12*

Form of Restricted Stock Unit Agreement under the Albireo Pharma, Inc. 2018 Equity Incentive Plan.

10-Q

(Exhibit 10.5)

8/9/2018

001-33451

10.13*

Albireo Pharma, Inc. 2018 Employee Stock Purchase Plan.

10-Q

(Exhibit 10.3)

8/9/2018

001-33451

10.14*

Inducement Stock Option Agreement, dated as of October 10, 2018, by and between the Registrant and Simon N.R. Harford.

10-Q

(Exhibit 10.5)

11/8/2018

001-33451

10.15*

Inducement Restricted Stock Unit Agreement, dated as of October 10, 2018, by and between the Registrant and Simon N.R. Harford.

10-Q

(Exhibit 10.6)

11/8/2018

001-33451

10.16*

Albireo Pharma, Inc. 2017 Inducement Equity Incentive Plan.

10-Q

(Exhibit 10.1)

11/14/2017

001-33451

10.17*

Form of Stock Option Agreement under the Albireo Pharma, Inc. 2017 Inducement Equity Incentive Plan.

10-K

(Exhibit 10.11)

3/27/18

001-33451

10.18*

Albireo Pharma, Inc. 2016 Equity Incentive Plan.

8-K

(Exhibit 10.9)

11/4/2016

001-33451

10.19*

Form of Stock Option Agreement under the Albireo Pharma, Inc. 2016 Equity Incentive Plan.

10-K

(Exhibit 10.13)

12/22/2016

001-33451

10.20*

Replacement Stock Options granted to Ronald H.W. Cooper in connection with the closing of the Biodel Transaction.

10-K

(Exhibit 10.14)

12/22/2016

001-33451

10.21*

2010 Stock Incentive Plan, as amended.

Schedule 14A

(Exhibit A)

1/26/2012

001-33451

10.22*

2010 Incentive Stock Option Agreement.

10-Q

(Exhibit 10.2)

5/7/2010

001-33451

106

Table of Contents

Exhibit
Number

   

Exhibit Description

   

Filed
Herewith

   

Incorporated by
Reference herein from
Form or Schedule

   

Filing Date

   

SEC File/
Reg.
Number

10.23*

2010 Non Statutory Stock Option Agreement.

10-Q

(Exhibit 10.3)

5/7/2010

001-33451

10.24*

2010 Restricted Stock Unit Agreement.

10-Q

(Exhibit 10.4)

5/7/2010

001-33451

10.25*

Amended and Restated 2004 Stock Incentive Plan.

S-1/A

(Exhibit 10.3)

3/27/2007

333-140504

10.26*

Form of Incentive Stock Option Agreement for 2004 Amended and Restated Stock Incentive Plan.

10-K

(Exhibit 10.19)

12/21/2007

001-33451

10.27*

2005 Non-Employee Directors’ Stock Option Plan.

S-1/A

(Exhibit 10.5)

3/27/2007

333-140504

10.28*

Form of Option Agreement for 2005 Non-Employee Directors’ Stock Option Plan.

10-K

(Exhibit 10.20)

12/21/2007

001-33451

10.29*

Form of Indemnification Agreement, by and between the Registrant and each of its directors and executive officers.

8-K

(Exhibit 10.8)

11/4/2016

001-33451

10.30*

Nonemployee Director Compensation Policy.

10-Q

(Exhibit 10.1)

5/6/2021

001-33451

10.31

Asset Purchase and License Agreement, dated as of September 2, 2016, by and among Unilife Corporation, Unilife Medical Solution, Inc. and Biodel Inc.

8-K

(Exhibit 10.1)

9/9/2016

001-33451

10.32.1**

License Agreement, dated as of April 2, 2012, by and between Elobix AB, as assignee of Albireo AB, and EA Pharma Co., Ltd. (formerly known as Ajinomoto Pharmaceuticals Co., Ltd.).

10-K

(Exhibit 10.28.1)

3/27/2017

001-33451

107

Table of Contents

Exhibit
Number

   

Exhibit Description

   

Filed
Herewith

   

Incorporated by
Reference herein from
Form or Schedule

   

Filing Date

   

SEC File/
Reg.
Number

10.32.2**

First Amendment to the License Agreement, dated as of January 30, 2015, by and between Elobix AB, as assignee of Albireo AB, and EA Pharma Co., Ltd. (formerly known as Ajinomoto Pharmaceuticals Co., Ltd.).

10-K

(Exhibit 10.28.2)

3/27/2017

001-33451

10.32.3**

Second Amendment to the License Agreement, dated as of April 6, 2016, by and between Elobix AB and EA Pharma Co., Ltd. (formerly known as Ajinomoto Pharmaceuticals Co., Ltd.).

10-K

(Exhibit 10.28.3)

3/27/2017

001-33451

10.32.4**

Third Amendment to the License Agreement, dated as of December 7, 2017, by and between Elobix AB and EA Pharma Co., Ltd. (formerly known as Ajinomoto Pharmaceuticals Co., Ltd.).

10-K

(Exhibit 10.27.4)

3/27/2018

001-33451

10.33.1**

Royalty Interest Acquisition Agreement, dated as of December 28, 2017, by and among Elobix AB, HealthCare Royalty Partners III, L.P. and, solely for the purposes specified therein, the Registrant.

10-K

(Exhibit 10.28)

3/27/2018

001-33451

10.33.2**

*

Amendment to Royalty Interest Acquisition Agreement, dated as of June 8, 2020, by and among Elobix AB, HealthCare Royalty Partners III, L.P. and, solely for the purposes specified therein, the Registrant.

8-K

(Exhibit 10.3)

6/9/2020

001-33451

10.34.1

Office Lease Agreement, dated as of February 7, 2017, by and between the Registrant and SHIGO 10 PO Owner LLC.

8-K

(Exhibit 10.1)

2/10/2017

001-33451

108

Table of Contents

Exhibit
Number

   

Exhibit Description

   

Filed
Herewith

   

Incorporated by
Reference herein from
Form or Schedule

   

Filing Date

   

SEC File/
Reg.
Number

10.34.2

Amendment No. 1 to Office Lease Agreement, dated as of March 28, 2019, by and between the Registrant and POSIG Investors, LLC.

8-K

(Exhibit 10.1)

4/3/2019

001-33451

10.34.3

Amendment No. 2 to Office Lease Agreement, dated as of May 4, 2020, by and between NS Boston III PO Owner LLC and the Registrant.

10-Q

(Exhibit 10.2)

5/7/2020

001-33451

10.34.4

Amendment No. 3 to Office Lease Agreement, dated as of June 30, 2021, by and between NS Boston III PO Owner LLC and the Registrant.

X

10.35***

Sublease Agreement, dated as of December 6, 2021, by and between the Registrant and Hi Marley, Inc.

X

10.36***

Sublease Agreement, dated as of December 7, 2021, by and between the Registrant Institute For Healthcare Improvement

X

10.37

Loan and Security Agreement, dated as of June 8, 2020, by and among the Registrant, Albireo AB, and Hercules Capital, Inc.

8-K

(Exhibit 10.1)

6/9/2020

001-33451

10.38*

Albireo Pharma, Inc. 2020 Inducement Equity Incentive Plan.

10-Q

(Exhibit 10.1)

11/5/2020

001-33451

10.39*

Form of Stock Option Agreement under the Albireo Pharma, Inc. 2020 Inducement Equity Incentive Plan.

10-Q

(Exhibit 10.2)

11/5/2020

001-33451

10.40*

Form of Restricted Stock Unit Agreement under the 2020 Inducement Equity Incentive Plan.

10-Q

(Exhibit 10.3)

11/5/2020

001-33451

109

Table of Contents

Exhibit
Number

   

Exhibit Description

   

Filed
Herewith

   

Incorporated by
Reference herein from
Form or Schedule

   

Filing Date

   

SEC File/
Reg.
Number

10.41

Sales Agreement, dated February 25, 2021, by and between Albireo Pharma, Inc. and Cowen and Company, LLC.

8-K

(Exhibit 10.1)

2/25/2021

001-33451

10.42+***

Asset Purchase Agreement, dated as of August 31, 2021, by and among the Registrant, Albireo AB and Ares Trading SA.

10-Q

(Exhibit 10.1)

11/4/2021

001-33451

14.1

Albireo Pharma, Inc. Corporate Code of Conduct and Ethics and Whistleblower Policy.

X

21.1

Subsidiaries.

X

23.1

Consent of Ernst & Young LLP.

X

31.1

Certification of the Chief Executive Officer.

X

31.2

Certification of the Chief Financial Officer.

X

32.1

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X

101

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

X

SCH XBRL Taxonomy Extension Schema Document.

X

CAL XBRL Taxonomy Extension Calculation Linkbase Document.

X

DEF XBRL Taxonomy Extension Definition.

X

LAB XBRL Taxonomy Extension Label Linkbase Document.

X

110

Table of Contents

Exhibit
Number

   

Exhibit Description

   

Filed
Herewith

   

Incorporated by
Reference herein from
Form or Schedule

   

Filing Date

   

SEC File/
Reg.
Number

PRE XBRL Taxonomy Presentation Linkbase Document.

X

104

Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101).

X

*       Management contract or compensatory plan or arrangement.

**     Confidential treatment has been granted with respect to certain portions of this Exhibit, which portions have been omitted and filed separately with the Securities and Exchange Commission as part of an application for confidential treatment pursuant to the Securities Exchange Act of 1934, as amended.

***

Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

+

Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.

Item 16.

FORM 10-K SUMMARY.

None.

111

Table of Contents

SIGNATURES

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

ALBIREO PHARMA, INC.

Date: March 1, 2022

By:

/s/ Ronald H.W. Cooper

Ronald H.W. Cooper

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures

    

Title

    

Date

/s/ Ronald H.W. Cooper

President, Chief Executive Officer and Director

March 1, 2022

Ronald H.W. Cooper

(principal executive officer)

/s/ Simon N.R. Harford

Chief Financial Officer and Treasurer

March 1, 2022

Simon N.R. Harford

(principal financial officer and

principal accounting officer)

/s/ David Chiswell, Ph.D.

Chairman of the Board

March 1, 2022

David Chiswell, Ph.D.

/s/ Anne Klibanski, M.D.

Director

March 1, 2022

Anne Klibanski, M.D.

/s/ Michael Gutch, Ph.D.

Director

March 1, 2022

Michael Gutch, Ph.D.

/s/ Stephanie S. Okey, M.S.

Director

March 1, 2022

Stephanie S. Okey, M.S.

/s/ Davey S. Scoon

Director

March 1, 2022

Davey S. Scoon

112

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Albireo Pharma, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Albireo Pharma, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Clinical Trial Expense

Description of the Matter

As of December 31, 2021, the Company’s accrued development costs totaled $10.4 million, which includes accrued clinical trial expenses. Additionally, the Company’s prepaid expenses totaled $5.3 million, which includes amounts paid in advance of services being provided by contracted third parties. As discussed in Note 1 to the consolidated financial statements, the significant factors used in estimating clinical trial expenses include the number of patients enrolled, the percentage of work completed to date and contract milestones achieved. The Company’s estimates are highly dependent

F-1

Table of Contents

upon the timeliness and accuracy of the data provided by contracted third parties regarding the status of their contracted activity.

Auditing the Company’s clinical trial expenses is especially challenging due to the application of significant management judgment over the estimate of services provided. Specifically, the amount of accrued and prepaid clinical trial expenses recognized is sensitive to the availability of information to make the estimates, including the estimate of the period over which services will be performed, the level of effort expended as of the balance sheet date and the associated cost of such services. Additionally, due to the long duration of clinical trials and contractual terms for invoicing, the actual amounts incurred are required to be estimated as of the report date.

How We Addressed the Matter in Our Audit

To test clinical trial expenses, we performed audit procedures that included, among others, reviewing material contracts and related amendments for key financial and contractual terms.  In addition, for a sample of transactions, we compared the clinical trial expenses incurred against related year-to-date invoices and contracts to test that the expense was recognized in the appropriate period and that amounts were properly accrued or capitalized depending upon the timing of payments. We also evaluated management’s estimates of progress for a sample of clinical trials and manufacturing efforts by making direct inquiries of the Company’s research and development personnel who oversee the clinical trials.  Further, we confirmed with contracted third parties the costs incurred to date, the terms and conditions of the related contract, including any executed amendments. To evaluate the completeness of the accrued clinical trial development costs we also examined invoices received from contracted third parties as well as tested material cash disbursements made subsequent to December 31, 2021.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2016.

Boston, Massachusetts

March 1, 2022

F-2

Table of Contents

Albireo Pharma, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)

    

December 31, 

    

December 31, 

2021

2020

Assets

Current assets:

Cash and cash equivalents

$

248,107

$

251,272

Accounts receivable, net

3,272

Inventory

194

Prepaid expenses

 

5,261

 

7,564

Other current assets

 

12,096

 

3,029

Total current assets

 

268,930

 

261,865

Property and equipment, net

668

478

Goodwill

 

17,260

 

17,260

Other assets

 

15,193

 

6,004

Total assets

$

302,051

$

285,607

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

6,516

$

5,283

Accrued expenses

 

35,951

 

19,051

Other current liabilities

 

2,880

 

948

Total current liabilities

 

45,347

 

25,282

Liability related to sale of future royalties

60,132

65,894

Note payable, net of discount

10,004

9,621

Other long-term liabilities

10,960

3,579

Total liabilities

 

126,443

 

104,376

Stockholders’ Equity:

Preferred stock, $0.01 par value per share — 50,000,000 shares authorized at December 31, 2021 and December 31, 2020; 0 and 0 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively

Common stock, $0.01 par value per share — 60,000,000 and 30,000,000 shares authorized at December 31, 2021 and December 31, 2020, respectively; 19,304,312 and 19,296,552 shares issued and outstanding at December 31, 2021, respectively, and 19,107,040 shares issued and outstanding at December 31, 2020

 

193

 

191

Additional paid-in capital

 

475,390

 

456,472

Accumulated other comprehensive income (loss)

 

1,105

 

(8,612)

Accumulated deficit

 

(300,850)

 

(266,820)

Treasury stock at cost, 7,760 shares and 0 shares at December 31 2021 and December 31, 2020, respectively

(230)

Total stockholders’ equity

 

175,608

 

181,231

Total liabilities and stockholders’ equity

$

302,051

$

285,607

See accompanying Notes to Consolidated Financial Statements.

F-3

Table of Contents

Albireo Pharma, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share data)

    

Year Ended December 31, 

    

2021

    

2020

Revenue:

Product revenue, net

$

6,993

$

Royalty revenue

18,586

8,308

License revenue

15,000

Total revenue

40,579

8,308

Cost of product revenue

1,356

Gross profit

39,223

8,308

Operating expenses:

Research and development

 

82,522

 

76,777

Selling, general and administrative

 

69,569

 

42,448

Other operating expense (income), net

 

10,617

 

(14,646)

Total operating expenses

 

162,708

 

104,579

Operating loss

 

(123,485)

 

(96,271)

Other income (loss):

Gain from sale of priority review voucher, net of transaction costs

103,387

Interest expense, net

 

(13,932)

 

(11,362)

Net loss

$

(34,030)

$

(107,633)

Net loss per common share - basic and diluted

(1.77)

(6.73)

Weighted-average common shares used to compute basic and diluted net loss per common share

19,220,846

15,983,058

See accompanying Notes to Consolidated Financial Statements.

F-4

Table of Contents

Albireo Pharma, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

Year Ended December 31,

    

2021

    

2020

Net loss

$

(34,030)

$

(107,633)

Other comprehensive income (loss):

Foreign currency translation adjustment

 

9,717

 

(15,064)

Total other comprehensive income (loss)

 

9,717

 

(15,064)

Total comprehensive loss

$

(24,313)

$

(122,697)

See accompanying Notes to Consolidated Financial Statements.

F-5

Table of Contents

Albireo Pharma, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

Accumulated

    

    

  

Additional

    

Other

    

Treasury Stock

    

Total

Common Stock

Paid-In

Comprehensive

Accumulated

At Cost

Stockholders’

    

Shares

    

Amount

    

Capital

    

Income (loss)

    

Deficit

    

Shares

    

Amount

    

Equity

Balance--December 31, 2019

 

12,749,443

$

127

$

245,769

$

6,452

$

(159,187)

$

93,161

Share based compensation expense

 

 

14,615

 

14,615

Exercise of options and vesting of RSUs and ESPP

 

166,847

 

2

 

2,772

 

2,774

Issuance of warrants

113

113

Issuance of common stock, net of costs

 

6,190,750

62

193,203

193,265

Other comprehensive loss

 

 

 

 

(15,064)

(15,064)

Net loss

(107,633)

(107,633)

Balance--December 31, 2020

 

19,107,040

$

191

$

456,472

$

(8,612)

$

(266,820)

$

181,231

Share based compensation expense

 

 

 

15,931

 

15,931

Exercise of options and vesting of RSUs and ESPP

 

189,764

 

2

2,746

 

2,748

Issuance of common stock under the at-the-market sales agreement, net of costs

7,508

241

241

Other comprehensive income

 

 

 

9,717

9,717

Purchases of treasury stock, at cost

(7,760)

(230)

(230)

Net loss

 

 

 

 

(34,030)

(34,030)

Balance--December 31, 2021

19,304,312

$

193

$

475,390

$

1,105

$

(300,850)

(7,760)

$

(230)

$

175,608

See accompanying Notes to Consolidated Financial Statements.

F-6

Table of Contents

Albireo Pharma, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31, 

    

2021

    

2020

Cash flows from operating activities:

Net loss

$

(34,030)

$

(107,633)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

Gain from sale of priority review voucher, net of transaction costs

(103,387)

Accretion of liability related to sale of future royalties

 

12,528

  

 

10,778

Accretion of debt discount and amortization of issuance costs

 

383

  

 

248

Depreciation and amortization

 

274

  

 

192

Share based compensation expense

 

15,931

  

 

14,615

Foreign currency adjustments

10,423

(14,573)

Changes in operating assets and liabilities:

 

  

 

Accounts receivable, net

(3,291)

Inventory

(194)

Prepaid expenses and other current assets

 

(6,615)

  

 

(508)

Other assets

 

(74)

  

 

575

Accounts payable

 

1,336

  

 

275

Accrued expenses

 

17,326

  

 

(4,774)

Other current and long-term liabilities

 

(18,169)

  

 

(224)

Net cash used in operating activities

 

(107,559)

  

 

(101,029)

Cash flows from investing activities:

 

  

 

Purchase of property and equipment

 

(465)

  

 

(78)

Proceeds from sale of priority review voucher, net of transaction costs

103,387

Net cash provided by (used in) investing activities

 

102,922

  

 

(78)

Cash flows from financing activities:

 

  

 

Proceeds from issuance of common stock, net of issuance costs

 

241

  

 

193,265

Proceeds from royalty agreement, net of issuance costs

14,750

Proceeds from issuance of debt, net of issuance costs

9,487

Proceeds from exercise of options

2,748

2,774

Payments related to repurchases of common stock

 

(230)

  

 

Net cash provided by financing activities

 

2,759

  

 

220,276

Effect of exchange rate changes on cash and cash equivalents

 

(1,287)

  

 

260

Net (decrease) increase in cash and cash equivalents

 

(3,165)

  

 

119,429

Cash and cash equivalents—beginning of period

 

251,272

  

 

131,843

Cash and cash equivalents—end of period

$

248,107

$

251,272

Supplemental disclosures of cash and non-cash activities

 

  

  

 

  

Warrants issued with long-term debt

$

$

113

Right of use assets obtained in exchange for operating lease obligations

$

8,591

  

$

See accompanying Notes to Consolidated Financial Statements.

F-7

Table of Contents

Albireo Pharma, Inc.

Notes to Consolidated Financial Statements

1. Summary of significant accounting policies and basis of presentation

Organization

Albireo Pharma, Inc. (the Company), is a commercial-stage biopharmaceutical company focused on the development and commercialization of novel bile acid modulators to treat orphan pediatric liver diseases and other liver and gastrointestinal diseases and disorders. The Company’s product pipeline includes Bylvay, which is approved in the United States and Europe, elobixibat, which is approved in Japan for the treatment of chronic constipation, A3907 our Phase 1 lead candidate for the treatment of adult liver diseases, and A2342 our lead preclinical candidate for the treatment of adult viral and liver diseases. Bylvay was approved by the U.S. Food and Drug Administration on July 20, 2021 for the treatment of pruritis in patients with progressive familial intrahepatic cholestasis (PFIC) ages 3 months or older, and authorized by the European Medicines Agency on July 16, 2021 for the treatment of PFIC in patients 6 months or older. Bylvay was also granted marketing authorization by the UK Medicines and Healthcare Products Regulatory Agency (MHRA) in September 2021 for the treatment of PFIC in patients 6 months or older. Bylvay is also in Phase 3 development for the treatment of biliary atresia and Alagille syndrome (ALGS), each a rare, life-threatening disorder affecting young children.

Since its inception, the Company has devoted substantially all of its resources to its research and development efforts, including activities to develop its product candidates, commercialize Bylvay in PFIC and provide general and administrative support for these operations.

Basis of presentation

These Consolidated Financial Statements have been prepared in conformity with generally accepted accounting principles in the United States (U.S. GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB).

Principles of consolidation

The accompanying Consolidated Financial Statements include the accounts of the Company including its direct or indirect wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each subsidiary are measured using the currency of the primary economic environment in which the entity operates (the functional currency).

Transactions and balances

Foreign currency transactions in each entity comprising the Company are remeasured into the functional currency of the entity using the exchange rates prevailing at the respective transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized within Other operating (income) expense, net except for changes in the liability related to the sale of future royalties which are recorded in Other non-operating (income) expense, net in the Consolidated Statements of Operations.

F-8

Table of Contents

The results and financial position of the Company’s subsidiaries’ that have a functional currency different from the USD are translated as follows:

a.assets and liabilities presented are translated at the closing exchange rate as of December 31, 2021 and 2020;
b.income and expenses for the statements of operations and comprehensive loss are translated at average exchange rates that are relevant for the respective periods for which the income and expenses occurred; and
c.significant transactions use the exchange rate on the date of the transaction.

All resulting exchange differences arising from such translations are recognized directly in other comprehensive income (loss) and presented as a separate component of equity.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in the financial statements and accompanying notes. Management must apply significant judgment in this process. On an ongoing basis, the Company evaluates its estimates and assumptions, including but not limited to accruals, realizability of deferred tax assets and the accretion of interest on the monetization liability. Actual results could materially differ from these estimates.

Segment information

The Company’s entire business is managed by a single management team, which reports to the chief executive officer. The chief executive officer is the chief operating decision maker. The Company has determined it has one operating segment as its chief operating decision maker allocates resources and assesses the performance of the business at this level. Accordingly, the Company has one reporting segment, which is the research and development of novel treatments for liver and gastrointestinal diseases and disorders.

Cash and cash equivalents

The Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents.

Concentration of risk

Credit risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. For banks and financial institutions, only independent financial institutions with a high credit rating are utilized. The Company’s current license agreement for elobixibat is with an established and reputable pharmaceutical company and, historically, the Company has not had any material collection risk related to its accounts receivable.

Concentration of credit risk related to product sales is limited to customers to whom the Company makes significant sales. The Company has no allowance for doubtful accounts. An allowance for doubtful accounts is determined based on the company’s assessment of the credit worthiness and financial condition of its customers, aging of receivables, as well as the general economic environment. Any allowance would reduce the net receivables to the amount that is expected to be collected.

For the year ended December 31, 2021 there were 3 customers or collaboration partners who individually accounted for approximately 44%, 35% and 10% of the Company’s gross revenue balance. For the year ended December

F-9

Table of Contents

31, 2021, there were 3 customers who individually accounted for 43%, 24% and 12% of the Company’s gross accounts receivable balance. The Company believes that credit risks associated with these contracts are not significant due to the customers’ financial strengths.

For the year ended December 31, 2020, all revenue and receivables relate to one licensee. The Company generally does not require collateral or other security in support of accounts receivable.

Property and equipment, net

Property and equipment, including leasehold improvements, are recorded at cost and depreciated when placed into service using the straight-line method, based on their estimated useful lives as follows:

Estimated Useful Life

Asset Classification

    

(in years)

IT Equipment

3-5

Vehicles

5

Leasehold improvements

Lesser of useful life or lease term

Furniture and fixtures

5-7

Property and equipment purchased for less than $10,000 are expensed immediately. Costs for repairs and maintenance are expensed as incurred.

Gains and losses on disposals of equipment are determined by comparing the proceeds with the carrying amount and are recognized within Other operating expense (income), net in the Consolidated Statements of Operations.

Impairment of long-lived assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. In such instances, the recoverability of assets to be held and used is measured first by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, an impairment loss would be recognized if the carrying amount of the asset exceeds the fair value of the asset, which generally is determined from estimated discounted future net cash flows (assets held for use) or net realizable value (assets held for sale). There were no impairments recorded for the years ended December 31, 2021 and 2020.

Operating Leases

Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term using the discount rate implicit in the lease. The present value of future lease payments are discounted using the interest rate implicit in lease contracts if that rate is readily determinable; otherwise the Company utilizes its incremental borrowing rate (‘‘IBR’’), which reflects the fixed rate at which the Company could borrow on a collateralized basis over a similar term, the amount of the lease payments in a similar economic environment. Historically, the rate implicit in the leases has not been readily determinable and the appropriate incremental borrowing rate has been utilized. To estimate the appropriate incremental borrowing rate, a credit rating applicable to the Company is estimated using a synthetic credit rating analysis since the Company does not currently have a rating agency-based credit rating.

Research and development expenses

Research and development costs are expensed as incurred and include primarily salaries, benefits and other staff-related costs; clinical trial and related clinical manufacturing costs; contract services and other outside costs.

F-10

Table of Contents

The Company’s nonclinical studies and clinical trials are performed by third-party contract research organizations (CROs). Some of these expenses are billed monthly for services performed, while others are billed based upon milestones achieved. For nonclinical studies, the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved. For clinical trial expenses, the significant factors used in estimating accruals include the number of patients enrolled and percentage of work completed to date and contract milestones achieved. The Company’s estimates are highly dependent upon the timeliness and accuracy of the data provided by the respective CROs regarding the status of the contracted activity, with adjustments made when deemed necessary.

Revenue recognition

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services in accordance with ASC 606 Revenue from Contracts with Customers. To determine revenue recognition for contracts with its customers, the Company performs the following five step assessment: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines which goods and services are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Product Revenue, Net

The Company recognizes revenue on sales of Bylvay when a customer obtains control of the product, which occurs at a point in time and upon delivery. The Company sells Bylvay to a limited number of specialty pharmacies and a specialty distributor which dispense the product directly to patients. The specialty pharmacies and specialty distributor are referred to as the Company’s customers. The Company also sells Bylvay to its customers in the European Union, which includes a limited number of pharmacies.

The Company provides the right of return to its customers for unopened product for a limited time before and after its expiration date. We currently estimate product returns using available industry data as well as the Company’s visibility into the inventory remaining in the distribution channel.

The Company has written contracts with each of its customers that have a single performance obligation to deliver products upon receipt of a customer order and these obligations are satisfied when delivery occurs and the customer receives Bylvay. The Company evaluates creditworthiness of each of its customers to determine whether collection is reasonably assured. The wholesale acquisition cost that the Company charges its customers for Bylvay is adjusted to arrive at our estimated net product revenues by deducting components of variable consideration which include (i) estimated government rebates and discounts related to Medicaid and other government programs, (ii) estimated costs of incentives offered to certain indirect customers including patients, (iii) trade allowances, such as invoice discounts for prompt payment and customer fees, and (iv) allowance for sales returns. Product revenue, net was $5.3 million in the United States and $1.7 million in Europe for the year ended December 31, 2021. There was no product revenue for the year ended December 31, 2020.

F-11

Table of Contents

Rebates and Discounts

The Company contracts with the Centers for Medicare & Medicaid Services and other government agencies in the U.S. to make Bylvay available to eligible patients. As a result, the Company estimates any rebates and discounts, including chargebacks related to 340b, and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. The Company’s estimates of rebates and discounts are based on the government mandated discounts, which are statutorily-defined and applicable to these government funded programs and assumptions developed using historical experience with actual payments and redemptions. The Company recorded $0.7 million and $0.0 million in such estimates as of December 31, 2021 and December 31, 2020, respectively, in accounts receivable, net and other current liabilities on the consolidated balance sheets.

The Company contracts with national authorities in Europe to make Bylvay available to eligible patients. In jurisdictions in which final pricing is subject to ongoing negotiations with the government, the Company estimates the rebate expected to be due and deducts these estimated amounts from its gross product revenues at the time the revenues are recognized. The Company’s estimates of such liabilities are based on current invoice pricing and total prior units sold and assumptions developed using benchmarks of Bylvay pricing approved in other relevant European jurisdictions. The Company recorded $0.2 million and $0.0 million in such estimates as of December 31, 2021 and December 31, 2020, respectively, in other current liabilities on the consolidated balance sheets.

Other Incentives

Other incentives that the Company offers to indirect customers include co-pay assistance cards provided by the Company for patients who reside in states that permit co-pay assistance programs. The Company’s co-pay assistance program is intended to reduce each participating patient’s portion of the financial responsibility for Bylvay’s purchase price to a specified dollar amount. The Company estimates the amount of co-pay assistance provided to eligible patients based on the terms of the program when product is dispensed by the specialty pharmacies to the patients. These estimates are based on redemption information provided by third-party claims processing organizations. The Company funds this incentive program through upfront payments which included a $0.1 million payment in the year ended December 31, 2021. The Company recorded less than $0.1 million and $0.0 million in such estimates as of December 31, 2021 and December 31, 2020, respectively, in prepaid expenses and other current assets on the consolidated balance sheets.

Trade Allowances

The Company provides invoice discounts on Bylvay sales to its customers for prompt payment and records these discounts as a reduction to gross product revenues. These discounts are based on contractual terms. The Company also pays fees to its distributors for their services as well as data that they provide to the Company. Prompt payment allowances are recorded in accounts receivable, net on the consolidated balance sheets and were less than $0.1 million for the year ended December 31, 2021. The other distributor fees are recorded as other current liabilities on the consolidated balance sheets and were $0.1 million for the year ended December 31, 2021. There were no trade allowances recorded for the year ended December 31, 2020.

Trade Receivables, net

Accounts receivable, net related to product sales, which are recorded in accounts receivable, net on the consolidated balance sheets, were approximately $3.3 million and $0 million as of December 31, 2021 and December 31, 2020, respectively. As of December 31, 2021 and December 31, 2020, we had no allowance for doubtful accounts. An allowance for doubtful accounts is determined based on the Company’s assessment of the credit worthiness and financial condition of its customers, aging of receivables, as well as the general economic environment. Any allowance would reduce the net receivables to the amount that is expected to be collected. Payment terms for U.S. customers are typically 31 - 36 days from receipt of invoice and for European customers are typically 45 days from receipt of invoice.

F-12

Table of Contents

Contract Revenue and Milestone Payments

At the inception of each arrangement that includes development milestone payments or upfront payment, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price, which includes any upfront payments, using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Once the estimated transaction price is established, the associated consideration is allocated to the performance obligations that have been identified in the respective agreement. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

Royalties

For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

In 2012, the Company entered into a license agreement (the Agreement) with EA Pharma Co., Ltd. (EA Pharma, formerly Ajinomoto Pharmaceuticals Co., Ltd.) to develop a select product candidate (elobixibat) for registration and subsequent commercialization in select markets. In conjunction with the Agreement, the Company granted EA Pharma an exclusive license to its intellectual property for development and commercialization activities in the designated field and territories. The Company has completed all of its performance obligations under the Agreement.

As of December 31, 2021, the Company is eligible to receive an additional regulatory-based milestone payment under the Agreement of $4.9 million if a specified regulatory event is achieved for elobixibat. The cash payments and any other payments for milestones and royalties from EA Pharma are non-refundable, non-creditable and not subject to set-off.

The Agreement will continue until the last royalty period for any product in the territory, which is defined as the period when there are no remaining patent rights or regulatory exclusivity in place for any products subject to royalties. EA Pharma may terminate the Agreement upon 180 days’ prior written notice to the Company. Either party may terminate the Agreement for the other party’s uncured material breach or insolvency and in certain other circumstances agreed to by the parties.

Monetization of Future Royalties

In December 2017, the Company entered into a royalty interest acquisition agreement (RIAA) with HealthCare Royalty Partners III, L.P. (HCR) pursuant to which it sold to HCR the right to receive all royalties from sales in Japan and sales milestones achieved from any covered territory potentially payable to the Company under the Agreement, up to a specified maximum “cap” amount of $78.8 million, based on the funds the Company received from HCR. In January 2018, the Company received $44.5 million from HCR, net of certain transaction expenses, under the RIAA. On June 8, 2020, the parties entered into an amendment to the RIAA pursuant to which HCR agreed to pay the Company an additional $14.8 million, net of certain transaction expenses, in exchange for the elimination of the (i) $78.8 million cap amount on HCR’s rights to receive royalties on sales in Japan and sales milestones for elobixibat in certain other territories that may become payable by EA Pharma and (ii) the $15.0 million payable to the Company if a specified sales milestone is achieved for elobixibat in Japan. The Company is obligated to make royalty interest payments to HCR under the RIAA only to the extent it receives future Japanese royalties, sales milestones or other specified payments

F-13

Table of Contents

from EA Pharma. Although the Company sold its rights to receive royalties from the sales of elobixibat in Japan, as a result of its ongoing involvement in the cash flows related to these royalties, the Company will continue to account for these royalties and milestones as revenue. Upon receipt of the payments from HCR the Company recorded net cash totaling $59.3 million as a liability related to sale of future royalties (royalty obligation). The royalty obligation will be amortized using the effective interest rate method.

The following table shows the activity within the liability account for the year ended December 31, 2021:

December 31, 2021

    

(in thousands) 

Liability related to sale of future royalties—beginning balance

 

$

68,594

Accretion of interest expense on liability related to royalty monetization

12,528

Repayment of the liability

(9,455)

Liability related to sale of future royalties—ending balance

 

$

71,667

Less current portion classified within accrued expenses

(11,535)

Long-term liability related to sale of future royalties

 

$

60,132

The Company records estimated royalties due for the current period in accrued other expenses until the payment is received from EA Pharma at which time the Company then remits payment to HCR. In order to determine the accretion of the royalty obligation, the Company is required to estimate the total amount of future royalty payments to be received and submitted to HCR. The sum of these amounts less the $59.3 million proceeds the Company received will be recorded as interest expense over the life of the royalty obligation. At December 31, 2021, the Company’s estimate of its total interest expense resulted in an annual effective interest rate of approximately 18.1%.

The Company periodically assesses the estimated royalty payments to HCR and to the extent such payments are greater or less than its initial estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the accretion of interest on the royalty obligation. There are a number of factors that could materially affect the amount and the timing of royalty payments, most of which are not within the Company’s control. Such factors include, but are not limited to, the rate of elobixibat prescriptions, the number of doses administered, the introduction of competing products, manufacturing or other delays, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to HCR are in U.S. dollars while sales of elobixibat are in Japanese yen, and sales never achieving forecasted numbers, which would result in reduced royalty payments and reduced non-cash interest expense over the life of the royalty obligation. To the extent future royalties result in an amount less than the liability, the Company is not obligated to fund any such shortfall.

Inventory

The Company commenced capitalizing inventory for Bylvay upon FDA approval on July 20, 2021. All commercial manufacturing expenses were expensed as research and development expenses prior to FDA approval. Manufacturing of the Company’s active pharmaceutical ingredient (API) and drug product occurred prior to FDA approval. As a result, manufacturing costs, which totaled approximately $1.6 million, were not capitalized, and instead were expensed as research and development expenses from 2020 until FDA approval in July 2021. All packaging of the Company’s drug product occurred after FDA approval and is included as capitalized inventory within Finished goods.

Stock-based compensation

The Company accounts for stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (ASC 718). ASC 718 requires all stock-based payments, including grants of stock options, to be recognized in the consolidated statements of operations based on their respective fair values whether granted to employees or non-employees.

The fair value of the Company’s stock options has been determined using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including (i) the expected stock price volatility, (ii) the expected

F-14

Table of Contents

term of the award, (iii) the risk-free interest rate and (iv) expected dividends. For the years ended December 31, 2021 and December 31, 2020, due to the lack of historical and implied volatility data of the Company’s common stock and equivalents, the expected volatility has been estimated based on the historical volatilities of peer companies in the Company’s industry that are publicly traded. The Company selected companies that it considers to have comparable characteristics to the Company, including enterprise value, risk profiles and position within the industry and with historical share price information sufficient to meet the expected term of the stock options. The historical volatility data has been computed using the daily closing prices for the selected companies.

Due to the lack of sufficient historical data, the Company used the “simplified” method, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the award, to determine the expected term of stock options.

The Company records compensation expense for service-based awards over the vesting period of the award on a straight-line basis. For awards with service and performance-based conditions, compensation related to the performance-based vesting conditions is recognized when achievement of the performance condition is considered probable and the compensation expense related to the service condition is recorded using the accelerated method.

Modifications to stock-based awards are treated as an exchange of the original award for a new award with total compensation equal to the grant-date fair value of the original award plus any incremental value of the modification. The incremental value is based on the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.

Employee benefits

Pension obligations

The Company has a defined contribution pension plan for its Sweden-based employees whereby the Company pays contributions to employee benefit or insurance plans on a mandatory, contractual or voluntary basis.

The Company paid $0.7 million and $0.7 million to the plans for the years ended December 31, 2021 and 2020, respectively.

401(k)

The Company has a 401(k) retirement plan in which all U.S.-based employees are eligible to participate. The Company contributed $0.7 million and $0.5 million to the plan for the years ended December 31, 2021 and 2020, respectively. The Company matches employee contributions to the plan, on a per employee basis, up to 4% of each employee’s wages for the years ended December 31, 2021 and 2020.

Loss contingencies

Loss contingencies are recorded as liabilities when it is probable that a liability has occurred and the amount of loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that an ultimate loss will be material. Contingent liabilities are often resolved over long periods of time. Estimating probable losses requires analysis that often depends on judgments about potential actions by third parties, such as regulators.

Income taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes (ASC 740). Deferred income taxes are recorded for the expected tax consequences of temporary differences between the tax basis of assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. The Company records a valuation allowance to reduce its deferred tax assets to the amount of future tax benefit that is more likely than not to be realized.

F-15

Table of Contents

Income tax expense consists of taxes currently payable and changes in deferred tax assets and liabilities calculated according to local tax rules. Deferred tax assets and liabilities are based on temporary differences that arise between carrying values used for financial reporting purposes and amounts used for taxation purposes of assets and liabilities and the future tax benefits of tax loss carry forwards. A deferred tax asset is recognized only to the extent that it is more likely than not that future taxable profits will be available against which the asset can be utilized.

Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to income tax expense in the period in which such determination is made.

The amount of deferred tax provided is calculated using tax rates in effect at the balance sheet date. The impact of tax law changes is recognized in periods when the change is enacted.

A two-step approach is applied pursuant to ASC 740 in the recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement.

The Company’s policy is to recognize interest and penalty expenses associated with uncertain tax positions as a component of income tax expense in the Consolidated Statements of Operations. As of the years ended December 31, 2021 and 2020, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Consolidated Statements of Operations.

Net loss per share

Basic and diluted net loss per share, is calculated by dividing the net loss attributable to holders of common stock by the weighted average number of shares of common stock outstanding. If the Company were in a net income position, diluted net income per share would be calculated by dividing the net income attributable to holders of common stock by the weighted-average number of shares of common stock plus dilutive common stock equivalents outstanding.

Goodwill

Goodwill is the excess of the purchase price in a business combination over the fair value of identifiable net assets acquired. Goodwill has an indefinite life and is subject to annual testing for impairment. Goodwill is assessed at least annually, but also whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors that could trigger an impairment review, include: (a) significant underperformance relative to historical or projected future operating results; (b) significant changes in the manner of or use of the acquired assets or the strategy for the Company’s overall business; (c) significant negative industry or economic trends; (d) significant decline in the Company’s stock price for a sustained period; and (e) a decline in the Company’s market capitalization below net book value.

The Company conducts an impairment assessment on October 1 each year taking a quantitative test which compares the fair value to the net carrying value, and records an impairment of goodwill to the extent that the net carrying value exceeds the fair value. The Company uses its market capitalization as a proxy for its fair value. During the fourth quarter of 2021 and 2020, we completed our annual impairment assessment and concluded that goodwill was not impaired in any of those years.

F-16

Table of Contents

2. Fair value of financial instruments

In measuring fair value, the Company evaluates valuation techniques such as the market approach, the income approach and the cost approach. A three-level valuation hierarchy, which prioritizes the inputs to valuation techniques that are used to measure fair value, is based upon whether such inputs are observable or unobservable.

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1—Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;

Level 2—Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-derived valuations whose significant inputs are observable for substantially the full term of the assets or liabilities; and

Level 3—Unobservable inputs that reflect the reporting entity’s estimate of assumptions that market participants would use in pricing the asset or liability.

The following tables represent information about the Company’s financial assets that are measured at fair value on a recurring basis (in thousands):

December 31, 2021

Level 1

Level 2

Level 3

Cash Equivalents:

    

Money market funds

$

243,180

$

$

Total

$

243,180

$

$

December 31, 2020

Level 1

Level 2

Level 3

Cash Equivalents:

    

Money market funds

$

242,854

$

$

Total

$

242,854

$

$

The Company’s financial instruments consist mainly of cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses, other current liabilities, and note payable. The carrying amounts of cash equivalents, prepaid expenses and other current liabilities, accounts payable, accrued expenses, and other current liabilities approximate their estimated fair value due to their short-term maturities. At December 31, 2021, the Company believes the carrying value of the Loan and Security Agreement with Hercules Capital, Inc., approximates the fair value of the note payable, considering that it bears interest that is similar to prevailing market rates.

F-17

Table of Contents

3. Property and equipment, net

Property and equipment, net consisted of the following (in thousands):

Year Ended

December 31, 

    

2021

    

2020

IT equipment

$

773

  

$

318

Leasehold improvements

 

58

 

58

Furniture and fixtures

 

450

 

453

Total property and equipment, gross

 

1,281

 

829

Less: Accumulated depreciation

 

(613)

 

(351)

Total property and equipment, net

$

668

  

$

478

Depreciation expense for the years ended December 31, 2021 and 2020 was $0.3 million and $0.2 million, respectively.

4. Accrued expenses

Accrued expenses consisted of the following (in thousands):

Year Ended

December 31, 

    

2021

    

2020

Accrued payroll and benefits

$

10,310

  

$

8,492

Accrued professional fees

 

1,024

 

649

Accrued development costs

 

10,442

 

5,968

Accrued liability related to monetization of future royalties

 

11,535

 

2,700

Accrued other

 

2,640

 

1,242

Total accrued expenses

$

35,951

  

$

19,051

5. Commitments and contingencies

Operating lease commitments

The Company’s portfolio of commercial real estate leases consists of office space for its corporate headquarters in Boston, Massachusetts, additional office space in Boston, Massachusetts, and for administrative space in Göteborg, Sweden, both of which are accounted for as operating leases. For each lease the Company recorded a ROU asset and lease liability at the earlier of the ASC 842 effective date or lease commencement date. The Company utilizes the straight-line method of recognizing lease expense. However, the Company is required to pay certain variable executory costs including common area maintenance, real estate taxes, and insurance that are expensed as incurred. These variable costs are excluded from the measurement of leases. The Company is not reasonably certain that it will exercise the renewal options described in the individual lease descriptions below. Therefore, these options are not recognized as part of the ROU asset and lease liability.

The Company subleases a portion of its 10 Post Office space to a third party for which it receives rental income to manage occupancy costs. This sublease is classified as operating and is further described below.

10 Post Office

On February 7, 2017, the Company entered into an agreement with Shigo 10 Power Owner LLC (as amended, the “10 Post Office Lease”) to lease 5,116 square feet of office space on the 5th floor of 10 Post Office Square, Boston, MA as its corporate headquarters from March 1, 2017 through April 30, 2022. Pursuant to the 10 Post Office Lease, the Company is entitled to an option to extend the term for an additional 5 years.

F-18

Table of Contents

On March 28, 2019, the Company entered into an amendment to the 10 Post Office Lease to (i) replace the Company’s prior office space with 14,734 square feet of new office space that is being leased from the same landlord and (ii) extend the term of the lease through October 31, 2026. The new leased space contains monthly lease payments subject to annual escalations of $1.00 per square foot for the remaining term of the lease with the Company obligated to make approximately $12.2 million of aggregate lease payments over the term of the lease, or approximately $1.7 million annually.

On May 4, 2020, the Company entered into a second amendment to the 10 Post Office Lease to lease an additional 3,490 square feet of office space on the 10th floor of 10 Post Office Square, Boston, MA from NS Boston III PO Owner LLC from July 1, 2020 through June 30, 2021. The Company entered into additional amendments at 10 Post Office Lease in 2020 and 2021 to extend the term of the 10 Post Office Lease further. The 10 Post Office Lease is classified as a short-term lease and is currently set to expire on March 31, 2022.

On December 6, 2021, the Company entered into an agreement (the “10 Post Office Sublease”) to sublease 14,734 square feet of office space located at 10 Post Office Square, Boston, MA to Hi Marley, Inc. from March 1, 2022 through October 31, 2026.

Goteborg

The Company’s lease in Göteborg, Sweden includes the rental of office space. This lease includes annual rent escalations based on the changes in the Swedish Consumer Price Index. 

53 State Street

On December 7, 2021, the Company entered into an agreement (the “53 State Street Lease”) to lease 26,962 square feet on the 19th floor of 53 State Street, Boston, MA from the Institute for Healthcare Improvement from December 15, 2021 through January 31, 2030.

As of December 31, 2021 the net balance of ROU assets totaled $12.0 million and was classified within other non-current assets. Operating lease expense was $1.3 million and $1.2 million for the years ended December 31, 2021 and 2020, respectively.  Variable lease costs incurred for the years ended December 31, 2021 and 2020 were not material to the Company.  As of December 31, 2021, the weighted average remaining lease term for the Company’s operating leases was 7.1 years. As of December 31, 2020, the weighted- average discount rate was 8.77%. Total cash paid for amounts included in the measurement of lease liabilities was $1.0 million and $1.0 million for the years ended December 31, 2021 and 2020, respectively.

F-19

Table of Contents

Pursuant to the Company’s non-cancelable lease agreements in effect at December 31, 2021, the following table summarizes the Company’s maturities of lease liabilities as of December 31, 2021:

Total Minimum Lease Payments

    

(in thousands)

2022

1,772

2023

2,421

2024

2,466

2025

2,511

2026 and beyond

7,507

Total minimum lease payments

$

16,677

Less imputed interest

(4,463)

Total lease liability

$

12,214

Reported as:

Other current liabilities

$

(1,396)

Other long-term liabilities

(10,818)

Total lease liabilities

$

(12,214)

Agreements with CROs

As of December 31, 2021, the Company had various agreements with CROs for the conduct of specified research and development activities and, based on the terms of the respective agreements, the Company is contractually obligated to make future payments of up to $11.8 million upon the completion of contracted work.

6. Inventory

Inventory consists of the following:

    

December 31, 2021

    

December 31, 2020

Raw materials

$

$

Work-in-process

Finished goods

194

Total inventory

$

194

$

There were no write downs for excess and obsolete inventory during the years ended December 31, 2021 or 2020 based on the finish goods inventory shelf life of 24 months, and an analysis over the future demand for Bylvay relative to the remaining shelf life of inventory as of December 31, 2021.

7. Note Payable

2020 Loan and Security Agreement

On June 8, 2020, the Company entered into a Loan and Security Agreement (the Loan and Security Agreement) with the several banks and other financial institutions or entities from time to time parties to the Loan and Security Agreement, as lenders (collectively, referred to as the “Lender”), and Hercules Capital, Inc., in its capacity as administrative agent and collateral agent for itself and Lender (in such capacity, the “Agent” or “Hercules”) which provides for term loans of up to an aggregate principal amount of $80.0 million (the “Term Loans”) to the Company. The Loan Agreement provides for (i) an initial term loan advance of $10.0 million, which closed on June 8, 2020, (ii) subject to the achievement of certain initial performance milestones (“Performance Milestone I”), a right of the Company to request that the Lender make additional term loan advances to the Company in an aggregate principal amount of up to $20.0 million from January 1, 2021 through December 15, 2021 in minimum increments of $10.0 million, and (iii) subject to the Lender’s investment committee’s sole discretion, a right of the Company to request that

F-20

Table of Contents

the Lender make additional term loan advances in an aggregate principal amount of up to $45.0 million through March 31, 2022 in minimum increments of $5.0 million. The Company is required to pay an end of term fee (“End of Term Charge”) equal to 6.95% of the aggregate principal amount of the Term Loans advances upon repayment.

The Term Loans mature on January 1, 2024, which is extendable to June 1, 2024 upon achievement of Performance Milestone I (the “Maturity Date”).

The Term Loan bears interest at an annual rate equal to greater of 9.15% and 9.15% plus the prime rate of interest minus 3.25%. Borrowings under the Loan and Security Agreement were repayable in monthly interest-only payments through January 1, 2022 and extendable to (i) July 1, 2022 upon achievement of Performance Milestone I and (ii) July 1, 2023 upon achievement of certain additional performance milestones. After the interest-only payment period, borrowings under the Loan and Security Agreement are repayable in equal monthly payments of principal and accrued interest until the Maturity Date. At the Company’s option, the Company may elect to prepay all, but not less than all, of the outstanding term loan by paying the entire principal balance and all accrued and unpaid interest thereon plus a prepayment charge equal to the following percentage of the principal amount being prepaid: 2.0% of the principal amount outstanding if the prepayment occurs after the first nine months following the Closing Date, but on or prior to 24 months following the Closing Date, and 1.0% of the principal amount outstanding at any time thereafter but prior to the Maturity Date.

In connection with the Loan Agreement, the Company granted Agent a security interest senior to any current and future debts and to any security interest, in all of the Company’s right, title, and interest in, to and under all of Company’s property and other assets, and certain equity interests and accounts of Albireo AB, subject to limited exceptions including the Borrower’s intellectual property. The Loan Agreement also contains certain events of default, representations, warranties and non-financial covenants of the Company.

The debt discount and issuance costs are being accreted to the principal amount of debt and being amortized from the date of issuance through the Maturity Date to interest expense using the effective-interest rate method.  The effective interest rate of the outstanding debt under the Loan Agreement is approximately 13.0%.

As of December 31, 2021 the carrying value of the note payable consists of the following:

December 31, 2021

    

(in thousands)

Note payable, including End of Term Charge

10,695

Debt discount, net of accretion

(691)

Note payable net of discount, long-term

$

10,004

During the year ended December 31, 2021, the Company recognized $1.3 million, of interest expense related to the Loan Agreement. The Company recognized $0.8 million of interest expense related to the Loan Agreement for the year ended December 31, 2020.

Through December 31, 2021 and December 31, 2020, the Company borrowed $10.0 million and $10.0 million, respectively, under the Loan Agreement and incurred expenses of $0.4 million and $0.2 million, respectively, of debt discount and issuance costs inclusive of facility fees, legal fees, End of Term Charge and fair value of the warrant.

Estimated future principal payments due under the Loan Agreement, including the contractual End of Term Charge are as follows as of December 31, 2021:

Note Principal Payments

    

(in thousands)

2022

$

2023

5,254

2024

5,441

F-21

Table of Contents

As of December 31, 2021, based on Level 3 inputs and the borrowing rates available to the Company for loans with similar terms and consideration of the Company’s credit risk, the carrying value of the Company’s variable interest rate debt, excluding unamortized debt issuance costs, approximates fair value.

Warrants

Under the Loan and Security Agreement, the Company agreed to issue to Hercules warrants (the “Warrants”) to purchase a number of shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”) equal to 1% of the aggregate amount of the Term Loans that are funded, as such amounts are funded. On the Closing Date, the Company issued a Warrant for 5,311 shares of Common Stock. The Warrants will be exercisable for a period of seven years from the date of the issuance of each Warrant at a per-share exercise price equal to $18.83, subject to certain adjustments as specified in the Warrants. In addition, the Company has granted to the holders of the Warrants certain registration rights. Specifically, the Company has agreed to use its commercially reasonable efforts to (i) file registration statements with the U.S. Securities and Exchange Commission within 60 days following the date of the issuance of each Warrant for purposes of registering the shares of Common Stock issuable upon exercise of the Warrants for resale by Hercules, and (ii) cause the registration statement to be declared effective as soon as practicable after filing, and in any event no later than 180 days after the date of the issuance of each Warrant.

The Company accounted for the Warrants as equity instruments since they were indexed to the Company’s common stock and met the criteria for classification in stockholders’ equity. The relative fair value of the Warrants related to the first tranche funding was approximately $0.1 million, and was treated as a discount to the Term Loans. This amount is being amortized to interest expense using the effective interest method over the life of the Term Loans. The Company estimated the fair value of the Warrants using the Black-Scholes option-pricing model.

8. Net loss per share

The following table sets forth the computation of Basic loss per share and Diluted loss per share (in thousands, except for share and per share data):

Year Ended

    

2021

    

2020

Basic and Diluted net loss per share:

Numerator

Net loss

$

(34,030)

  

$

(107,633)

Denominator

 

 

Weighted average number of shares outstanding

 

19,220,846

15,983,058

Basic and Diluted loss per share

$

(1.77)

  

$

(6.73)

The following outstanding common stock equivalents were excluded from the computation of Diluted loss per share for the periods presented because including them would have been anti-dilutive:

Year Ended December 31, 

    

2021

    

2020

Options to purchase common stock, RSUs and warrants

3,208,398

2,413,037

9. Income taxes

The Company has had an overall net operating loss position since its inception. There was no current or deferred tax provision for the years ended December 31, 2021 and 2020.

F-22

Table of Contents

For the years ended December 31, 2021 and 2020, the components of loss before income taxes were as follows (in thousands):

Year Ended

December 31,

    

2021

    

2020

U.S.

$

(18,603)

 

$

(86,041)

Foreign

 

(15,427)

  

 

(21,592)

Total

$

(34,030)

 

$

(107,633)

A reconciliation of the U.S. statutory income tax rate to the consolidated effective income tax rate was as follows:

Year Ended

December 31,

    

2021

    

2020

U.S. statutory income tax rate

21

%  

21

%

Stock compensation

(3)

State taxes, net of federal tax effect

1

5

Change in valuation allowance

(19)

(26)

Change in deferred tax rate

(1)

Forfeited losses and tax attributes

Other items

1

Effective income tax rate

0.0

%  

0.0

%

Deferred taxes are recognized for temporary differences between the bases of assets and liabilities for financial statement and income tax purposes. The tax effect of temporary differences that give rise to significant portions of the deferred tax assets are as follows (in thousands):

Year Ended

December 31,

    

2021

    

2020

Deferred tax assets:

Tax loss carryforwards

$

59,230

  

$

59,790

Research and development credits

 

130

 

130

Accrued expenses

 

1,770

 

1,870

Stock compensation

 

6,790

 

4,750

Interest carryforwards

6,670

4,420

Other

 

3,150

 

1,220

Total gross deferred tax assets

 

77,740

 

72,180

Valuation allowance

 

(74,690)

 

(71,040)

Total deferred tax assets

$

3,050

$

1,140

Deferred tax liabilities:

 

 

Intangible assets

$

(20)

  

$

(20)

Right of use asset

 

(3,030)

 

(1,120)

Total deferred tax liabilities

 

(3,050)

 

(1,140)

Net deferred tax assets

$

  

$

A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. Due to the uncertainty surrounding the realization of the favorable tax attributes in future returns, the Company has recorded a valuation allowance of $74.7 million and $71.0 million at December 31, 2021 and 2020, respectively. The change in valuation allowance for the years ended December 31, 2021 and 2020, were $3.7 million and $31.1 million, respectively.

F-23

Table of Contents

As of December 31, 2021, deferred tax assets related to net operating loss (NOL) carryforwards were $59.2 million, which may be used subject to certain limitations to offset future taxable income, if any. The NOL includes approximately $1.5 million for U.S. federal tax purposes that are subject to expire in 2036 and approximately $98.8 million of federal net operating losses which have no expiration date and can be carried forward indefinitely. The Company has state NOLs of approximately $246.3 million which may be available to offset future income tax liabilities and that expire at various dates through 2041. Additional NOLs of approximately $112.5 million were generated in various non-U.S. jurisdictions and will not expire. A valuation allowance has been established on the NOL carryforwards as it is uncertain as to whether future taxable income will be generated to utilize such NOLs.

Utilization of the NOL and credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future as provided by Section 382 of the Code and similar state and foreign provisions. These ownership changes may limit the amount of NOL and credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 of the Internal Revenue Code of 1986 (the Code), results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. During 2016, the Company completed an analysis to assess and concluded that an ownership change within the meaning of Code Section 382 occurred. The analysis has not yet been updated beyond 2016.

The Company’s policy is for any earnings of non-U.S. subsidiaries to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and the Company’s specific plans for reinvestment of those subsidiary earnings, if any.

Uncertain tax positions

The Company accounts for uncertain tax positions under the recognition and measurement criteria of ASC 740-10. For those tax positions for which it is more likely than not that a tax benefit will be sustained, the Company records the largest amount of tax benefit with a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. If the Company does not believe that it is more likely than not that a tax benefit will be sustained, no tax benefit is recognized. As of December 31, 2021 and 2020, no uncertain tax positions have been recorded. Interest and penalties related to the settlement of uncertain tax positions, if any, will be reflected in income tax expense. The Company did not recognize any interest or penalties associated with unrecognized tax benefits in the accompanying consolidated financial statements. The Company does not expect any material changes to the unrecognized benefits within 12 months of the reporting date. Due to existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate.

The Company files U.S. federal and state tax returns and has determined that its major tax jurisdictions are the United States and Massachusetts, as well as Great Britain and Sweden. The Company’s tax returns may be examined for certain tax jurisdictions back to December 31, 2018.

The Company is subject to a territorial tax system under the Act, in which the Company is required to provide for tax on Global Intangible Low-Taxed Income (GILTI) earned by certain foreign subsidiaries. The Company has adopted an accounting policy to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense.

10. Stockholders’ equity

Preferred Stock

As of December 31, 2021, the Company has 50,000,000 shares of preferred stock authorized. There are no shares of preferred stock issued or outstanding.

F-24

Table of Contents

Financing

2020 Underwritten Public Offerings

In February 2020, the Company completed an underwritten public offering of 2,190,750 shares of its common stock under a universal shelf registration statement for net proceeds of approximately $43.0 million.

In May 2020, the Company filed a new universal shelf registration on Form S-3 with the SEC, pursuant to which the Company registered for sale up to $200.0 million of any combination of its common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that the Company may determine. As of December 31, 2021, $40.0 million of securities remain available for issuance under the shelf registration statement.

In September 2020, the Company completed an underwritten public offering of 4,000,000 shares of its common stock. The Company received net proceeds from this offering of approximately $150.4 million, after deducting underwriting discounts and, commissions but before deducting offering expenses.

2021 At-the-Market Offering Program Sales Agreement

In February 2021 the Company filed an automatic shelf registration statement on Form S-3 with the SEC, which became effective upon filing, pursuant to which the Company registered for sale an unlimited amount of any combination of its common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that the Company may determine, so long as the Company continued to satisfy the requirements of a “well-known seasoned issuer” under SEC rules. Because the Company is no longer a well-known seasoned issuer, the 2021 Form S-3 will no longer be available for the Company to offer and sell securities pursuant to the 2021 Form S-3 following the filing of this Annual Report on Form 10-K.

In February, 2021, the Company entered into a sales agreement, (the 2021 Sales Agreement) with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of common stock having an aggregate offering price of up to $100.0 million. Subsequently in July 2021, the Company sold 7,508 shares of common stock for net proceeds of approximately $0.2 million pursuant to the 2021 Sales Agreement. Since the 2021 Form S-3 is no longer available, unless and until the Company registers the offer and sale of securities pursuant to the 2021 Sales Agreement in the future, the Company will not be able to make any further sales of securities under the 2021 Sales Agreement.

11. Stock-based Compensation

The Company recognized stock-based compensation expense in the accompanying Consolidated Statements of Operations as follows (in thousands):

Year Ended

December 31, 

    

2021

    

2020

General and administrative

$

9,715

$

8,646

Research and development

 

6,216

  

 

5,969

Total stock-based compensation

$

15,931

$

14,615

F-25

Table of Contents

A summary of the outstanding stock options as of December 31, 2021 is as follows:

Stock Options Outstanding

Weighted-

Weighted-

Average

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Number of

Price Per

Term

Value (in

    

Shares

    

Share

    

(Years)

    

thousands)

Outstanding—December 31, 2020

2,371,823

$

23.89

7.75

$

32,764

Granted

938,538

$

34.17

Expirations/forfeitures

(160,623)

$

32.71

Exercises

(144,740)

$

13.81

Outstanding—December 31, 2021

3,004,998

$

27.10

7.03

  

$

5,232

Exercisable—December 31, 2021

1,804,047

$

23.68

6.03

  

$

4,930

Vested or expected to vest at—December 31, 2021

3,004,998

$

27.10

7.03

  

$

5,232

Aggregate intrinsic value represents the difference between the fair value of the underlying common stock and the exercise price of outstanding, in-the-money options.

As of December 31, 2021, the total unrecognized compensation expense related to unvested options was $26.4 million, which the Company expects to recognize over a weighted average vesting period of 2.58 years.

In determining the estimated fair value of the stock-based awards, the Company uses the Black-Scholes option pricing model and assumptions discussed below.

The fair value of share option awards was estimated with the following assumptions:

As of December 31, 

As of December 31, 

2021

2020

Price per share of common stock

$

21.60

-  

41.71

  

    

$

15.62

-  

43.65

  

Expected term (in years)

 

6.1

-  

6.1

 

6.1

-  

6.1

Risk-free interest rate

 

0.50

-  

1.4

%

 

0.35

-  

1.7

%

Expected volatility

 

78.20

-  

81.5

%

 

79.41

-  

92.9

%

Dividend rate

0%

0%

Restricted Stock Units

Each restricted stock unit (RSU) award represents one share of common stock and each award vests 25% on the first anniversary and in equal quarterly installments thereafter. The costs of the awards, determined as the fair market value of the shares on the grant date, are expensed on a straight-line basis over the length of the award.

A summary of outstanding RSUs as of December 31, 2021 is as follows:

Weighted

Average

Grant-Date

    

Shares

    

Fair Value

Non-vested and outstanding RSU balance at December 31, 2020

33,065

 

$

24.95

Changes during the period:

 

Granted

202,400

 

 

24.95

Expirations/forfeitures

(23,689)

 

 

31.68

Vested

(13,687)

 

25.59

Non-vested and outstanding RSU balance at December 31, 2021

198,089

 

$

33.05

F-26

Table of Contents

Employee Stock Purchase Plan

In June 2018, the Company’s Board of Directors adopted the 2018 Employee Stock Purchase Plan (the Plan) that allows eligible employees to purchase shares of its common stock at a discount through payroll deductions. The Plan was subsequently approved by the Company’s stockholders, with 300,000 shares being available to be issued under the Plan.

The Plan provides for a series of six-month offering periods, with a new offering period commencing on June 1 and December 1 of each year or the first business day thereafter. The initial Offering Period under the Plan began on December 1, 2018. During the years ended December 31, 2021 and 2020, 31,337 and 14,270 shares were purchased under the Plan, respectively. As of December 31, 2021, 246,039 shares are available to be issued. The Plan is intended to qualify under Code Section 423. Plan expense for the years ended December 31, 2021 and 2020 was $0.3 million and $0.1 million, respectively. The expense is disclosed in the stock-based compensation expense table within this footnote.

F-27

Exhibit 3.1

SECOND AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

BIODEL INC.

The undersigned, Solomon S. Steiner, Ph.D., in accordance with the provisions of Sections 242 and 245 of the Delaware General Corporation Law (“DGCL”) hereby certifies that:

1.    He is the duly elected and acting Chairman of the Board, President and Chief Executive Officer of Biodel Inc., a Delaware corporation (the “Corporation”).

2.    The original name of this Corporation was Global Positioning Group, LTD. and the date of filing of the original Certificate of Incorporation of this Corporation with the Secretary of State of the State of Delaware was December 8, 2003.

3.    This Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate”) has been duly approved and adopted by the Board of Directors of the Corporation (the “Board”) in accordance with the applicable provisions of Sections 242 and 245 of the DGCL.

4.    This Amended and Restated Certificate has been duly approved and adopted by the stockholders of the Corporation in accordance with the applicable provisions of Sections 228, 242 and 245 of the DGCL.

5.    The text of the Restated Certificate of Incorporation, as heretofore amended or supplemented, is hereby amended and restated in its entirety to read as follows:

ARTICLE FIRST

The name of this corporation is Biodel Inc. (the “Corporation”).

ARTICLE SECOND

The address of the registered office of the corporation in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, 19808 and the name of the registered agent of the Corporation in the State of Delaware at such address is the Corporation Service Company.

ARTICLE THIRD

The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the DGCL.

ARTICLE FOURTH

A.    This Corporation is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the Corporation is authorized to issue is one hundred and fifty million (150,000,000) shares of which one hundred million (100,000,000)shares shall be Common Stock, each having a par value of one cent ($.01), and fifty million (50,000,000) shares shall be Preferred Stock, each having a par value of one cent ($.01).

B.    The Preferred Stock may be issued from time to time in one or more series. The Board is hereby expressly authorized to provide for the issue of all or any of the remaining shares of the Preferred Stock in one or


more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board providing for the issuance of such shares and as may be permitted by the DGCL. The Board is also expressly authorized to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any certificate of designation filed with respect to any series of Preferred Stock.

C.    Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series of Preferred Stock are entitled, either separately or together as a class with the holders of one or more other such series of Preferred Stock, to vote thereon by law or pursuant to this Amended and Restated Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock).

ARTICLE FIFTH

For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:

A.    BOARD OF DIRECTORS

1.    The management of the business and the conduct of the affairs of the Corporation shall be vested in the Board. The number of directors which shall constitute the Board shall be fixed exclusively by resolutions adopted by a majority of the authorized number of directors constituting the Board.

2.    Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall initially be assigned to each class in accordance with a resolution or resolutions adopted by the Board. At the first annual meeting of stockholders following the date hereof, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the date hereof, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the date hereof, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting.

3.    Notwithstanding the foregoing provisions of this section, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director.

4.    Any director or the entire Board may be removed from office at any time, but only for cause, and only by the affirmative vote of the holders of at least a majority of the voting power of then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.


5.    Subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the Board determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, except as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified.

6.    The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide.

B.    BYLAW AMENDMENTS. The Board is expressly empowered to adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board shall require the approval of a majority of the authorized number of directors. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation, subject to any restrictions which may be set forth in this Amended and Restated Certificate of Incorporation (including any certificate of designation that may be filed from time to time); provided, however, that, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Corporation.

C.    STOCKHOLDER ACTION. No action shall be taken by the stockholders of the Corporation except at an annual or special meeting of stockholders called in accordance with the Bylaws. No action shall be taken by the stockholders by written consent or electronic transmission.

D.    SPECIAL MEETING. Special meetings of stockholders of the Corporation may be called only by the Chairman of the Board, the Chief Executive Officer, the President or the Board acting pursuant to a resolution adopted by a majority of the Board, and any power of stockholders to call a special meeting of stockholders is specifically denied. Only such business shall be considered at a special meeting of stockholders as shall have been stated in the notice for such meeting.

E.    ADVANCE NOTICE. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.

ARTICLE SIXTH

A.    The liability of a director of the Corporation for monetary damages shall be eliminated to the fullest extent under applicable law. If the DGCL is amended 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 to the fullest extent permitted by the DGCL, as so amended.

B.    The Corporation shall indemnify its directors and executive officers to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the Corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers; and, provided, further, that the Corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under the Bylaws of the Corporation.


C.    Any repeal or modification of this Article Sixth shall be prospective and shall not affect the rights under this Article Sixth in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification.

ARTICLE SEVENTH

A.    The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in paragraph B. of this Article Seventh, and all rights conferred upon the stockholders herein are granted subject to this reservation.

B.    Notwithstanding any other provisions of this Amended and Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Corporation required by law or by this Amended and Restated Certificate of Incorporation or any certificate of designation filed with respect to a series of Preferred Stock, the Board acting pursuant to a resolution adopted by a majority of the Board and the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend or repeal Articles Fifth, Sixth and Seventh.


IN WITNESS WHEREOF, BIODEL INC. has caused this Amended and Restated Certificate of Incorporation to be signed on this 16th day of May, 2007 by the undersigned who affirms that the statements made herein are true and correct.

/s/ Solomon S. Steiner

Solomon S. Steiner, Ph.D.

Chairman of the Board and Chief

Executive Officer


CERTIFICATE OF DESIGNATION

OF

SERIES A CONVERTIBLE PREFERRED STOCK

OF

BIODEL INC.

PURSUANT TO SECTION 151 OF THE

DELAWARE GENERAL CORPORATION LAW

BIODEL INC., a Delaware corporation (the “Corporation”) in accordance with the provisions of Section 103 of the Delaware General Corporation Law (the “DGCL”) does hereby certify that, in accordance with Sections 141(c) and 151 of the DGCL, the following resolution was duly adopted by a duly authorized committee of the Board of Directors of the Corporation by the unanimous written consent of that committee duly effected on May 12, 2011:

RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of the Second Amended and Restated Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”) there is hereby established a series of the Corporation’s authorized Preferred Stock, par value $.01 per share, which series shall be designated as the Series A Convertible Preferred Stock, par value $.01 per share, of the Corporation, with the designation, number of shares, powers, preferences, rights, qualifications, limitations and restrictions thereof (in addition to any provisions set forth in the Certificate of Incorporation of the Corporation which arc applicable to the Preferred Stock of all classes and series) as follows:

SERIES A CONVERTIBLE PREFERRED STOCK

Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings:

Affiliate means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms arc used in and construed under Rule 144 under the Securities Act . With respect to a Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder.

Alternate Consideration shall have the meaning set forth in Section 7(b). “Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(c).

Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(c).

Business Day means any day except Saturday, Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

Buy-In shall have the meaning set forth in Section 6(d)(iii).

Closing Sale Price means, for any security as of any date, the last closing trade price for such security prior to 4:00 p.m., New York City time, on the principal securities exchange or trading market where such security is listed or traded, as reported by Bloomberg, L.P. (or an equivalent, reliable reporting service mutually acceptable to and hereafter designated by Holders of a majority of the then-outstanding Series A Preferred Stock and the Corporation), or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, L.P., or, if no last trade price is reported for such security by Bloomberg, L.P., the average of the bid prices of any market makers for such security as reported on


the OTC Pink Market by OTC Markets Group, Inc. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as determined in good faith by the Board of Directors of the Corporation.

Commission” means the Securities and Exchange Commission.

Common Stock means the Corporation’s Common Stock, par value $.01 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed into.

Conversion Date shall have the meaning set forth in Section 6(a).

Conversion Price” shall mean $2.16, as adjusted pursuant to paragraph 7 hereof.

Conversion Ratio shall have the meaning set forth in Section 6(b).

Conversion Shares means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series A Preferred Stock in accordance with the terms hereof

Daily Failure Amount” means the product of (x) .005 multiplied by (y) the Closing Sale Price of the Common Stock on the applicable Share Delivery Date.

DGCL shall mean the Delaware General Corporation Law.

Distributions shall have the meaning set forth in Section 5(a).

DWAC Delivery shall have the meaning set forth in Section 6(a).

Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Fundamental Transaction shall have the meaning set forth in Section 7(b).

Holder means any holder of Series A Preferred Stock.

Junior Securities shall have the meaning set forth in Section 5(a).

Notice of Conversion shall have the meaning set forth in Section 6(a).

Parity Securities shall have the meaning set forth in Section 5(a).

Person means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

Senior Securities shall have the meaning set forth in Section 5(a).

Series A Preferred Stock Register shall have the meaning set forth in Section 2(b).

Share Delivery Date” shall have the meaning set forth in Section 6(d).

Stated Value shall mean $2.16.

Trading Day means a day on which the Common Sock is traded for any period on the principal securities exchange or if the Common Stock is not traded on a principal securities exchange, on a day that the Common Stock is traded on another securities market on which the Common Stock is then being traded.

Section 2. Designation, Amount and Par Value; Assignment.

a)    The series of preferred stock designated by this Certificate shall be designated as the Corporation’s “Series A Convertible Preferred Stock” (the “Series A Preferred Stock”) and the number of shares so designated shall be 2,000,000. Each share of Series A Preferred Stock shall have a par value of $.01 per share.


b)    The Corporation shall register shares of the Series A Preferred Stock, upon records to be maintained by the Corporation for that purpose (the “Series A Preferred Stock Register”), in the name of the Holders thereof from time to time. The Corporation may deem and treat the registered Holder of shares of Series A Preferred Stock as the absolute owner thereof for the purpose of any conversion thereof and for all other purposes. The Corporation shall register, or cause the Corporation’s transfer agent to register, the transfer of any shares of Series A Preferred Stock in the Series A Preferred Stock Register, upon surrender of the certificates evidencing such shares to be transferred, duly endorsed by the Holder thereof, to the Corporation at its principal place of business. Upon any such registration or transfer, a new certificate evidencing the shares of Series A Preferred Stock so transferred shall be issued to the transferee and a new certificate evidencing the remaining portion of the shares not so transferred, if any, shall be issued to the transferring Holder, in each case, within three Business Days. The provisions of this Certificate are intended to be for the benefit of all Holders from time to time and shall be enforceable by any such Holder.

Section 3. Dividends. Holders shall not be entitled to receive any dividends in respect of the Series A Preferred Stock, unless and until specifically declared by the Board of Directors of the Corporation to be payable to the Holders of the Series A Preferred Stock.

Section 4. Voting Rights. Except as otherwise provided herein or as otherwise required by the DGCL, the Series A Preferred Stock shall have no voting rights. However, as long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series A Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock or alter or amend this Certificate of Designation, (b) increase the number of authorized shares of Series A Preferred Stock, or (c) enter into any agreement with respect to any of the foregoing.

Section 5. Rank; Liquidation.

a)    The Series A Preferred Stock shall rank (i) senior to all of the Common Stock; (ii) senior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms junior to any Series A Preferred Stock (“Junior Securities”).; (iii) on parity with any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms on parity with the Series A Preferred Stock (“Parity Securities”); and (iv) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms senior to any Series A Preferred Stock (“Senior Securities”) in each case, as to dividends, distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntarily or involuntarily (all such distributions being referred to collectively as “Distributions”).

b)    Subject to the prior and superior rights of the holders of any Senior Securities of the Corporation, upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (each, a “Liquidation Event”) each holder of shares of Series A Preferred Stock shall be entitled to receive, in preference to any distributions of any of the assets or surplus funds of the Corporation to the holders of the Common Stock and Junior Securities and pari passu with any distribution to the holders of Parity Securities, an amount equal to $.01 per share of Series A Preferred Stock, plus an additional amount equal to any dividends declared but unpaid on such shares, before any payments shall be made or any assets distributed to holders of any class of Common Stock or Junior Securities. If, upon any such Liquidation Event, the assets of the Corporation shall be insufficient to pay the holders of shares of the Series A Preferred Stock the amount required under the preceding sentence, then all remaining assets of the Corporation shall be distributed ratably to holders of the shares of the Series A Preferred Stock and Parity Securities.

c)    After payment to the holders of shares of the Series A Preferred Stock of the amount required under Section 5(b) and subject to the prior and superior rights of the holders of any Senior Securities of the Corporation, the remaining assets or surplus funds of the Corporation, if any, available for distribution to stockholders shall be distributed ratably among the holders of the Series A Preferred Stock, any other class or series of capital stock that participates with the Common Stock in the distribution of assets upon any Liquidation Event and the Common Stock, with the holders of the Series A Preferred Stock deemed to hold that number of shares of Common Stock into which such shares of Series A Preferred Stock are then convertible (without giving effect for such purposes to the Beneficial Ownership Limitation contemplated by Section 6(c)).


Section 6. Conversion.

a)    Conversions at Option of Holder. Each share of Series A Preferred Stock shall be convertible, at any time and from time to time from and after the date of the issuance thereof, at the option of the Holder thereof, into a number of shares of Common Stock equal to the Conversion Ratio in effect at the time of such conversion. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”) duly completed and executed. Other than a conversion following a Fundamental Transaction or following a notice provided for under Section 7(d)(ii) hereof, the Notice of Conversion must specify at least a number of shares of Series A Preferred Stock to be converted equal to the lesser of (x) 100 shares (such number subject to appropriate adjustment following the occurrence of an event specified in Section 7(a) hereof) and (y) the number of shares of Series A Preferred Stock then held by the Holder. Provided the Corporation’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program, the Notice of Conversion may specify, at the Holder’s election, whether the applicable Conversion Shares shall be credited to the account of the Holder’s prime broker with DTC through its Deposit Withdrawal Agent Commission system (a “DWAC Delivery”). The “Conversion Date” or the date on which a conversion shall be deemed effective, shall be defined as the Trading Day that the Notice of Conversion, completed and executed, is sent by facsimile to, and received during regular business hours by, the Corporation; provided that the original certificate(s) representing such shares of Series A Preferred Stock being converted, duly endorsed, and the accompanying Notice of Conversion, are received by the Corporation within two (2) Trading Days thereafter. In all other cases, the Conversion Date shall be defined as the Trading Day on which the original stock certificates representing the shares of Series A Preferred Stock being converted, duly endorsed, and the accompanying Notice of Conversion, are received by the Corporation. The calculations set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error.

b)    Conversion Ratio. The “Conversion Ratio” for each share of Series A Preferred Stock shall be equal to the Stated Value divided by the Conversion Price.

c)    Beneficial Ownership Limitation. Notwithstanding anything herein to the contrary, the Corporation shall not effect any conversion of the Series A Preferred Stock, and a Holder shall not have the right to convert any portion of its Series A Preferred Stock, to the extent that, after giving effect to an attempted conversion set forth on an applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any other Person whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act and the applicable rules and regulations of the Commission, including any “group” of which the Holder is a member) would beneficially own a number of shares of Common Stock in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by such Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock subject to the Notice of Conversion with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted shares of Series A Preferred Stock beneficially owned by such Holder or any of its Affiliates, and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation beneficially owned by such Holder or any of its Affiliates (including, without limitation, any convertible notes, convertible stock or warrants) that are subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this Section 6(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the applicable rules and regulations of the Commission. In addition, for purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and the applicable rules and regulations of the Commission. For purposes of this Section 6(c), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Corporation’s most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Commission, as the case may be, (B) a more recent public announcement by the Corporation or (C) a more recent notice by the Corporation or the Corporation’s transfer agent to the Holder setting forth the number of shares of Common Stock then outstanding. For any reason at any time, upon the written or oral request of a Holder (which may be by email), the Corporation shall, within two (2) Business Days of such request, confirm orally and in writing to such Holder (which may be via email) the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to any actual conversion or exercise of securities of the Corporation, including shares of Series A Preferred Stock, by such Holder or its


Affiliates since the date as of which such number of outstanding shares of Common Stock was last publicly reported or confirmed to the Holder. The “Beneficial Ownership Limitation” shall be 9.98% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock pursuant to such Notice of Conversion (to the extent permitted pursuant to this Section 6(c)). The Corporation shall be entitled to rely on representations made to it by the Holder in any Notice of Conversion regarding its Beneficial Ownership Limitation.

d)    Mechanics of Conversion

i.    Delivery of Certificate or Electronic Issuance Upon Conversion. Not later than three Trading Days after the applicable Conversion Date, or if the Holder requests the issuance of physical certificate(s), two Trading Days after receipt by the Corporation of the original certificate(s) representing such shares of Series A Preferred Stock being converted, duly endorsed, and the accompanying Notice of Conversion (the “Share Delivery Date”), the Corporation shall (a) deliver, or cause to be delivered, to the converting Holder a physical certificate or certificates representing the number of Conversion Shares being acquired upon the conversion of shares of Series A Preferred Stock (which certificate or certificates shall not have any legends on it) or (b) in the case of a DWAC Delivery, electronically transfer such Conversion Shares by crediting the account of the Holder’s prime broker with DTC through its DWAC system. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by or, in the case of a DWAC Delivery, such shares are not electronically delivered to or as directed by, the applicable Holder by the Share Delivery Date, the applicable Holder shall be entitled to elect to rescind such Conversion Notice by written notice to the Corporation at any time on or before its receipt of such certificate or certificates for Conversion Shares or electronic receipt of such shares, as applicable, in which event the Corporation shall promptly return to such Holder any original Series A Preferred Stock certificate delivered to the Corporation and such Holder shall promptly return to the Corporation any Common Stock certificates or otherwise direct the return of any shares of Common Stock delivered to the Holder through the DWAC system, representing the shares of Series A Preferred Stock unsuccessfully tendered for conversion to the Corporation.

ii.    Obligation Absolute. Subject to Section 6(c) hereof and subject to Holder’s right to rescind a Conversion Notice pursuant to Section 6(d)(i) above, the Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Series A Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares. Subject to Section 6(c) hereof and subject to a Holder’s right to rescind a Conversion Notice pursuant to Section 6(d)(i) above, in the event a Holder shall elect to convert any or all of its Series A Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to such Holder, restraining and/or enjoining conversion of all or part of the Series A Preferred Stock of such Holder shall have been sought and obtained by the Corporation, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the value of the Conversion Shares into which would be converted the Series A Preferred Stock which is subject to such injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Corporation shall, subject to Section 6(c) hereof and subject to a Holder’s right to rescind a Conversion Notice pursuant to Section 6(d)(i) above, issue Conversion Shares upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such certificate or certificates, or electronically deliver (or cause its transfer agent to electronically deliver) such shares in the case of a DWAC Delivery, pursuant to Section 6(d)(i) on or prior to the fifth (5th) Trading Day after the Share Delivery Date applicable to such conversion (other than a failure caused by incorrect or incomplete information provided by such Holder to the Corporation), then, unless the Holder has rescinded the applicable Conversion Notice pursuant to Section 6(d)(i) above, the Corporation shall pay (as liquidated damages and not as a penalty) to such Holder an amount payable, at the Corporation’s option, either (a) in cash or (b) in shares of Common Stock that are valued for these purposes at the Closing Sale Price on the date of such calculation, in each case equal to the product of (x) the number of Conversion Shares required to have been issued by the Corporation on such Share Delivery Date, (y) an


amount equal to the Daily Failure Amount and (z) the number of Trading Days actually lapsed after such fifth (5th) Trading Day after the Share Delivery Date during which such certificates have not been delivered, or, in the case of a DWAC Delivery, such shares have not been electronically delivered; provided, however, the Holder shall only receive up to such amount of shares of Common Stock such that Holder and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which the Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) shall not collectively beneficially own greater than 9.98% of the total number of shares of Common Stock of the Corporation then issued and outstanding. Nothing herein shall limit a Holder’s right to pursue actual damages for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief; provided that Holder shall not receive duplicate damages for the Corporation’s failure to deliver Conversion Shares within the period specified herein. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

iii.    Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. If the Corporation fails to deliver to a Holder the applicable certificate or certificates or to effect a DWAC Delivery, as applicable, by the Share Delivery Date pursuant to Section 6(d)(i) (other than a failure caused by incorrect or incomplete information provided by such Holder to the Corporation), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount by which (x) such Holder’s total purchase price (including any brokerage commissions) for the shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Series A Preferred Stock equal to the number of shares of Series A Preferred Stock submitted for conversion or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(d)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Series A Preferred Stock with respect to which the actual sale price (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice, within three (3) Trading Days after the occurrence of a Buy-In, indicating the amounts payable to such Holder in respect of such Buy-In together with applicable confirmations and other evidence reasonably requested by the Corporation. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation’s failure to timely deliver certificates representing shares of Common Stock upon conversion of the shares of Series A Preferred Stock as required pursuant to the terms hereof; provided, however, that the Holder shall not be entitled to both (i) require the reissuance of the shares of Series A Preferred Stock submitted for conversion for which such conversion was not timely honored and (ii) receive the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(d)(i).

iv.    Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series A Preferred Stock, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holders of the Series A Preferred Stock, not less than such aggregate number of shares of the Common Stock as shall be issuable (taking into account the adjustments of Section 7) upon the conversion of all outstanding shares of Series A Preferred Stock. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.


v.    Fractional Shares. No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon the conversion of the Series A Preferred Stock. As to any fraction of a share which a Holder would otherwise be entitled to receive upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

vi.    Transfer Taxes. The issuance of certificates for shares of the Common Stock upon conversion of the Series A Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the registered Holder(s) of such shares of Series A Preferred Stock and the Corporation shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

e)    Status as Stockholder. Upon each Conversion Date, (i) the shares of Series A Preferred Stock being converted shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a holder of such converted shares of Series A Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Corporation to comply with the terms of this Certificate of Designation. In all cases, the holder shall retain all of its rights and remedies for the Corporation’s failure to convert Series A Preferred Stock.

Section 7. Certain Adjustments.

a)    Stock Dividends and Stock Splits. If the Corporation, at any time while the Series A Preferred Stock is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of shares of Series A Preferred Stock) with respect to the then outstanding shares of Common Stock; (B) subdivides outstanding shares of Common Stock into a larger number of shares; or (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event (excluding any treasury shares of the Corporation). Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination.

b)    Fundamental Transaction. If, at any time while the Series A Preferred Stock is outstanding, (A) the Corporation effects any merger or consolidation of the Corporation with or into another Person (other than a merger in which the Corporation is the surviving or continuing entity and its Common Stock is not exchanged for or converted into other securities, cash or property), (B) the Corporation effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (C) any tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which all of the Common Stock is exchanged for or converted into other securities, cash or property, or (D) the Corporation effects any reclassification of the Common Stock or any compulsory share exchange pursuant (other than as a result of a dividend, subdivision or combination covered by Section 7(a) above) to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”) then, upon any subsequent conversion of this Series A Preferred Stock the Holders shall have the right to receive, in lieu of the right to receive Conversion Shares, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”). For purposes of any such subsequent conversion, the determination of the Conversion Ratio shall


be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall adjust the Conversion Ratio in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holders shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Series A Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The terms of any agreement to which the Corporation is a party and pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 7(b) and ensuring that the Series A Preferred Stock (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. The Corporation shall cause to be delivered to each Holder, at its last address as it shall appear upon the stock books of the Corporation, written notice of any Fundamental Transaction at least 20 calendar days prior to the date on which such Fundamental Transaction is expected to become effective or close.

c)    Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.

d)    Notice to the Holders.

i.    Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Ratio after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii.    Other Notices. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Series A Preferred Stock, and shall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.

Section 8. Miscellaneous.

a)    Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered


personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at 100 Saw Mill Road, Danbury, Connecticut 06810, facsimile number (203) 796-5002, or such other facsimile number or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if no such facsimile number or address appears on the books of the Corporation, at the principal place of business of such Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section between 5:30 p.m. and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

b)    Lost or Mutilated Series A Preferred Stock Certificate. If a Holder’s Series A Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series A Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership thereof, reasonably satisfactory to the Corporation and, in each case, customary and reasonable indemnity, if requested. Applicants for a new certificate under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Corporation may prescribe.

c)    Waiver. Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation. Any waiver by the Corporation or a Holder must be in writing.

d)    Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

e)    Next Business or Trading Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day or a Trading Day, such payment shall be made on the next succeeding Business Day or Trading Day, as the case may be.

(f)    Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof

g)    Status of Converted Series A Preferred Stock. If any shares of Series A Preferred Stock shall be converted or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series A Preferred Stock.

********************


IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by its duly authorized officer this 17th day of May 2011.

BIODEL INC.

By:

/s/ Gerard Michel

Name: Gerard Michel

Title: Chief Financial Officer, VP

Corporate Development, and

Treasurer


ANNEX A

NOTICE OF CONVERSION

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO

CONVERT SHARES OF SERIES A PREFERRED STOCK)

The undersigned Holder hereby irrevocably elects to convert the number of shares of Series A Convertible Preferred Stock indicated below, represented by stock certificate No(s).                 (the “Preferred Stock Certificates”), into shares of common stock, par value $0.01 per share (the “Common Stock”), of Biodel Inc., a Delaware corporation (the “Corporation”), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Capitalized terms utilized but not defined herein shall have the meaning ascribed to such terms in that certain Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “Certificate of Designation”) filed by the Corporation on May 17, 2011.

As of the date hereof, the number of shares of Common Stock beneficially owned by the undersigned Holder (together with such Holder’s Affiliates, and any other Person whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act and the applicable regulations of the Commission, including any “group” of which the Holder is a member), including the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock subject to this Notice of Conversion, but excluding the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted Series A Preferred Stock beneficially owned by such Holder or any of its Affiliates, and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation (including any warrants) beneficially owned by such Holder or any of its Affiliates that are subject to a limitation on conversion or exercise similar to the limitation contained in Section 6(c) of the Certificate of Designation is                . For purposes hereof, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the applicable regulations of the Commission. In addition, for purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and the applicable regulations of the Commission.

Conversion calculations:

Date to Effect Conversion:          

Number of shares of Series A Preferred Stock owned prior to Conversion:          

Number of shares of Series A Preferred Stock to be Converted:          

Number of shares of Common Stock to be Issued:          

Address for delivery of physical certificates:          

Or for DWAC Delivery:

DWAC Instructions:

Broker no:          

Account no:          

[HOLDER]

By:

Name:

Title:

Date:


CERTIFICATE OF AMENDMENT TO

SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION,

AS AMENDED

OF

BIODEL INC.

Pursuant to Section 242 of the

General Corporation Law of the State of Delaware

Biodel Inc. (hereinafter called the “Corporation”), organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify as follows:

By action of the Board of Directors of the Corporation by unanimous written consent effective January 12, 2012, the Board of Directors duly adopted resolutions pursuant to Section 242 of the General Corporation Law of the State of Delaware setting forth an amendment to the Second Amended and Restated Certificate of Incorporation of the Corporation, as amended, (the “Restated Certificate of Incorporation”) and declaring said amendment to be advisable and directing that it be submitted to and considered by the stockholders of the Corporation for approval. The stockholders of the Corporation duly approved said proposed amendment at the Annual Meeting of Stockholders held on March 8, 2012, in accordance with Section 242 of the General Corporation Law of the State of Delaware. The resolutions setting forth the amendment are as follows:

RESOLVED:

That the following paragraph be inserted prior to the first paragraph of Article FOURTH of the Restated Certificate of Incorporation of the Corporation, as amended:

“That, effective at 5:00 p.m., eastern time, on the filing date of this Certificate of Amendment of Restated Certificate of Incorporation, as amended, (the “Effective Time”), a one-for-four reverse stock split of the Corporation’s Common Stock (as defined below) shall become effective, pursuant to which each four shares of Common Stock outstanding and held of record by each stockholder of the Corporation (including treasury shares) immediately prior to the Effective Time shall be reclassified and combined into one share of Common Stock, $0.01 par value per share, automatically and without any action by the holder thereof upon the Effective Time and shall represent one share of Common Stock from and after the Effective Time. No fractional shares of Common Stock shall be issued as a result of such reclassification and combination. In lieu of any fractional shares to which the stockholder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the average of the high and low trading prices of the Common Stock on the Nasdaq Capital Market during regular trading hours for the five trading days immediately preceding the Effective Time.”

RESOLVED:

That, subject to the approval of the stockholders of the Corporation, the first paragraph of Article FOURTH of the Restated Certificate of Incorporation of the Corporation, as amended, be and hereby is deleted in its entirety and the following first paragraph of Article FOURTH is inserted in lieu thereof:

“FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 75,000,000 shares, consisting of (i) 25,000,000 shares of Common Stock, $0.01 par value per share (“Common Stock”), and (ii) 50,000,000 shares of Preferred Stock, $0.01 par value per share (“Preferred Stock”).”


IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed hereto and this Certificate of Amendment to be signed by its duly authorized officer this 11th day of June, 2012.

BIODEL INC.

By:

/s/ Paul S. Bavier

Name: Paul S. Bavier

Title: Secretary


CERTIFICATE OF DESIGNATION

OF

SERIES B CONVERTIBLE PREFERRED STOCK

OF

BIODEL INC.

PURSUANT TO SECTION 151 OF THE

DELAWARE GENERAL CORPORATION LAW

BIODEL INC., a Delaware corporation (the “Corporation”), in accordance with the provisions of Section 103 of the Delaware General Corporation Law (the “DGCL”) does hereby certify that, in accordance with Sections 141(c) and 151 of the DGCL, the following resolution was duly adopted by a duly authorized committee of the Board of Directors of the Corporation by the unanimous written consent of that committee duly effected on June 21, 2012:

RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of the Second Amended and Restated Certificate of Incorporation of the Corporation, as amended (the “Certificate of Incorporation”), there is hereby established a series of the Corporation’s authorized Preferred Stock, par value $0.01 per share, which series shall be designated as the Series B Convertible Preferred Stock, par value $0.01 per share, of the Corporation, with the designation, number of shares, powers, preferences, rights, qualifications, limitations and restrictions thereof (in addition to any provisions set forth in the Certificate of Incorporation of the Corporation which are applicable to the Preferred Stock of all classes and series) as follows:

SERIES B CONVERTIBLE PREFERRED STOCK

SECTION 1. DEFINITIONS. For the purposes hereof, the following terms shall have the following meanings:

Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder will be deemed to be an Affiliate of such Holder.

Alternate Consideration” shall have the meaning set forth in Section 7(b).

Business Day” means any day except Saturday, Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

Buy-In” shall have the meaning set forth in Section 6(d)(iii).

Closing Sale Price” means, for any security as of any date, the last closing trade price for such security prior to 4:00 p.m., New York City time, on the principal securities exchange or trading market where such security is listed or traded, as reported by Bloomberg, L.P. (or an equivalent, reliable reporting service mutually acceptable to and hereafter designated by Holders of a majority of the then-outstanding Series B Preferred Stock and the Corporation), or if the foregoing do not apply, the last trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, L.P., or, if no last trade price is reported for such security by Bloomberg, L.P., the average of the bid prices of any market makers for such security as reported


on the OTC Pink Market by OTC Markets Group, Inc. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as determined in good faith by the Board of Directors of the Corporation.

Commission” means the Securities and Exchange Commission.

Common Stock” means the Corporation’s Common Stock, par value $.01 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed into.

Conversion Date” shall have the meaning set forth in Section 6(a).

Conversion Price” shall mean $2.36, as adjusted pursuant to paragraph 7 hereof.

Conversion Ratio shall have the meaning set forth in Section 6(b).

Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock in accordance with the terms hereof

Daily Failure Amount” means the product of (x) .005 multiplied by (y) the Closing Sale Price of the Common Stock on the applicable Share Delivery Date.

DGCL” shall mean the Delaware General Corporation Law.

Distribution shall have the meaning set forth in Section 7(b).

DWAC Delivery shall have the meaning set forth in Section 6(a).

Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Fundamental Transaction” shall have the meaning set forth in Section 7(c).

Holder” means any holder of Series B Preferred Stock.

Junior Securities” shall have the meaning set forth in Section 5(a).

Notice of Conversion shall have the meaning set forth in Section 6(a).

Parity Securities shall have the meaning set forth in Section 5(a).

Person means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

Senior Securities” shall have the meaning set forth in Section 5(a).

Series B Preferred Stock Register” shall have the meaning set forth in Section 2(b).

Share Delivery Date” shall have the meaning set forth in Section 6(d).

Stated Value” shall mean $2.36.


Trading Day” means a day on which the Common Sock is traded for any period on the principal securities exchange or if the Common Stock is not traded on a principal securities exchange, on a day that the Common Stock is traded on another securities market on which the Common Stock is then being traded.

SECTION 2. DESIGNATION, AMOUNT AND PAR VALUE; ASSIGNMENT.

(a)    The series of preferred stock designated by this Certificate shall be designated as the Corporation’s “Series B Convertible Preferred Stock” (the “Series B Preferred Stock”) and the number of shares so designated shall be 4,000,000 Each share of Series B Preferred Stock shall have a par value of $.01 per share.

(b)    The Corporation shall register shares of the Series B Preferred Stock, upon records to be maintained by the Corporation for that purpose (the “Series B Preferred Stock Register”) in the name of the Holders thereof from time to time. The Corporation may deem and treat the registered Holder of shares of Series B Preferred Stock as the absolute owner thereof for the purpose of any conversion thereof and for all other purposes. The Corporation shall register, or cause the Corporation’s transfer agent to register, the transfer of any shares of Series B Preferred Stock in the Series B Preferred Stock Register, upon surrender of the certificates evidencing such shares to be transferred, duly endorsed by the Holder thereof, to the Corporation at its principal place of business. Upon any such registration or transfer, a new certificate evidencing the shares of Series B Preferred Stock so transferred shall be issued to the transferee and a new certificate evidencing the remaining portion of the shares not so transferred, if any, shall be issued to the transferring Holder, in each case, within three Business Days. The provisions of this Certificate are intended to be for the benefit of all Holders from time to time and shall be enforceable by any such Holder.

SECTION 3. DIVIDENDS. Holders shall be entitled to receive, and the Corporation shall pay, dividends on shares of the Series B Preferred Stock equal (on an as-if-converted-to-Common-Stock basis) to and in the same form as dividends (other than dividends in the form of Common Stock) actually paid on shares of the Common Stock when, as and if such dividends (other than dividends in the form of Common Stock) are paid on shares of the Common Stock.

SECTION 4. VOTING RIGHTS. Except as otherwise provided herein or as otherwise required by the DGCL, the Series B Preferred Stock shall have no voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock or alter or amend this Certificate of Designation, (b) increase the number of authorized shares of Series B Preferred Stock, or (c) enter into any agreement with respect to any of the foregoing.

SECTION 5. RANK; LIQUIDATION.

(a)    The Series B Preferred Stock shall rank (i) senior to all of the Common Stock; (ii) senior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms junior to any Series B Preferred Stock (“Junior Securities”). (iii) on parity with the Corporation’s Series A Convertible Preferred Stock, $0.01 par value per share (the “Series A Preferred Stock”) and with any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms on parity with the Series B Preferred Stock (“Parity Securities”); and (iv) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms senior to any Series B Preferred Stock (“Senior Securities”) in each case, as to dividends, distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntarily or involuntarily.

(b)    Subject to the prior and superior rights of the holders of any Senior Securities of the Corporation, upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (each, a “Liquidation Event”) each holder of shares of Series B Preferred Stock shall be entitled to receive, in preference to any distributions of any of the assets or surplus funds of the Corporation to the holders of the Common Stock and Junior Securities and pari passu with any distribution to the holders of Parity Securities, an amount equal to $.01 per share of Series B Preferred Stock, plus an additional amount equal to any dividends declared but unpaid on such shares, before any payments shall be made or any assets distributed to holders of any class of Common Stock or Junior


Securities. If, upon any such Liquidation Event, the assets of the Corporation shall be insufficient to pay the holders of shares of the Series B Preferred Stock the amount required under the preceding sentence, then all remaining assets of the Corporation shall be distributed ratably to holders of the shares of the Series B Preferred Stock and Parity Securities.

(c)    After payment to the holders of shares of the Series B Preferred Stock of the amount required under Section 5(b) and subject to the prior and superior rights of the holders of any Senior Securities of the Corporation, the remaining assets or surplus funds of the Corporation, if any, available for distribution to stockholders shall be distributed ratably among the holders of the Series A Preferred Stock, the Series B Preferred Stock, any other class or series of capital stock that participates with the Common Stock in the distribution of assets upon any Liquidation Event and the Common Stock, with the holders of the Series B Preferred Stock deemed to hold that number of shares of Common Stock into which such shares of Series B Preferred Stock are then convertible (without giving effect for such purposes to any limitations on the beneficial ownership of Series B Preferred Stock to which any holders are subject).

SECTION 6. CONVERSION.

(a)    Conversions at Option of Holder. Each share of Series B Preferred Stock shall be convertible, at any time and from time to time from and after the date of the issuance thereof, at the option of the Holder thereof, into a number of shares of Common Stock equal to the Conversion Ratio in effect at the time of such conversion. Holders shall effect conversions by providing the Corporation with the form of conversion notice (via overnight courier, facsimile or email) attached hereto as Annex A (a “Notice of Conversion”), duly completed and executed. For purposes of clarification, unless required pursuant to industry standard stock transfer procedures, the Corporation’s transfer agent shall not require a Holder to obtain a medallion guaranty, notary attestation or any similar deliverable in order to effectuate the conversion of all or a portion of such Holder’s shares of Series B Preferred Stock. Other than a conversion following a Fundamental Transaction or following a notice provided for under Section 7(d)(ii) hereof, the Notice of Conversion must specify at least a number of shares of Series B Preferred Stock to be converted equal to the lesser of (x) 100 shares (such number subject to appropriate adjustment following the occurrence of an event specified in Section 7(a) hereof) and (y) the number of shares of Series B Preferred Stock then held by the Holder. Provided the Corporation’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program, the Notice of Conversion may specify, at the Holder’s election, whether the applicable Conversion Shares shall be credited to the account of the Holder’s prime broker with DTC through its Deposit Withdrawal Agent Commission system (a “DWAC Delivery”). The “Conversion Date”, or the date on which a conversion shall be deemed effective, shall be defined as the Trading Day that the Notice of Conversion, completed and executed, is sent by facsimile to, and received during regular business hours by, the Corporation; provided that the original certificate(s) representing such shares of Series B Preferred Stock being converted, duly endorsed, and the accompanying Notice of Conversion, are received by the Corporation within two (2) Trading Days thereafter. In all other cases, the Conversion Date shall be defined as the Trading Day on which the original stock certificates representing the shares of Series B Preferred Stock being converted, duly endorsed, and the accompanying Notice of Conversion, are received by the Corporation. The calculations set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error.

(b)    Conversion Ratio. The “Conversion Ratio” for each share of Series B Preferred Stock shall be equal to the Stated Value divided by the Conversion Price.

(c)    [INTENTIONALLY OMITTED]

(d)    Mechanics of Conversion

(i)    Delivery of Certificate or Electronic Issuance Upon Conversion. Not later than three Trading Days after the applicable Conversion Date, or if the Holder requests the issuance of physical certificate(s), two Trading Days after receipt by the Corporation of the original certificate(s) representing such shares of Series B Preferred Stock being converted, duly endorsed, and the accompanying Notice of Conversion (the “Share Delivery Date”) the Corporation shall (a) deliver, or cause to be delivered, to the converting Holder a physical certificate or certificates representing the number of Conversion Shares being acquired upon the conversion of shares of Series B Preferred


Stock (which certificate or certificates shall not have any legends on it) or (b) in the case of a DWAC Delivery, electronically transfer such Conversion Shares by crediting the account of the Holder’s prime broker with DTC through its DWAC system. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by or, in the case of a DWAC Delivery, such shares are not electronically delivered to or as directed by, the applicable Holder by the Share Delivery Date, the applicable Holder shall be entitled to elect to rescind such Conversion Notice by written notice to the Corporation at any time on or before its receipt of such certificate or certificates for Conversion Shares or electronic receipt of such shares, as applicable, in which event the Corporation shall promptly return to such Holder any original Series B Preferred Stock certificate delivered to the Corporation and such Holder shall promptly return to the Corporation any Common Stock certificates or otherwise direct the return of any shares of Common Stock delivered to the Holder through the DWAC system, representing the shares of Series B Preferred Stock unsuccessfully tendered for conversion to the Corporation.

(ii)    Obligation Absolute. Subject to any limitations on the beneficial ownership of Series B Preferred Stock to which a Holder may be subject and subject to such Holder’s right to rescind a Conversion Notice pursuant to Section 6(d)(i) above, the Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Series B Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares. Subject to any limitations on the beneficial of ownership of Series B Preferred Stock to which a Holder may be subject and subject to such Holder’s right to rescind a Conversion Notice pursuant to Section 6(d)(i) above, in the event a Holder shall elect to convert any or all of its Series B Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to such Holder, restraining and/or enjoining conversion of all or part of the Series B Preferred Stock of such Holder shall have been sought and obtained by the Corporation, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the value of the Conversion Shares into which would be converted the Series B Preferred Stock which is subject to such injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Corporation shall, subject to any limitations on the beneficial ownership of Series B Preferred Stock to which a Holder may be subject and subject to such Holder’s right to rescind a Conversion Notice pursuant to Section 6(d)(i) above, issue Conversion Shares upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such certificate or certificates, or electronically deliver (or cause its transfer agent to electronically deliver) such shares in the case of a DWAC Delivery, pursuant to Section 6(d)(i) on or prior to the third (3rd) Trading Day after the Share Delivery Date applicable to such conversion (other than a failure caused by incorrect or incomplete information provided by such Holder to the Corporation), then, unless the Holder has rescinded the applicable Conversion Notice pursuant to Section 6(d)(i) above, the Corporation shall pay (as liquidated damages and not as a penalty) to such Holder an amount payable in cash equal to the product of (x) the number of Conversion Shares required to have been issued by the Corporation on such Share Delivery Date, (y) an amount equal to the Daily Failure Amount and (z) the number of Trading Days actually lapsed after such third (3rd) Trading Day after the Share Delivery Date during which such certificates have not been delivered, or, in the case of a DWAC Delivery, such shares have not been electronically delivered; provided, however, the Holder shall only receive up to such amount of shares of Common Stock such that Holder and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which the Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) shall not collectively beneficially own greater than the percentage of the total number of shares of Common Stock of the Corporation then issued and outstanding applicable to any limitation on beneficial ownership to which such Holder may be subject. Nothing herein shall limit a Holder’s right to pursue actual damages for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief; provided that Holder shall not receive duplicate damages for the Corporation’s failure to deliver Conversion Shares


within the period specified herein. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

(iii)    Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. If the Corporation fails to deliver to a Holder the applicable certificate or certificates or to effect a DWAC Delivery, as applicable, by the Share Delivery Date pursuant to Section 6(d)(i) (other than a failure caused by incorrect or incomplete information provided by such Holder to the Corporation), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount by which (x) such Holder’s total purchase price (including any brokerage commissions) for the shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Series B Preferred Stock equal to the number of shares of Series B Preferred Stock submitted for conversion or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(d)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Series B Preferred Stock with respect to which the actual sale price (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice, within three (3) Trading Days after the occurrence of a Buy-In, indicating the amounts payable to such Holder in respect of such Buy-In together with applicable confirmations and other evidence reasonably requested by the Corporation. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation’s failure to timely deliver certificates representing shares of Common Stock upon conversion of the shares of Series B Preferred Stock as required pursuant to the terms hereof; provided, however, that the Holder shall not be entitled to both (i) require the reissuance of the shares of Series B Preferred Stock submitted for conversion for which such conversion was not timely honored and (ii) receive the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(d)(i).

(iv)    Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series B Preferred Stock, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holders of the Series B Preferred Stock, not less than such aggregate number of shares of the Common Stock as shall be issuable (taking into account the adjustments of Section 7) upon the conversion of all outstanding shares of Series B Preferred Stock. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

(v)    Fractional Shares. No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon the conversion of the Series B Preferred Stock. As to any fraction of a share which a Holder would otherwise be entitled to receive upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

(vi)    Transfer Taxes. The issuance of certificates for shares of the Common Stock upon conversion of the Series B Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the registered Holder(s) of such shares of Series B Preferred Stock and the Corporation shall not be required to issue or deliver such certificates unless or until the


Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

(e)    Status as Stockholder. Upon each Conversion Date, (i) the shares of Series B Preferred Stock being converted shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a holder of such converted shares of Series B Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Corporation to comply with the terms of this Certificate of Designation. In all cases, the holder shall retain all of its rights and remedies for the Corporation’s failure to convert Series B Preferred Stock.

SECTION 7. CERTAIN ADJUSTMENTS.

(a)    Stock Dividends and Stock Splits. If the Corporation, at any time while the Series B Preferred Stock is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of shares of Series B Preferred Stock) with respect to the then outstanding shares of Common Stock; (B) subdivides outstanding shares of Common Stock into a larger number of shares; or (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event (excluding any treasury shares of the Corporation). Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination.

(b)    Rights Upon Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), a Holder shall be entitled to receive the dividend or distribution of assets that would have been payable to such Holder pursuant to the Distribution had such Holder converted his or her shares of Series B Preferred Stock (or, if he or she had partially converted such shares prior to the Distribution, any unconverted portion thereof) immediately prior to such record date.

(c)    Fundamental Transaction. If, at any time while the Series B Preferred Stock is outstanding, (A) the Corporation effects any merger or consolidation of the Corporation with or into another Person (other than a merger in which the Corporation is the surviving or continuing entity and its Common Stock is not exchanged for or converted into other securities, cash or property), (B) the Corporation effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (C) any tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which all of the Common Stock is exchanged for or converted into other securities, cash or property, or (D) the Corporation effects any reclassification of the Common Stock or any compulsory share exchange pursuant (other than as a result of a dividend, subdivision or combination covered by Section 7(a) above) to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Series B Preferred Stock the Holders shall have the right to receive, in lieu of the right to receive Conversion Shares, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”). For purposes of any such subsequent conversion, the determination of the Conversion Ratio shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall adjust the Conversion Ratio in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to


be received in a Fundamental Transaction, then the Holders shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Series B Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The terms of any agreement to which the Corporation is a party and pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 7(b) and ensuring that the Series B Preferred Stock (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. The Corporation shall cause to be delivered to each Holder, at its last address as it shall appear upon the stock books of the Corporation, written notice of any Fundamental Transaction at least 20 calendar days prior to the date on which such Fundamental Transaction is expected to become effective or close.

(d)    Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.

(e)    Notice to the Holders.

(i)    Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Ratio after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

(ii)    Other Notices. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Series B Preferred Stock, and shall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.

SECTION 8. MISCELLANEOUS.

(a)    Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by email, facsimile, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at 100 Saw Mill Road, Danbury, Connecticut 06810, facsimile number (203) 796-5002, or such other facsimile number or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier


service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if no such facsimile number or address appears on the books of the Corporation, at the principal place of business of such Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the date immediately following the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section between 5:30 p.m. and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

(b)    Lost or Mutilated Series B Preferred Stock Certificate. If a Holder’s Series B Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series B Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership thereof, reasonably satisfactory to the Corporation and, in each case, customary and reasonable indemnity, if requested. Applicants for a new certificate under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Corporation may prescribe.

(c)    Waiver. Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation. Any waiver by the Corporation or a Holder must be in writing.

(d)    Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

(e)    Next Business or Trading Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day or a Trading Day, such payment shall be made on the next succeeding Business Day or Trading Day, as the case may be.

(f)    Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.

(g)    Status of Converted Series B Preferred Stock. If any shares of Series B Preferred Stock shall be converted or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series B Preferred Stock.

********************


IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by its duly authorized officer this 26th day of June 2012.

BIODEL INC.

By:

/s/ Errol De Souza

Name: Errol De Souza

Title: President and CEO


ANNEX A

NOTICE OF CONVERSION

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO

CONVERT SHARES OF SERIES A PREFERRED STOCK)

The undersigned Holder hereby irrevocably elects to convert the number of shares of Series B Convertible Preferred Stock indicated below, represented by stock certificate No(s).                 (the “Preferred Stock Certificates”), into shares of common stock, par value $0.01 per share (the “Common Stock”), of Biodel Inc., a Delaware corporation (the “Corporation”) as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Capitalized terms utilized but not defined herein shall have the meaning ascribed to such terms in that certain Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (the “Certificate of Designation”) filed by the Corporation on June 26, 2012.

[INCLUDE THIS PARAGRAPH IF APPLICABLE.]

As of the date hereof, the number of shares of Common Stock beneficially owned by the undersigned Holder (together with such Holder’s Affiliates, and any other Person whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act and the applicable regulations of the Commission, including any “group” of which the Holder is a member), including the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock subject to this Notice of Conversion, but excluding the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted Series B Preferred Stock beneficially owned by such Holder or any of its Affiliates, and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation (including any warrants) beneficially owned by such Holder or any of its Affiliates that are subject to any limitations on the beneficial ownership of the Corporation’s capital stock to which a Holder may be subject, is                . For purposes hereof, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the applicable regulations of the Commission. In addition, for purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and the applicable regulations of the Commission.

Conversion calculations:

Date to Effect Conversion:          

Number of shares of Series B Preferred Stock owned prior to Conversion:          

Number of shares of Series B Preferred Stock to be Converted:          

Number of shares of Common Stock to be Issued:          

Address for delivery of physical certificates:          

Or for DWAC Delivery:

DWAC Instructions:

Broker no:          

Account no:          

[HOLDER]

By:

Name:

Title:

Date:


CERTIFICATE OF AMENDMENT OF

SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION,

AS AMENDED

OF

BIODEL INC.

Pursuant to Section 242 of the

General Corporation Law of the State of Delaware

Biodel Inc. (hereinafter called the “Corporation”), organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify as follows:

By action of the Board of Directors of the Corporation at a meeting held on September 10, 2012, the Board of Directors duly adopted a resolution pursuant to Section 242 of the General Corporation Law of the State of Delaware setting forth an amendment to the Second Amended and Restated Certificate of Incorporation of the Corporation, as amended, (the “Restated Certificate of Incorporation”) and declaring said amendment to be advisable and directing that it be submitted to and considered by the stockholders of the Corporation for approval. The stockholders of the Corporation duly approved said proposed amendment at a Special Meeting of Stockholders held on November 1, 2012, in accordance with Section 242 of the General Corporation Law of the State of Delaware. The resolution setting forth the amendment is as follows:

RESOLVED:

That, subject to the approval of the stockholders of the Corporation, the second paragraph of Article FOURTH of the Restated Certificate of Incorporation (relating to the Corporation’s authorized shares of capital stock) be and hereby is deleted in its entirety and the following second paragraph of Article FOURTH is inserted in lieu thereof:

 

“A. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 112,500,000 shares, consisting of(i) 62,500,000 shares of Common Stock, $0.01 par value per share (“Common Stock”), and (ii) 50,000,000 shares of Preferred Stock, $0.01 par value per share (“Preferred Stock”).”


IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed hereto and this Certificate of Amendment to be signed by its duly authorized officer this 19th day of December, 2012.

BIODEL INC.

By:

/s/ Paul S. Bavier

Name: Paul S. Bavier

Title: Secretary


CERTIFICATE OF AMENDMENT

OF

SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION,

AS AMENDED

OF

BIODEL INC.

Pursuant to Section 242 of the

General Corporation Law of the State of Delaware

Biodel Inc. (hereinafter called the “Corporation”), organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify as follows:

By action of the Board of Directors of the Corporation at a meeting held on February 12, 2015, the Board of Directors duly adopted a resolution pursuant to Section 242 of the General Corporation Law of the State of Delaware setting forth an amendment to the Second Amended and Restated Certificate of Incorporation of the Corporation, as amended, (the “Restated Certificate of Incorporation”) and declaring said amendment to be advisable and directing that it be submitted to and considered by the stockholders of the Corporation for approval. The stockholders of the Corporation duly approved said proposed amendment at the Annual Meeting of Stockholders held on March 17, 2015, in accordance with Section 242 of the General Corporation Law of the State of Delaware. The resolution setting forth the amendment is as follows:

RESOLVED That, subject to the approval of the stockholders of the Corporation, the second paragraph of Article FOURTH of the Restated Certificate of Incorporation (relating to the Corporation’s authorized shares of capital stock) be and hereby is deleted in its entirety and the following second paragraph of Article FOURTH is inserted in lieu thereof:

“A. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 250,000,000 shares, consisting of (i) 200,000,000 shares of Common Stock, $0.01 par value per share (“Common Stock”), and (ii) 50,000,000 shares of Preferred Stock, $0.01 par value per share (“Preferred Stock”).”


IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed hereto and this Certificate of Amendment to be signed by its duly authorized officer this 17th day of March, 2015.

BIODEL INC.

By:

/s/ Errol B. De Souza

Name: Errol B. De Souza

Title: President and Chief Executive Officer


CERTIFICATE OF AMENDMENT

OF

SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

BIODEL INC.

BIODEL INC., a corporation organized and existing under and by virtue of the General. Corporation Law of the State of Delaware (the “Corporation”), does hereby certify as follows:

FIRST:    The Second Amended and Restated Certificate of Incorporation of the Corporation, as amended (the “Restated Certificate of Incorporation”) is hereby amended by deleting the first two paragraphs of Article FOURTH of the Restated Certificate of Incorporation in their entirety and inserting the following paragraphs in lieu thereof:

“A. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 250,000,000 shares, consisting of (i) 200,000,000 shares of Common Stock, $0.01 par value per share (“Common Stock”) and (ii) 50,000,000 shares of Preferred Stock, $0.01 par value per share (“Preferred Stock”).

Upon the effectiveness of this Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation, as amended with the Secretary of State of the State of Delaware (the “Effective Time”), every thirty (30) shares of Common Stock issued and outstanding (or held in treasury) immediately prior to the Effective Time shall, automatically and without any action on the part of the respective holders thereof, be reclassified and combined into one (1) validly issued, fully paid and non-assessable share of Common Stock (the “Reverse Stock Split”).

Notwithstanding the foregoing, no fractional shares of Common Stock shall be issued as a result of the Reverse Stock Split. If the Reverse Stock Split would result in the issuance of any fractional share, the Corporation shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the closing price of the Corporation’s Common Stock on The NASDAQ Capital Market on the last trading day prior to the Effective Time (as adjusted to give effect to the Reverse Stock Split), rounded up to the nearest whole cent. Upon surrender by any stockholder(s) of certificates representing shares of Common Stock issued and outstanding prior to the Effective Time, a new certificate representing the number of whole shares of Common Stock issued and outstanding after the Effective Time into which the shares of Common Stock formerly represented by such certificate(s) shall have been reclassified and cash in lieu of fractional shares, if any, will be issued to such stockholder(s).”

SECOND:    That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

[Signature Page Follows]


IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation to be executed by its duly authorized officer on this 3rd day of November, 2016.

BIODEL INC.

Name:

/s/ Gary Gemignani

Title: Chief Financial Officer and Interim Chief Executive Officer


CERTIFICATE OF AMENDMENT

OF

SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

BIODEL INC.

Pursuant to Section 242 of the

General Corporation Law of the State of Delaware

BIODEL INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify as follows:

1.    The name of the corporation (hereinafter called the “Corporation”) is Biodel Inc.

2.    The Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on December 8, 2003 under the name of Global Positioning Group, LTD. Thereafter a Certificate of Amendment was filed on November 19, 2004 to change the name of the Corporation to Biodel Inc. A Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on May 17, 2007. Thereafter a Certificate of Designation was filed with the Secretary of State of the State of Delaware on May 17, 2011, a Certificate of Amendment to the Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on June 11, 2012, a Certificate of Designation was filed with the Secretary of State of the State of Delaware on June 26, 2012, and Certificates of Amendment to the Restated Certificate of Incorporation were filed on December 20, 2012, March 17, 2015 and November 3, 2016.

3.    The Restated Certificate of Incorporation, filed on May 17, 2007, as amended, is further amended to change the name of the Corporation to Albireo Pharma, Inc. by striking out Article FIRST thereof and by substituting in lieu of said Article the following new Article FIRST:

FIRST:    The name of the corporation (hereinafter called the “Corporation”) is

Albireo Pharma, Inc.

4.    The amendment of the Restated Certificate of Incorporation, as amended, herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

[Signature Page Follows]


Signed this 3rd day of November, 2016.

BIODEL INC.

By:

/s/ Ronald H.W. Cooper

Name: Ronald H.W. Cooper

Title: President and Chief Executive Officer


CERTIFICATE OF AMENDMENT

OF

RESTATED CERTIFICATE OF INCORPORATION

OF

ALBIREO PHARMA, INC.

Pursuant to Section 242 of the

General Corporation Law of the State of Delaware

ALBIREO PHARMA, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify as follows:

1.    The Restated Certificate of Incorporation of the Corporation, filed on May 17, 2007, as amended (the “Restated Certificate of Incorporation”), is hereby amended by deleting the first paragraph of Article FOURTH of the Restated Certificate of Incorporation in its entirety and inserting the following paragraph in lieu thereof:

“The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 80,000,000 shares, consisting of (i) 30,000,000 shares of Common Stock, $0.01 par value per share (“Common Stock”) and (ii) 50,000,000 shares of Preferred Stock, $0.01 par value per share (“Preferred Stock”).”

2.    The amendment of the Restated Certificate of Incorporation, as amended, herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

[Signature Page Follows]


Signed this 12th day of June, 2017.

ALBIREO PHARMA, INC.

By:

/s/ Ronald H.W. Cooper

Name: Ronald H.W. Cooper

Title: President and Chief Executive Officer


CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

OF

ALBIREO PHARMA, INC.

It is hereby certified that:

FIRST:

The name of the corporation is Albireo Pharma, Inc. (the “Corporation”).

SECOND:

The Restated Certificate of Incorporation of the Corporation, filed on May 17, 2007, as amended (the “Restated Certificate of Incorporation”), is hereby further amended by deleting the first paragraph of Article FOURTH of the Restated Certificate of Incorporation in its entirety and by substituting in lieu thereof the following paragraph:

“The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 110,000,000 shares, consisting of 60,000,000 shares of common stock, $0.01 par value per share (“Common Stock”) and 50,000,000 shares of preferred stock, $0.01 par value per share (“Preferred Stock”).”

THIRD:

The amendment of the Restated Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

EXECUTED, effective as of this 17th day of June, 2021.

ALBIREO PHARMA, INC.

By:

/s/ Ronald H.W. Cooper

Ronald H.W. Cooper

President and Chief Executive Officer


Exhibit 4.2

DESCRIPTION OF THE REGISTRANT’S SECURITIES

REGISTERED PURSUANT TO SECTION 12 OF

THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

Albireo Pharma, Inc. (the “Company” or “we”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended: our common stock, par value $0.01 per share.

DESCRIPTION OF COMMON STOCK

We are authorized to issue 60,000,000 shares of common stock, par value $0.01 per share, and 50,000,000 shares of preferred stock, par value $0.01 per share.

The following summary of certain provisions of our common stock does not purport to be complete. You should refer to our restated certificate of incorporation, as amended, which we refer to as our restated certificate of incorporation, and our amended and restated bylaws, which we refer to as our restated bylaws, both of which are incorporated by reference as exhibits to the Company’s Annual Report on Form 10-K of which this Exhibit is a part. The summary below is also qualified by provisions of applicable law.

General

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of any series of preferred stock that we may designate and issue in the future.

In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately our net assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock. Our outstanding shares of common stock are validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust Company, with offices at 1 State Street, 30th Floor, New York, NY 10004.

Stock Exchange Listing

Our common stock is listed for quotation on The Nasdaq Capital Market under the symbol "ALBO."


CERTAIN PROVISIONS OF DELAWARE LAW AND OF THE COMPANY'S CERTIFICATE OF

INCORPORATION AND BYLAWS

Anti-Takeover Provisions

The provisions of Delaware law and our restated certificate of incorporation and restated bylaws could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or in our best interests. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of our control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. Such provisions also may have the effect of preventing changes in our management.

Delaware Statutory Business Combinations Provision

We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. For purposes of Section 203, a "business combination" is defined broadly to include a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and, subject to certain exceptions, an "interested stockholder" is a person who, together with his or her affiliates and associates, owns, or within three years prior, did own, 15% or more of the corporation's voting stock.

Classified Board of Directors; Removal of Directors for Cause

Pursuant to our restated certificate of incorporation and restated bylaws, our board of directors is divided into three classes, with the term of office of each class to expire at the third annual meeting of stockholders following election. At each annual meeting of stockholders, directors elected to succeed those directors whose terms expire, other than directors elected by the holders of any series of preferred stock under specified circumstances, will be elected for a three-year term of office. All directors elected to our classified board of directors will serve until the election and qualification of their respective successors or their earlier death, resignation or removal. Members of the board of directors may be removed only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of our then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class. These provisions are likely to increase the time required for stockholders to change the composition of the board of directors. For example, at least two annual meetings will be necessary for stockholders to effect a change in a majority of the members of the board of directors.

Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations of Directors

Our restated bylaws provide that, for nominations to the board of directors or for other business to be properly brought by a stockholder before a meeting of stockholders, the stockholder must first have given timely notice of the proposal in writing to our Secretary. For an annual meeting, a stockholder's notice generally must be delivered not less than 90 days nor more than 120 days prior to the first anniversary of the previous year's annual meeting date. For a special meeting, the notice must generally be delivered not earlier than the 120th day prior to the meeting and not later than the later of (1) the 90th day prior to the meeting or (2) the 10th day following the day on which public announcement of the meeting is first made. Detailed requirements as to the form of the notice and information required in the notice are specified in


the restated bylaws. If it is determined that business was not properly brought before a meeting in accordance with our bylaw provisions, such business will not be conducted at the meeting.

Special Meetings of Stockholders

Special meetings of the stockholders may be called only by the chairman of our board of directors, our Chief Executive Officer, our President or our board of directors pursuant to a resolution adopted by a majority of our board of directors.

No Stockholder Action by Written Consent

Any action to be effected by our stockholders must be effected at a duly called annual or special meeting of the stockholders.

Super Majority Stockholder Vote Required for Certain Actions

The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or bylaws, unless the corporation's certificate of incorporation or bylaws, as the case may be, require a greater percentage. Our restated certificate of incorporation requires the affirmative vote of the holders of at least 75% of the voting power of all of our outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, to amend or repeal any of the provisions discussed in this section of this Exhibit. This 75% stockholder vote would be in addition to any separate class vote that might in the future be required pursuant to the terms of any preferred stock that might then be outstanding. A 75% vote is also required for any amendment to, or repeal of, our restated bylaws by the stockholders. Our restated bylaws may be amended or repealed by vote of a majority of the authorized number of directors.


Exhibit 10.34.4

THIRD AMENDMENT TO LEASE

THIS THIRD AMENDMENT TO LEASE (this “Third Amendment”), dated as of June 30, 2021, is entered into by and between NS Boston III PO Owner LLC, a Delaware limited liability company (“Landlord”) and Albireo Pharma, Inc., a Delaware corporation (“Tenant”).

WITNESSETH

WHEREAS, Landlord and Tenant are the current parties to that certain Office Lease Agreement dated as of February 7, 2017 by and between SHIGO 10 PO Owner LLC, a Delaware limited liability company, as landlord, and Tenant, as tenant (the “Original Lease”), as amended by (a) that certain First Amendment to Lease dated as of March 28, 2019 by and between POSIG Investors, LLC, a Delaware limited liability company, as landlord, and Tenant, as tenant (the “First Amendment”), and (b) that certain Second Amendment to Lease dated as of May 4, 2020 by and between Landlord, as landlord, and Tenant, as tenant (the “Second Amendment”);

WHEREAS, the Original Lease, as amended by the First Amendment and the Second Amendment, shall be known as the “Lease”;

WHEREAS, the Lease relates to the premises (the “Premises”) containing a total of approximately 18,224 rentable square feet, comprised of (a) approximately 14,734 rentable square feet located on the tenth (10th) floor of the South Tower of the building known and numbered as 10 Post Office Square, Boston, Massachusetts (the “Building”) (such premises sometimes referred to as the “Existing Premises”), and (b) approximately 3,490 rentable square feet located on the tenth (10th) floor of the South Tower of the Building (such premises sometimes referred to as the “Expansion Premises”); and

WHEREAS, Landlord and Tenant wish to modify and amend the Lease subject to the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the covenants herein reserved and contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

1.Extension of Term for Expansion Premises.  The term (the “Term”) of the Lease with respect to the Expansion Premises only is presently due to expire on June 30, 2021.  The Term of the Lease with respect to the Expansion Premises only is hereby extended through December 31, 2021 (the “Expansion Premises Expiration Date”).  Landlord and Tenant acknowledge and agree that no change is being made to the Term of the Lease with respect to the Existing Premises, which is agreed to expire on October 31, 2026 (the “Expiration Date”).
2.Condition of Expansion Premises.  Tenant acknowledges and agrees that it is currently in possession of the Expansion Premises, and that the Expansion Premises is leased in its current “AS IS, WHERE IS, WITH ALL FAULTS” condition, without any obligation on the part of Landlord to prepare the Expansion Premises for Tenant’s continued occupancy thereof, and without any representations or warranties by Landlord as to the condition of the Expansion Premises or the suitability thereof for Tenant’s use.


3.Base Rent for Expansion Premises.  Effective as of July 1, 2021, Tenant shall continue to pay Base Rent for the Expansion Premises as set forth in the schedule below and otherwise in accordance with the terms of the Lease.

Period

Annual Base Rent

(Based on 12 months)

Monthly Base Rent

Per RSF

July 1, 2021 - December 31, 2021

$216,380.00

$18,031.67

$62.00

4.Additional Rent for Expansion Premises — Tenant’s Share of Tax Increases.  Effective as of July 1, 2021, Tenant’s Share of Tax Increases with respect to the Expansion Premises only shall continue to be 1.34%, which is a fraction, the numerator of which shall mean the rentable square footage of the Expansion Premises, and the denominator of which shall mean the rentable square footage of the South Tower of the Building, which is agreed to be 260,546 rentable square feet.  Effective as of July 1, 2021, with respect to the Expansion Premises only, Tenant shall continue to pay Tenant’s Share of Tax Increases over a Base Tax Year of fiscal year 2021 (i.e., July 1, 2020 — June 30, 2021).
5.Additional Rent for Expansion Premises — Tenant’s Share of Expense Increases.  Effective as of July 1, 2021, Tenant’s Share of Expense Increases with respect to the Expansion Premises only shall continue to be 1.34%, which is a fraction, the numerator of which shall mean the rentable square footage of the Expansion Premises, and the denominator of which shall mean the rentable square footage of the South Tower of the Building, which is agreed to be 260,546 rentable square feet.  Effective as of July 1, 2021, with respect to the Expansion Premises only, Tenant shall continue to pay Tenant’s Share of Expense Increases over a Base Expense Year of calendar year 2020 (i.e., January 1, 2020 — December 31, 2020).
6.Electricity for Expansion Premises.  Effective as of July 1, 2021, Tenant shall continue to pay for all electricity used by Tenant in the Expansion Premises based on the utility provider’s reading of one or more direct meters, and payable by Tenant to the utility provider upon demand.  Tenant’s use of electrical services shall not exceed in voltage, rated capacity, or overall load that which is standard for the Building.
7.Security Deposit.  Landlord and Tenant acknowledge and agree that the terms and conditions relating to the Security Deposit required under the Lease are set forth in Section 26 (Security Deposit) of the Original Lease, as modified by Section 11 (Security Deposit) of the First Amendment.  Landlord and Tenant further acknowledge and agree that Section 10 (Security Deposit) of the Second Amendment is hereby deleted in its entirety, and of no further force or effect.
8.Extension Option — Expansion Premises.  Landlord and Tenant acknowledge and agree that the Expansion Premises Extension Option set forth in Section 11 (Extension Option — Expansion Premises) of the Second Amendment is hereby deleted in its entirety, and of no further force or effect.

2


9.Extension Option — Entire Premises.  Landlord and Tenant acknowledge and agree that the Extension Option set forth in Section 52 (Extension Option) of the Original Lease, as amended by Section 12 (Extension Option — Entire Premises) of the Second Amendment, shall remain in full force and effect.
10.No Other Options.  Tenant acknowledges and agrees that (1) except with respect to the Extension Option set forth in Section 52 (Extension Option) of the Original Lease, as amended by Section 12 (Extension Option — Entire Premises) of the Second Amendment, Tenant has no options or rights to extend the Term of the Lease, (2) Tenant has no options, rights of first offer, rights of first refusal, or other rights to expand the rentable square feet comprising the Premises or lease any other space in the Building, and (3) Tenant has no options to terminate the Lease or contract the rentable square feet comprising the Premises.
11.Brokers.  Each party represents and warrants to the other that they have not made any agreement or taken any action which may cause anyone to become entitled to a commission as a result of the transactions contemplated by this Third Amendment, and each will indemnify and defend the other from any and all claims, actual or threatened, for compensation by any such third person by reason of such party’s breach of their representation or warranty contained in this Third Amendment.  The provisions of this Section 11 shall survive the expiration or earlier termination of the Lease.
12.Landlord’s Notice Address.  Effective as of the date of this Third Amendment, the Lease is hereby amended to provide that any notices to Landlord under the Lease shall be submitted to Landlord at the below address (or at such other address as Landlord may hereafter designate by notice to Tenant as required hereby).

NS Boston III PO Owner LLC

c/o Synergy Investments

10 Post Office Square, 14th Floor

Boston, MA 02109

Attention:  VP, Leasing

with a copy to:

Rubin and Rudman LLP

53 State Street

Boston, MA 02109

Attention:  Christine P. Claffey, Esq.

and a copy to:

legalnotices@synergyboston.com

13.Representations and Warranties.  Tenant represents, warrants and covenants to Landlord that (1) the Lease is in full force and effect, and (2) to the best of Tenant’s knowledge, Landlord is not in default under the Lease, and no facts or circumstances exist which, with

3


the passage of time or the giving of notice or both, would constitute a Landlord default under the Lease.
14.Authority.  Tenant represents, warrants and covenants to Landlord that (1) Tenant is duly formed, has legal existence, is in good standing, and is qualified to do business in the state in which the Building is located, (2) Tenant has full right, power and authority to enter into this Third Amendment and has taken all corporate or partnership action, as the case may be, necessary to carry out the transaction contemplated herein, so that when executed, this Third Amendment constitutes a valid and binding obligation enforceable in accordance with its terms, and (3) the person or persons executing this Third Amendment on behalf of Tenant are duly authorized to do so.
15.References; Ratification.  The Lease shall be modified such that each reference to the Lease contained therein shall be deemed to refer to the Lease as amended by this Third Amendment.  Except as specifically modified or amended herein, the Lease remains unchanged and in full force and effect and is hereby ratified and confirmed in every respect.
16.Conflicts.  In the event of a conflict between this Third Amendment and the Lease, this Third Amendment shall control.
17.Capitalized Terms.  Capitalized terms used in this Third Amendment but not defined in this Third Amendment have the meanings ascribed to them in the Lease.  When Binding; Counterparts.  This Third Amendment shall be binding upon the parties hereto only upon valid execution and delivery hereof by both Landlord and Tenant.  Upon execution and delivery hereof by Landlord and Tenant, the agreements of the parties hereto shall be binding upon and inure to the benefit of their respective successors and assigns.  This Third Amendment may be signed in counterpart originals, which taken together shall constitute one and the same instrument.  Delivery of a copy of a signed counterpart original transmitted by facsimile or as a PDF or similar attachment to an email shall constitute a good and valid execution and delivery of this Third Amendment.

[SIGNATURES FOLLOW ON NEXT PAGE]

4


IN WITNESS WHEREOF, Landlord and Tenant have caused this Third Amendment to be executed as of the date set forth above.

LANDLORD:

NS BOSTON III PO OWNER LLC,

a Delaware limited liability company

By: Synergy Financial LLC,

a Massachusetts limited liability company,

Property Manager and Authorized Agent

By: /s/ David Greaney​ ​

David Greaney, Manager

Hereunto duly authorized

TENANT:

ALBIERO PHARMA INC.,

a Delaware corporation

By: /s/ Simon Harford​ ​

Name: Simon Harford

Title: Chief Financial Officer

122588015v.1

Hereunto duly authorized

[COUNTERPART SIGNATURE PAGE TO THIRD AMENDMENT]


Exhibit 10.35

SUBLEASE

This Sublease (“Sublease”) is made as of December 6, 2021, by and between Albireo Pharma, Inc. a Delaware corporation having an address of 10 Post Office Square, Boston, Massachusetts 02109 (“Sublandlord”), and Hi Marley, Inc., a Delaware corporation having an address of 77 Franklin St 9th Floor, Boston, Massachusetts 02110 (“Subtenant”).

WITNESSETH

WHEREAS, reference is made to that certain Office Lease Agreement dated as of February 7, 2017 (the “Original Lease”), as amended by that certain First Amendment to Lease dated as of March 28, 2019 (the “First Amendment”), and as further amended by that certain Second Amendment to Lease dated as of May 4, 2020 (the “Second Amendment”), and as further amended by that certain Third Amendment to Lease dated as of June 30, 2021 (the “Third Amendment,” together with the Original Lease, First Amendment and Second Amendment, the “Overlease”, a copy of which is attached hereto as Exhibit A) by and between NS Boston III PO Owner LLC, a Delaware limited liability company (“Overlandlord” and successor-in-interest to POSIG Investors, LLC, who in turn is successor-in-interest to SHIGO 10 PO Owner LLC) as lessor thereunder and Sublandlord as lessee thereunder, pursuant to which Overlandlord leased to Sublandlord certain premises (the “Premises) consisting of approximately 18,224 rentable square feet located on the tenth (10th) floor in the building (the “Building”) known and numbered as 10 Post Office Square, Boston, Massachusetts; and

WHEREAS, Subtenant desires to sublease from Sublandlord and Sublandlord desires to sublease to Subtenant approximately 14,734 rentable square feet of the Premises as depicted on Exhibit B attached hereto (hereinafter referred to as the “Subleased Premises”) subject to and in accordance with the terms and conditions of this Sublease.

NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.DEMISE OF SUBLEASED PREMISES. Sublandlord hereby demises and subleases to Subtenant, and Subtenant hereby hires and takes from Sublandlord, the Subleased Premises for the Term (as defined in Section 2) and upon the conditions hereinafter set forth.
2.TERM. The term of this Sublease (the “Term”) shall commence on the latest to occur of (i) April 1, 2022, (ii) the date on which Sublandlord delivers possession of the Subleased Premises to Subtenant in the Required Condition, and (iii) the date on which Overlandlord delivers its written consent to this Sublease as required by Section 23 below (such latest date, the “Commencement Date”), and shall expire on October 31, 2026 (the “Expiration Date”) or such earlier date upon which such term may be terminated pursuant to the provisions hereof or pursuant to law. If the Commencement Date has not occurred for any reason on or before April 1, 2022, then in addition to Subtenant’s other rights or remedies, Subtenant may terminate this Sublease by written notice to Sublandlord, whereupon any monies previously paid by Subtenant to Sublandlord shall be reimbursed to Subtenant, or, at Subtenant’s election, the date Subtenant is otherwise obliged to commence payment of Rent shall be delayed by one (1)


additional day after the Commencement Date for each day that the Commencement Date is delayed beyond such date. Sublandlord shall deliver possession of the Subleased Premises to Subtenant no later than April 1, 2022 in its as-is condition, except that Sublandlord shall deliver the Premises in vacant (except for the Transferred Property, as defined herein) and broom clean condition (the “Required Condition”). Provided that Overlandlord has delivered its written consent to this Sublease as required by Section 23 below, Subtenant shall have the right to early access to the Premises in vacant condition thirty (30) days prior to the Commencement Date for purposes of installing its furniture, fixtures and equipment, completing improvements and otherwise making the Subleased Premises ready for occupancy.
3.SUBORDINATION; ESTOPPEL LETTERS. This Sublease is in all respects subject and subordinate to the terms and conditions of the Overlease and to the matters to which the Overlease, including any amendments thereto, is or shall be subordinate. Sublandlord represents and warrants that (i) the copy of the Overlease attached hereto as Exhibit A is true, correct and complete, (ii) the Overlease is in full force and effect, and (iii) there exists under the Overlease no default by Sublandlord, or to Sublandlord’s knowledge, Overlandlord, nor has there occurred an event which, with the giving of notice or passage of time or both, could constitute such a default by Sublandlord or, to Sublandlord’s knowledge, Overlandlord. Subtenant agrees that Subtenant has reviewed and is familiar with the Overlease, and will not do anything which would result in a default or breach (whether or not subject to notice or grace periods) on the part of Sublandlord under the Overlease. If, however, the Overlease is terminated prior to its scheduled expiration, for any reason whatever, this Sublease shall likewise terminate, without further notice and without further obligation or liability on the part of the parties (except if such termination is as a result of Subtenant’s default hereunder or Sublandlord’s default hereunder or under the Overlease). Notwithstanding the foregoing, Subtenant shall be obligated, at Overlandlord’s written election, to attorn to and recognize Overlandlord as Sublandlord under this Sublease in the event that the Overlease is terminated and Overlandlord remains the owner of the Building, whereupon this Sublease shall continue as a direct lease between Subtenant and Overlandlord upon all the terms and conditions of this Sublease.

Subtenant agrees that from time to time it will deliver to Sublandlord or Sublandlord’s designee within ten (10) days of the date of Sublandlord’s request, a statement, in writing, certifying (i) that this Sublease is unmodified and in full force and effect, if this is so, or if there have been modifications that the Sublease, as modified, is in full force and effect; (ii) the dates to which Rent and other charges have been paid; (iii) that Sublandlord is not in default under any provisions of this Sublease or, if in default, the nature thereof in detail; and (iv) such other true statements as Sublandlord may reasonably require.

4.RENT, ADDITIONAL RENT AND OTHER CHARGES.

(a)Beginning on the Commencement Date and throughout the Term hereof, Subtenant shall pay to Sublandlord monthly fixed rent (the “Fixed Rent”) in accordance with the schedule set forth below:

2

122587131v.1


Months of Term

Fixed Rent

(per annum)

Fixed Rent

(per month)

Rate Per Square Foot, Per Annum

4/1/2022 – 3/31/2023

$825,104.00

$68,758.67

$56.00

4/1/2023 – 3/31/2024

$841,606.08

$70,133.84

$57.12

4/1/2024 – 3/31/2025

$858,402.84

$71,533.57

$58.26

4/1/2025 – 10/31/2026

$875,641.62

$72,970.14

$59.43

Notwithstanding anything to the contrary in this Sublease, provided Subtenant is not in default hereunder, Fixed Rent shall be abated for the month of April 2022. In no event shall the abatement of Fixed Rent for April 2022 be deemed to reduce or eliminate Subtenant’s obligation to pay Additional Rent or any other amounts due hereunder other than Fixed Rent.

Each monthly installment of Fixed Rent shall be payable on or before the first (1st) day of the calendar month during the Term, without notice or demand and without abatement, set-off or deduction, and shall be pro-rated on a per diem basis in the case of any partial months during the Term, including, without limitation, any partial month between the Commencement Date and the first day of the first full calendar month following the Commencement Date. Notwithstanding the foregoing, if rent abates under the Overlease as to the Subleased Premises, Rent shall correspondingly abate under this Sublease.

(b)In addition to the Fixed Rent due hereunder, (i) commencing July 1, 2023, Subtenant shall also pay to Sublandlord “Subtenant’s Share” (as hereinafter defined) of Tax Increases paid by Sublandlord pursuant to the Overlease, in excess of the Tax Increases paid by Sublandlord pursuant to the Overlease for the 2022 Tax Year (i.e., July 1, 2022 – June 30, 2023) (the “Base Tax Year”) and (ii) commencing January 1, 2023, Subtenant shall pay to Sublandlord Subtenant’s Share of Expense Increases paid by Sublandlord pursuant to the Overlease in excess of the Expense Increases paid by Sublandlord during the calendar year 2022 (the “Base Expense Year”) (the amounts payable under the foregoing clauses (i) and (ii) shall be sometimes collectively referred to herein as the “Sublease Direct Expenses”).  Subtenant shall pay the estimated amount of such Sublease Direct Expenses simultaneously with the monthly payment of Fixed Rent in accordance with the terms of the Overlease.  On an annual basis, Sublandlord shall provide Subtenant with a statement of all estimated and actual Sublease Direct Expenses promptly following Sublandlord’s receipt thereof from Overlandlord.  If Subtenant has made estimated payments of Sublease Direct Expenses in excess of the actual amount payable by Sublandlord under the Overlease attributable to the Subleased Premises, Sublandlord shall credit Subtenant with any overpayment against the next Fixed Rent otherwise due or refund by check within thirty (30) days of the Expiration Date or date of termination if the Sublease is terminated earlier than the Expiration Date.  If the actual amount of Sublease Direct Expenses payable by Sublandlord pursuant to the Overlease, as equitably allocated to the Subleased Premises exceeds the estimated Sublease Direct Expenses paid by Subtenant for such year, Subtenant shall pay the difference to Sublandlord within fifteen (15) days after receipt of the statement and all supporting documentation and such obligation shall survive the expiration or earlier termination of this Sublease.  Any failure by Sublandlord to deliver any estimate or statement of Sublease Direct Expenses required under this Sublease shall not operate as a waiver of Sublandlord’s right to collect all or any portion of Sublease Direct Expenses due hereunder.  Notwithstanding the foregoing, Sublandlord shall use commercially reasonable efforts to deliver any such estimates

3

122587131v.1


or statements of Sublease Direct Expenses promptly upon receipt of the corresponding information from Overlandlord.  Upon Subtenant’s request, Sublandlord shall exercise its audit rights under Section 6.4 of the Overlease at Subtenant’s direction and expense.

“Subtenant’s Share” shall mean a fraction, the numerator of which shall mean the rentable square footage of the Subleased Premises, and the denominator of which shall mean the rentable square footage of the Premises.  As of the date of this Sublease, Subtenant’s Share is 80.85%.  From and after the expiration of the Overlease as to the “Expansion Premises”, as defined in the Third Amendment, Subtenant’s Share will be 100%.

(c)In addition to the Fixed Rent and Sublease Direct Expenses due hereunder, Subtenant shall pay for the cost of all utility services consumed in the Subleased Premises during the Term to the extent not included in Sublease Direct Expenses.  Such payments shall be made directly to the utility company or, if billed to Sublandlord, then reimbursed to Sublandlord within fifteen (15) days following receipt by Subtenant of Sublandlord’s billing therefore.  Such billing shall include sub-meter readings and calculations of the amount due if available.  Subtenant shall also assume and perform Sublandlord’s maintenance obligations under Section 7.2 of the Overlease, as incorporated herein, for the Subleased Premises, including, without limitation, the obligation to maintain any heating, ventilating and air-conditioning maintenance contract satisfactory to Overlandlord in the Subleased Premises.

(d)In addition to the Fixed Rent, Sublease Direct Expenses, cost of utilities to the Subleased Premises during the Term, and any other sums which Subtenant may be obligated to pay pursuant to any other provision of this Sublease, Subtenant agrees to pay to Sublandlord all Subtenant Surcharges (as hereinafter defined) as additional rent hereunder as and when such sums are due and payable by Sublandlord under the Overlease, or as otherwise hereinafter provided.  As used herein, the term “Subtenant Surcharges” shall mean any and all amounts which become due and payable by Sublandlord to the Overlandlord under the Overlease on account of any additional service requested by Subtenant and provided to the Subleased Premises by Overlandlord under the Overlease or any additional rent or charges under the Overlease payable by Sublandlord to the extent due to Subtenant’s use or occupancy of the Subleased Premises during the Term other than those charges or interest that are due and payable as a result of Sublandlord’s failure to perform as required under the Overlease.  The Fixed Rent, the Sublease Direct Expenses, the cost of utilities to the Subleased Premises during the Term, Subtenant Surcharges and any other sums which Subtenant may be obligated to pay pursuant to any other provision of this Sublease are sometimes referred to herein as the “Rent” payable by Subtenant pursuant to this Sublease.  Sublessee shall be entitled to all credits, if any, given by Overlandlord to Sublandlord for Sublandlord’s overpayment of such amounts, and shall not be required to pay any gross receipts tax on Rent payable to Sublandlord under this Sublease, if any.

(e)All amounts payable pursuant to this Sublease shall be paid by Subtenant to Sublandlord’s Administrator at the address forth below or at such other place as Sublandlord may hereafter designate from time to time in writing, in lawful money of the United States of America, by a good unendorsed check or, at Sublandlord’s option, by wire transfer pursuant to wire instructions provided by Sublandlord or Sublandlord’s Administrator from time to time, as

4

122587131v.1


and when the same become due and payable, without demand therefor and without any deduction, set-off or abatement whatsoever, except as provided herein.  Any other amounts of additional rents and other charges herein reserved and payable shall be paid by Subtenant in the manner and to the persons set forth in the statement from Sublandlord describing the amounts due.  All costs, charges and expenses which Subtenant assumes, agrees or is obligated to pay to Sublandlord pursuant to this Sublease shall be additional rent and in the event of nonpayment thereof Sublandlord shall have all the rights and remedies with respect thereto as are herein provided for in case of nonpayment of the Fixed Rent reserved hereunder.  Any inquiries, communications or notices concerning the Fixed Rent or additional rent hereunder shall be sent to, and may sent from, Sublandlord’s Administrator: Tyson Kamikawa, Email: Tyson.Kamikawa@albireopharma.com.  Fixed Rent and additional rent shall be paid via ACH Transfer as follows:

Routing #:121140399

Account #:3302069024

Bank Name:Silicon Valley Bank

Account Name:Albireo Pharma, Inc.

(f)Subtenant shall, upon receipt of Overlandlord’s consent hereto, pay to Sublandlord the sum of Sixty-Eight Thousand Seven Hundred Fifty-Eight and 67/100 Dollars ($68,758.67) to be applied to the first full monthly installment of Fixed Rent due hereunder.

5.SECURITY DEPOSIT. Upon receipt of Overlandlord’s consent hereto, Subtenant shall deposit with Sublandlord the amount of $137,517.34 (the “Security Deposit”). Provided that Subtenant has paid all amounts due and has otherwise performed all obligations hereunder, the Security Deposit will be returned to Subtenant without interest within sixty (60) days of the expiration of the Term, further provided that Sublandlord may deduct from the Security Deposit prior to returning it any amounts owed by Subtenant to Sublandlord. If Subtenant defaults beyond applicable notice and cure periods under any provision of this Sublease, Sublandlord may, but shall not be obligated to, apply all or any part of the Security Deposit to cure the default. In the event Sublandlord elects to apply the Security Deposit as provided for above, Subtenant shall, within five (5) days after Sublandlord’s demand, restore the Security Deposit to the original amount. Sublandlord may, at its discretion, commingle the Security Deposit with its other funds. Upon any transfer of Sublandlord’s interest in the Overlease, Sublandlord shall transfer the Security Deposit (or any amount of the Security Deposit remaining) to a successor tenant, and Subtenant agrees to look solely to the successor tenant for repayment of the same. The Security Deposit will not operate as a limitation on any recovery to which Sublandlord may be entitled.
6.USE OF SUBLEASED PREMISES. Subtenant shall use the Subleased Premises only for general office use and for no other purpose and otherwise in accordance with the terms and conditions of the Overlease, as incorporated herein. Subtenant will not allow any signs, cards or placards to be posted, or placed within the Subleased Premises such that they are visible outside of the Subleased Premises except as specifically provided for in this Sublease. Subtenant will not place a load upon any floor in the Subleased Premises exceeding the floor load per square foot of area which such floor was designed to carry or which is allowed by law.

5

122587131v.1


7.CONDITION OF SUBLEASED PREMISES. Subtenant represents and warrants that it has made a thorough examination of the Subleased Premises and it is familiar with the condition thereof. Subtenant acknowledges that it enters into this Sublease without any representation or warranties by Sublandlord or anyone acting or purporting to act on behalf of Sublandlord, as to present or future condition of the Subleased Premises or the appurtenances thereto or any improvements therein or of the Building, except as otherwise expressly set forth herein. It is further agreed that Subtenant does and will accept the Subleased Premises in the Required Condition, and Sublandlord has no obligation to perform any work therein or contribute to the cost of any work to prepare the Subleased Premises for Subtenant’s occupancy except as necessary to deliver the Premises in the Required Condition. In addition, Sublessee expressly acknowledges and agrees that all furniture, equipment, fixtures and telecommunications equipment (“Transferred Property”), as listed in the attached Exhibit C, will remain with the Subleased Premises and become the property of Sublessee upon the expiration of this Sublease. Subtenant may remove all or any portion of the Transferred Property from the Subleased Premises during the Term.

Subtenant will, throughout the Term and at its sole cost, keep and maintain the Subleased Premises and all fixtures and equipment located therein in the condition required pursuant to the Overlease, as incorporated herein. All repairs and replacements required of Subtenant in connection herewith shall be of a quality and class at least equal to the minimum building standards established by Overlandlord and shall be done in a good and workmanlike manner in compliance with all applicable laws and the terms and conditions of this Sublease. If Subtenant fails to maintain the Subleased Premises in compliance with the terms hereof, Sublandlord shall have the right to do such acts and expend such funds as are reasonably required and Subtenant shall reimburse Sublandlord for the cost thereof as additional rent upon demand.

8.ALTERATIONS. Subtenant will not make or permit to be made any alterations, additions, or improvements in or to the Subleased Premises (“Alterations”) without first obtaining the prior written consent of Sublandlord, but shall in all cases be subject to the prior written consent of Overlandlord in accordance with the Overlease, as incorporated herein. All Alterations by Subtenant shall be performed in accordance with the applicable provisions of the Overlease, as incorporated herein; provided, that, Subtenant shall not be required to remove any Alterations installed by Subtenant unless required by Overlandlord pursuant to the Overlease.
9.SIGNAGE. Subtenant, at Subtenant’s expense, may place a sign identifying Subtenant in any standard Building directory maintained by Overlandlord in the location where Sublandlord’s current directory signage exists as of the date of this Sublease or as otherwise designated by Sublandlord; provided, however, that Subtenant shall have first obtained the prior written approval of such sign from Sublandlord, which approval shall not be unreasonably withheld by Sublandlord, but shall remain subject to the prior written approval of Overlandlord in accordance with the Overlease. Upon termination of this Sublease, Subtenant shall remove such sign and repair any damage caused thereby.
10.ACCESS; RIGHTS RESERVED TO SUBLANDLORD. Sublandlord, Overlandlord, and agents of Sublandlord and Overlandlord may, at reasonable times and upon reasonable notice, enter to view the Subleased Premises, and make repairs and alterations as required herein or under the Overlease.

6

122587131v.1


11.INDEMNIFICATION. Subtenant shall indemnify and hold harmless Sublandlord, Overlandlord and their its partners, agents, employees or contractors as provided in Section 16 of the Overlease (such that Subtenant shall indemnify Sublandlord under Section 16 of the Lease as though Sublandlord were the Overlandlord) as incorporated herein and from and against any and all claims, actions, liabilities, losses, damages, costs and expenses (including, but not limited to, court costs and reasonable attorneys’ fees and disbursements) to the extent arising from any breach or default by Subtenant in the full and prompt payment and performance of Subtenant’s obligations under this Sublease, including the obligation to timely surrender the Premises upon the expiration of this Sublease in the condition required by this Sublease. The terms of this Section shall survive the termination or expiration of this Sublease. Notwithstanding anything to the contrary herein, Sublandlord shall not be released or indemnified from all damages, liabilities, losses, claims, attorneys’ fees, costs and expenses arising from the negligence or willful misconduct of Sublandlord or its agents, contractors, licensees or invitees or a breach of Sublandlord’s obligations or representations under this Sublease or the Overlease.
12.NON-LIABLITY; SUBLANDLORD’S OBLIGATIONS. Sublandlord, to the fullest extent permitted by law, shall not be liable for any damage occasioned by failure to keep the Subleased Premises or Building in repair, nor for any damage done or occasioned by or from plumbing, gas, water, sprinkler, or other pipes or sewerage or the bursting, leaking or running of any pipes, tank or plumbing fixtures, in, above, upon or about the Subleased Premises or the Building nor from any damage occasioned by water, snow or ice being upon or coming through the roof, or otherwise, nor for any damages arising from acts, or neglect of co-tenants or other occupants of the Building, nor for any loss of or injury to property or business occurring, through, in connection with or incidental to the failure to furnish any such services or the interruption of any services to the Subleased Premises. Further, Sublandlord shall not be liable or responsible to Subtenant for any loss or damage to any property or person occasioned by theft or any other criminal act, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, law of requisition or order of any governmental authority.

Sublandlord shall not be liable in any event for incidental or consequential damages to Subtenant for any reason, including, without limitation, any default by Sublandlord hereunder, whether or not Sublandlord is notified that such damages may occur. The term “Sublandlord”, as used in this Sublease, so far as covenants or obligations to be performed by Sublandlord are concerned, is limited to mean and includes only the owner or owners at the time in question of the Sublandlord’s interest in the Subleased Premises (leasehold or otherwise), and in the event of any transfer or transfers of title to the Sublandlord’s interest in the Subleased Premises, the Sublandlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer or conveyance of all liability as respects the performance of any covenants or obligations on the part of the Sublandlord contained in this Sublease thereafter to be performed, it being intended that the covenants and obligations contained in this Sublease on the part of Sublandlord shall, subject as aforesaid, be binding on the Sublandlord, its successors and assigns, only during and in respect of their respective successive periods of tenancy or ownership of the Subleased Premises. Subtenant, its successors and assigns, agrees it shall not assert nor seek to enforce any claim for breach of this Sublease against any of Sublandlord’s assets other than Sublandlord’s interest in the Leased Premises and in the rents, issues and profits thereof, and Subtenant agrees

7

122587131v.1


to look solely to such interest for the satisfaction of any liability of or claim against Sublandlord under this Sublease, it being specifically agreed that in no event whatsoever shall Sublandlord or any beneficiary of any trust of which Sublandlord is a trustee or any of Sublandlord’s officers, directors, partners, shareholders, agents, attorneys and employees ever be personally liable for any such liability.

13.ASSIGNMENT AND SUBLETTING. Except for Permitted Transfers (defined below), Subtenant shall not assign, mortgage, encumber or otherwise transfer (by operation of law or otherwise) this Sublease, nor sublet the Subleased Premises or any part thereof, or permit the Subleased Premises or any part thereof to be used or occupied by anyone without first obtaining the written consent of Sublandlord and Overlandlord. No subletting or assignment shall release Subtenant from Subtenant’s obligations under this Sublease or alter the primary liability of Subtenant to pay the rent and to perform all other obligations to be performed by Subtenant hereunder. Notwithstanding the foregoing, Sublandlord’s consent shall not be required when Subtenant is transferring its interest in the Subleased Premises pursuant to transactions with (a) an entity into or with which Subtenant is merged or consolidated or to which all or substantially all of Subtenant’s business, stock or assets are transferred, or (b) an entity controlling, controlled by or under common control with Subtenant (each, a “Permitted Transfer”). Neither the sale, issuance, cancellation nor transfer of Subtenant’s stock or other equity interests shall constitute an assignment or other transfer of this Sublease or the Subleased Premises requiring Sublandlord’s consent.
14.INCORPORATION OF OVERLEASE BY REFERENCE. Except to the extent such terms and provisions are inconsistent with or are specifically contrary to the express written provisions of this Sublease and except as set forth below, all of the terms, covenants and conditions of the Overlease are by this reference incorporated herein and made a part of this Sublease with the same force and effect as if fully set forth herein, except that: (a) each reference in such incorporated sections to “Lease” or “Term” shall be deemed a reference to this Sublease and the Term of this Sublease, respectively; (b) each reference to “Landlord” and “Tenant” shall be deemed a reference to “Sublandlord” and “Subtenant”, respectively, except as otherwise expressly set forth herein; (c) each reference to “Base Tax Year” and “Base Expense Year” shall refer to the Base Tax Year and Base Expense Year as set forth herein; (d) each reference to “Premises” shall be deemed a reference to the Subleased Premises herein, and each reference to the “Commencement Date” shall be deemed a reference to the Commencement Date herein; (e) the following provisions shall not be included: Sections 1 (except for definitions of “Building,” “Land,” “Property” and “Permitted Use”), 3, 4, 6 (except the second paragraph of Section 6.1, 6.3, 6.4, 6.5 and 6.6), 18.1 (the last sentence only), 18.6, 23, 25.1, 26, 28.1 (second sentence only), 29, 33 (the first, second and third sentences only), 40.2 (subsection (A) of the first\ sentence only), 41, 51, 52, Exhibits B-F of the Original Lease; the First Amendment to Lease, Second Amendment to Lease, Third Amendment to Lease; (f) references in the following provisions to “Landlord” shall mean “Overlandlord”: Sections 2 (the second and third paragraphs only), 6.7, 7.1, 9 , 10.2, 10.3, 11, 12.2, 12.3(B), 12.4, 14, 15, 17, 18.2, 19 (the first sentence in the second paragraph only), 21.1, 24, 30 and 49 of the Original Lease; (g) wherever there is a requirement to pay the costs and expenses of “Landlord,” Subtenant shall only be obligated to pay Overlandlord’s cost and expenses and not both Sublandlord’s and Overlandlord’s costs and expenses; and (h) Subtenant shall not be responsible for any taxes payable by Sublandlord pursuant to Section 6.6 of the Overlease. In the event of a conflict between the express

8

122587131v.1


provisions of this Sublease and the Overlease incorporated herein, as between Sublandlord and Subtenant, the express provisions of this Sublease shall control.

Notwithstanding anything to the contrary herein, Sublandlord shall fully perform all of its obligations under the Overlease to the extent Subtenant has not expressly agreed to perform such obligations under this Sublease and shall not take any actions that would unreasonably interfere with Subtenant’s use of the Subleased Premises. Sublandlord shall not terminate or take any actions giving rise to a termination right under the Overlease, amend or waive any provisions under the Overlease or make any alterations, exercise any right or remedy or give any consent or approval under the Overlease that could adversely affect Subtenant’s use or occupancy of the Subleased Premises or Subtenant’s rights or obligations under this Sublease without, in each instance, Subtenant’s prior written consent. Sublandlord, with respect to the obligations of Overlandlord under the Overlease, shall use Subtenant’s diligent good faith efforts to cause Overlandlord to perform such obligations for the benefit of Subtenant. Such diligent good faith efforts shall include, without limitation, upon Subtenant’s written request, immediately notifying Overlandlord of its nonperformance under the Overlease, and requesting that Overlandlord perform its obligations under the Overlease.

15.CONSENTS. In no event shall Sublandlord be liable for failure to give its consent or approval in any situation where consent or approval has been withheld or refused by Overlandlord, whether or not such withholding or refusal was proper.
16.INSURANCE. Subtenant shall obtain and maintain all insurance types and coverage for the Subleased Premises as specified in the Overlease, as incorporated herein. All such policies of insurance shall be subject to and comply with the terms and provisions of the Overlease and shall, in addition, name Sublandlord as an additional insured thereunder to the extent required by the Overlease, as incorporated herein. Subtenant hereby agrees that the property damage insurance carried by Subtenant hereunder shall provide for the waiver by the insurance carrier of any right of subrogation against Sublandlord and Overlandlord, and Subtenant further agrees that, with respect to any damage to property, the loss of which is covered by insurance carried by Subtenant under this Sublease, Subtenant releases Sublandlord and Overlandlord from any and all claims with respect to such loss to the extent of the insurance proceeds paid with respect thereto. The release and waiver of subrogation set forth in Section 21.14 of the Overlease, as incorporated herein, shall be binding on the parties.
17.DEFAULTS; REMEDIES. Each of the following shall constitute an Event of Default by Subtenant hereunder: (i) the failure to make any payment of rent or any installment thereof or to pay any other sum required to be paid by Subtenant under this Sublease or under the terms of any other agreement between Sublandlord and Subtenant and the continuance of such failure for more than five (5) days following written notice from Sublandlord to Subtenant; (ii) the use or occupancy of the Subleased Premises for any purpose other than the Permitted Use without Sublandlord’s prior written consent or the conduct of any activity in the Subleased Premises which constitutes a violation of law and continues for twenty (20) days after written notice from Sublandlord to Subtenant; (iii) if the interest of Subtenant or any part thereof under this Sublease shall be levied on under execution or other legal process and said interest shall not have been cleared by said levy or execution within twenty (20) days from the date thereof; (iv) if any voluntary or involuntary petition in bankruptcy or for corporate reorganization or any similar

9

122587131v.1


relief shall be filed by or against Subtenant or any guarantor of the Sublease or if a receiver shall be appointed for Subtenant or any guarantor or any of the property of Subtenant or guarantor, unless such petition or appointment shall not be discharged within twenty (20) days; (v) if Subtenant or any guarantor of the Sublease shall make an assignment for the benefit of creditors or if Subtenant shall admit in writing its inability to meet Subtenant’s debts as they mature; (vi) if any insurance required to be maintained by Subtenant pursuant to this Sublease shall be cancelled or terminated or expires or shall be reduced or materially changed, except, in each case, as permitted in this Sublease, or agreed to in writing, mutually, by the parties, and such replacement insurance is not provided within twenty (20) days after written notice from Sublandlord to Subtenant; (vii) if Subtenant shall fail to discharge or bond over any lien placed upon the Subleased Premises in violation of this Sublease within twenty (20) days; (viii) Subtenant’s failure to provide a statement in writing as and when required under Section 3 of this Sublease, or (ix) the failure to observe or perform any of the other covenants or conditions in this Sublease which Subtenant is required to observe and perform and which Subtenant has not corrected within twenty (20) days after written notice thereof to Subtenant; provided, however, that if said failure involves the creation of a condition which, in Sublandlord’s reasonable judgment, is dangerous or hazardous, Subtenant shall be required to cure same within 24 hours.

Upon the occurrence of an Event of Default by Subtenant, Sublandlord may, at its option, with or without notice or demand of any kind to Subtenant or any other person, exercise any one or more of the following described remedies, in addition to all other rights and remedies provided at law, in equity or elsewhere herein, and such rights and remedies shall be cumulative and none shall exclude any other right allowed by law:

(i)Sublandlord may terminate this Sublease, repossess and re-let the Subleased Premises, in which case Sublandlord shall be entitled to recover as damages (in addition to any other sums or damages for which Subtenant may be liable to Sublandlord) a lump sum equal to the amount of Fixed Rent remaining to be paid by Subtenant for the balance of the Term.

(ii)Sublandlord may, without terminating the Sublease, terminate Subtenant’s right of possession, repossess the Subleased Premises including, without limitation, removing all or any part of Subtenant’s personal property in the Subleased Premises and to place such personal property in storage or a public warehouse at the expense and risk of Subtenant, and relet the same for the account of Subtenant for such rent and upon such terms as shall be satisfactory to Sublandlord. For the purpose of such reletting, Sublandlord is authorized to decorate, repair, remodel or alter the Subleased Premises. Subtenant shall pay to Sublandlord as damages a sum equal to all Rent under this Sublease for the balance of the Term unless and until the Subleased Premises are relet. If the Subleased Premises are relet, Subtenant shall be responsible for payment upon demand to Sublandlord of any deficiency between the rent as relet and the rent for the balance of this Sublease, all costs and expenses of reletting, and all reasonable decoration, repairs, remodeling, alterations, additions and collection of the rent accruing there from. Subtenant shall not be entitled to any rents received by Sublandlord in excess of the rent provided for in this Sublease. No re-entry or taking possession of the Subleased Premises by Sublandlord shall be construed as an election to terminate this Sublease unless a written notice of such intention be given to Subtenant or unless the termination thereof be decreed by a court of competent jurisdiction.

10

122587131v.1


18.NO WAIVER. No waiver of any provision of this Sublease shall be implied by any failure of Sublandlord to enforce any remedy on account of the violation of such provision, even if such violation be continued or repeated subsequently, and no express waiver by Sublandlord shall be valid unless in writing and shall not affect any provision other than the one specified in such written waiver and that provision only for the time and in the manner specifically stated in the waiver. No receipt of monies by Sublandlord from Subtenant after the termination of this Sublease shall in any way alter the length of the Term or Subtenant’s right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the Term or affect any notice given Subtenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Subleased Premises, Sublandlord may receive and collect any rent due, and the payment of rent shall not waive or affect said notice, suit or judgment. Sublandlord shall not be required to serve Subtenant with any notices or demands as a prerequisite to its exercise of any of its rights or remedies under this Sublease, other than those notices and demands specifically required under this Sublease.
19.NOTICE. Whenever, by the terms of this Sublease, any notice, demand, request, approval, consent or other communication (each of which shall be referred to as a “notice”) shall or may be given either to Sublandlord or to Subtenant, such notice shall be in writing and shall be sent by hand delivery, reputable overnight courier, or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows (or to such other address or addresses as may from time to time hereafter be designated by Sublandlord or Subtenant, as the case may be, by like notice):

(a)If intended for Sublandlord, to:

Albireo Pharma, Inc.

53 State Street, 19th Floor

Boston, MA 02109

Attention: CFO

With a copy to:Mintz Levin Cohn Ferris Glovsky and Popeo, P.C.

One Financial Center

Boston, MA 02111

Attn: Geoffrey H. Smith, Esq.

(b)If intended for Subtenant, to:

Prior to the Commencement Date:

Hi Marley, Inc.

77 Franklin Street, 9th Floor,

Boston, Massachusetts 02110

Attn: General Counsel

11

122587131v.1


After the Commencement Date:

Hi Marley, Inc.

10 Post Office Square, 10th Floor

Boston, MA 02109

Attn: General Counsel

All such notices shall be deemed to have been served on the date of actual receipt (in the case of hand delivery), or one (1) business day after such notice shall have been deposited with a reputable overnight courier, or three (3) business days after such notice shall have been deposited in the United States mails within the continental United States (in the case of mailing by registered or certified mail as aforesaid).

20.SURRENDER OF SUBLEASED PREMISES. Upon the expiration or earlier termination of this Sublease, Subtenant shall remove all Subtenant’s goods and effects from the Subleased Premises (including, without hereby limiting the generality of the foregoing, all signs and lettering affixed or painted by Subtenant, either inside or outside the Subleased Premises and the Transferred Property) and deliver to Sublandlord the Subleased Premises and all keys, locks thereto, and quit and surrender the Subleased Premises to Sublandlord in the condition existing as of the Commencement Date, ordinary wear and tear, casualties, condemnation, Hazardous Materials (other than those released or omitted by Subtenant in or about the Subleased Premises) and repairs not Subtenant’s responsibility under this Sublease, excepted. Subtenant will remove any Alterations, trade fixtures, equipment, data and telecommunications cabling and wiring installed by or on behalf of Subtenant required to be removed by Overlandlord under the Overlease, and Subtenant will fully repair any damage occasioned by the removal of the same. Notwithstanding the foregoing, Subtenant shall not be required to remove any alterations or improvements located in the Subleased Premises as of the Commencement Date, except for the Transferred Property, which Subtenant shall remove as required under the Overlease.

In the event of Subtenant’s failure to remove any of Subtenant’s property from the Subleased Premises as required hereunder, Sublandlord and Overlandlord are hereby authorized, without liability to Subtenant for loss or damage thereto, and at the sole risk of Subtenant, to remove and store any of the property at Subtenant’s expense, or to retain same under Sublandlord’s or Overlandlord’s control or, upon ten (10) days prior written notice to Subtenant (and Subtenant’s failure to pick up such property within such ten (10) day period), to sell at public or private sale, and to apply the net proceeds of such sale to the payment of any sum due hereunder. Without limiting the foregoing or any other provisions herein, if Subtenant fails to surrender the Subleased Premises to Sublandlord upon early termination or expiration of this Sublease as herein required, Subtenant shall pay to Sublandlord on account of use and occupancy of the Subleased Premises for each month or portion thereof during which Subtenant (or anyone claiming by, through or under Subtenant) holds over in the Subleased Premises an amount equal to one hundred fifty percent (150%) of the then current Fixed Rent payable hereunder, or one hundred fifty percent (150%) of the fair market rental for the Subleased Premises, for the time Tenant remains in possession, plus, in each case all Additional Rent and other sums payable hereunder, and Subtenant shall indemnify Sublandlord for all loss, cost, damage, expense or injury resulting therefrom, including and increased rental or other damages suffered by Sublandlord as a result of such holding over.

12

122587131v.1


21.BROKERS. Sublandlord utilized the services of CBRE (the “Listing Broker”) and Subtenant was representing by Colliers (the “Procuring Broker”) in connection with this Sublease. Subtenant and Sublandlord each represent to the other party that it did not involve any other broker in procuring this Sublease. Sublandlord shall pay the commission due the Listing Broker and Procuring Broker per a separate agreement. Subtenant and Sublandlord agree to forever indemnify, defend and hold the other party harmless from and against any commissions, liability, loss, cost, damage or expense (including reasonable attorneys’ fees) that may be asserted against or incurred by Sublandlord or Subtenant by any broker other than the Listing Broker or Procuring Broker as a result of any misrepresentation by Subtenant or Sublandlord hereunder.
22.COUNTERPARTS. This Sublease may be executed in one 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. Any signature to this Sublease transmitted via facsimile or other electronic signature (e.g. DocuSign) shall be deemed an original signature and be binding upon the parties hereto (it being agreed that facsimile or other electronic signature shall have the same force and effect as an original signature).
23.CONDITION PRECEDENT. This Sublease and Sublandlord’s and Subtenant’s obligations hereunder are conditioned upon the written consent of Overlandlord in a form reasonably satisfactory to Subtenant. Each party shall use commercially reasonable efforts to obtain such consent, including by promptly signing Overlandlord’s commercially reasonable consent form. If Sublandlord fails to obtain Overlandlord’s consent within thirty (30) days after execution of this Sublease by Sublandlord despite using commercially reasonable efforts to obtain such consent, then either Sublandlord or Subtenant may terminate this Sublease by giving the other party written notice thereof prior to receipt of such consent, and Sublandlord shall return to Subtenant the Security Deposit.

[signature page follows]

13

122587131v.1


IN WITNESS WHEREOF, Sublandlord and Subtenant herein have duly executed this instrument on the day and year first above written.

SUBLANDLORD:ALBIREO PHARMA, INC.,

a Delaware corporation

By: /s/ Ronald Cooper​ ​

Name: Ronald Cooper

Title: President and Chief Executive Officer

SUBTENANT:Hi Marley, Inc.,

a Delaware corporation

By: /s/ Neil A. Murphy​ ​

Name: Neil A. Murphy

Title: CFO

[Signature Page to Sublease Agreement]

122587131v.1


EXHIBIT A

OVERLEASE

[Signature Page to Sublease Agreement]

122587131v.1


EXHIBIT B

SUBLEASED PREMISES

Graphic

[Signature Page to Sublease Agreement]

122587131v.1


EXHIBIT C

TRANSFERRED PROPERTY

[Signature Page to Sublease Agreement]

122587131v.1


Exhibit 10.36

SUBLEASE AGREEMENT

This SUBLEASE AGREEMENT, dated as of this 7th day of December, 2021, is made by and between INSTITUTE FOR HEALTHCARE IMPROVEMENT, a Michigan corporation (“Sublandlord”), and ALBIREO PHARMA, Inc., a Delaware corporation (“Subtenant”).

RECITALS:

A.Sublandlord, as tenant, leases the Master Lease Premises from Master Landlord under the Master Lease for the Master Lease Term.

B.Subtenant desires to sublease from Sublandlord, and Sublandlord desires to sublease to Subtenant, that portion of the Master Lease Premises comprising the Sublease Premises.

NOW, THEREFORE, in consideration of the recitals above and the promises below, the parties hereto agree as follows:

ARTICLE 1.
BASIC SUBLEASE PROVISIONS

Property Location:

53 State Street, Boston, MA

Sublandlord:

Institute for Healthcare Improvement, a Michigan corporation

Sublandlord’s Address:

Institute for Healthcare Improvement

53 State Street, 18th Floor

Boston, MA 02109

Attn: Amy Hosford-Swan, Chief Financial Officer

Subtenant:

Albireo Pharma, Inc., a Delaware corporation

Subtenant’s Address:

Albireo Pharma, Inc.

53 State Street, 19th Floor

Boston, MA 02109

Attention: Chief Financial Officer

Sublease Premises:

Approximately 26,962 rentable square feet of space, representing the entire nineteenth (19th) floor of the Building, as more particularly shown on the attached Exhibit A.

Base Rent:

During the Sublease Term, Base Rent shall be as follows:

122587136v.1


-2-

Lease Months

Annual Basic
Rent

Monthly Basic
Rent

Rent Per
Square Foot

1-6

$0.00

$0.00

$0.00

7-18

$1,482,910

$123,575.83

$55.00

19-30

$1,512,568

$126,047.33

$56.10

31-42

$1,542,765.64

$128,563.80

$57.22

43-54

$1,573,502.32

$131,125.19

$58.36

55-66

$1,605,047.86

$133,753.99

$59.53

67-78

$1,637,132.64

$136,427.72

$60.72

79-90

$1,669,756.66

$139,146.39

$61.93

91-95*

$1,703,189.54

$141,932.46

$63.17

* In the event the Sublease Commencement Date occurs prior to March 1, 2022, Monthly Base Rent for any Lease Month after Lease Month 95 shall total $141,932.46.

Base Rent Commencement Date

Six (6) months after the Sublease Commencement Date

Base Year:

(a) For Operating Expenses, Insurance Expenses and Utility Expenses (as defined in the Master Lease), calendar year ending December 31, 2022

(b) For Taxes (as defined in the Master Lease), fiscal year ending June 30, 2023

Subtenant’s Proportionate Share:

76.01%, based on the ratio of the (a) Sublease Premises to (b) Master Lease Premises, as the Master Lease Premises may be increased from time to time pursuant to the terms of Section 60 of the Master Lease.

Additional Rent:

Subtenant’s Proportionate Share of any escalation above the applicable Base Year (as defined herein) for Operating Expenses, Insurance Expenses, Utility Expenses and Taxes (as defined in the Master Lease), as well as, any and all costs in connection with Subtenant’s Parking Spaces (defined below), electricity consumed on the Sublease Premises, or otherwise expressly set forth herein.

Sublease Term:

Commencing upon the earlier of (a) March 1, 2022, and (b) Subtenant’s use of the Sublease Premises for the Permitted Use (the “Sublease Commencement Date”); (provided, however, in no event may the Sublease Commencement Date occur prior to the Possession Date) and expiring on January 31, 2030 (the “Sublease Expiration Date”).

122587136v.1


-3-

Possession Date:

December 15, 2021, which (subject to the terms set forth in Section 4.04) is the date upon which Sublandlord shall deliver the Sublease Premises to Subtenant in the condition required by this Sublease.

Early Entry Period:

The period from the Possession Date until the Sublease Commencement Date; provided, however, in the event the Possession Date occurs after December 15, 2021 due to reasons solely related to (i) Sublandlord’s inability to deliver the Sublease Premises in the condition required under this Sublease, or (ii) Master Landlord’s consent of this Sublease is not obtained by December 15, 2021 (and such delay in the receipt of the consent is not caused by any act or omission of Subtenant or by Sublandlord’s failure to use commercially reasonable efforts to obtain such consent), then the Sublease Commencement Date shall be extended on a day-for-day basis such that Subtenant shall have not less than a seventy-five (75) day early access period so long as the Sublease Commencement Date is not previously triggered by Subtenant’s use of the Sublease Premises for the Permitted Use and does not occur prior to the Possession Date.  Notwithstanding anything in this Sublease to the contrary, if the Possession Date does not occur on or before January 15, 2022 for any reason, then Subtenant shall have the right, upon prior written notice to Sublandlord, to terminate this Sublease.

Building:

The building located on that certain parcel of real estate having an address of 53 State Street, Boston, MA (the ‘Property”).

Master Landlord:

53 State Property, L.P.

Master Lease:

Office Lease Agreement dated June 29, 2017, as amended by that certain First Amendment dated February 1, 2019, redacted copies of which are attached hereto as Exhibit B.

Master Lease Premises:

Approximately 35,473 square feet of rentable area in the Building.

Permitted Use:

General office use consistent with the standards of a “Class A” office building and such ancillary uses in connection therewith, but all only to the extent as shall be reasonably required by Tenant in the operation of its business, and all subject to, and only to the extent permitted by, applicable law.

Security Deposit:

$370,727.49

122587136v.1


-4-

ARTICLE 2.
INCORPORATION OF MASTER LEASE
2.01Incorporation of Master Lease.  The parties agree that this Sublease is subject and subordinate to the Master Lease.  A true and complete copy of the Master Lease, with the financial terms redacted, is attached hereto and has been previously delivered to Subtenant.  In addition, the parties agree that the Master Lease attached hereto is incorporated herein by reference, except as herein otherwise expressly provided, and except those which by their nature or purpose are inapplicable to the subleasing of the Sublease Premises or are inconsistent with or modified by any of the terms, covenants or conditions of this Sublease; and such rights and obligations as are contained in the Master Lease are hereby imposed upon the respective parties hereto with the same force and effect as if (i) references in the Master Lease to the “Lease” and the “Premises” were references, respectively, to this “Sublease” and the “Sublease Premises”, and (ii) references in the Master Lease to “Landlord” and “Tenant” were references, respectively, to “Sublandlord” and to “Subtenant”, and (iii) references in the Master Lease to “Term” is a reference to the “Sublease Term”.  Subtenant agrees that it shall, at all times during the Sublease Term, keep, observe, and perform the obligations to be performed by Sublandlord as tenant under the Master Lease with respect to the Sublease Premises, except as otherwise herein provided.  Whenever a provision of the Master Lease incorporated herein by reference affords Sublandlord some right against Master Landlord, such provision as incorporated herein shall afford Subtenant such right against Sublandlord.  In amplification and not in limitation of the foregoing, Subtenant shall have the same rights and remedies with respect to a breach of this Sublease by Sublandlord as Sublandlord has with respect to a breach of the Master Lease by Master Landlord, as if the same were more fully set forth at length herein, and Subtenant shall have, with respect to Sublandlord, this Sublease and the Sublease Premises, all of the rights, powers, privileges and immunities as are had by Sublandlord under the Master Lease.  As between Sublandlord and Subtenant only, all provisions of the Master Lease are subject to the express provisions of this Sublease, and any inconsistency between a provision of this Sublease and a provision of the Master Lease shall be resolved by reference to this Sublease unless otherwise stated.  Whenever the Master Lease requires the consent of Master Landlord for an act or omission of “Tenant” that is incorporated into this Sublease, then Sublandlord’s separate consent also shall be required; provided, however, that Sublandlord’s separate consent shall not be unreasonably withheld, delayed or conditioned unless otherwise expressly provided in this Sublease.  Notwithstanding the anything in this Sublease to the contrary, Sublandlord and Subtenant expressly agree that the following terms, covenants and conditions of the Master Lease are expressly excluded from this Sublease and are inapplicable to Subtenant (i.e., they shall not be deemed to be incorporated in this Sublease) either because they are inapplicable or because they are superseded by specific provisions hereof:

a)

Basic Lease Provisions (except Premises Square Footage, Premises Address, Property, Building, Permitted Use and Unreserved Parking Spaces)

b)

Paragraphs 2 and 3 of Section 2 (Premises)

c)

Section 3 (Term)

d)

Sections 4(a) (Base Rent), (d) (General Payment Terms)

122587136v.1


-5-

e)

Section 6 (Late Charge)

f)

Section 7 (Security Deposit; Letter of Credit)

g)

Section 8 (Possession)

h)

Section 10 (Acceptance of Premises)

i)

Section 11 (Surrender)

j)

Section 14 (Landlord’s Insurance)

k)

Section 16 (Indemnification)

l)

Section 24(a) (Tenant Default)

m)

Section 25 (Landlord’s Remedies)

n)

Section 33 (Notices)

o)

Section 38 (Brokers)

p)

Section 43 (Relocation)

q)

Section 46 (Interest)

r)

Section 57 (Extension Option)

s)

Section 60 (Right of First Offer)

t)

Exhibits B-1, B-2 and C;

u)

First Amendment

2.02Binding Effect of Master Lease.  Subtenant agrees, for the benefit of Sublandlord and Master Landlord, to abide by and perform during the Sublease Term all of the terms and provisions set forth in the Master Lease pertaining to the Sublease Premises, except as otherwise expressly provided by this Sublease, and Sublandlord agrees, for the benefit of Subtenant and Master Landlord, to abide by and perform during the Sublease Term all of the terms and provisions set forth in the Master Lease pertaining to the portion of the Master Lease Premises not being subleased to Subtenant under this Sublease.  Neither Sublandlord nor Subtenant shall commit nor permit to be committed on the Sublease Premises any act or omission that in any way violates any term or condition of the Master Lease.
2.03Maintenance of Master Lease.  Sublandlord agrees to maintain the Master Lease in full force and effect during the Sublease Term, subject however to any earlier termination of all or any part of the Master Lease without the fault or voluntary acts or omissions of Sublandlord.  If the Master Lease is terminated for any reason, then (i) this Sublease shall terminate as, when and to the extent the Master Lease is terminated, and (ii) Sublandlord shall immediately notify

122587136v.1


-6-

Subtenant thereof.  So long as Subtenant makes timely payment to Sublandlord of all Rent payable by Subtenant under this Sublease, Sublandlord shall make timely payment of all Rent due to Master Landlord under the Master Lease.  Sublandlord shall not agree to amend or modify the Master Lease in any way that would increase Subtenant’s obligations or diminish Subtenant’s rights under this Sublease, which includes the exercise of any contraction rights or termination rights afforded to Sublandlord under the Master Lease affecting the Sublease Premises, without the prior written consent of Subtenant in its sole and absolute discretion.  Sublandlord shall not do anything that would cause the Master Lease to be terminated or forfeited, subject however to any earlier termination of all or any part of the Master Lease without the fault or voluntary acts or omissions of Sublandlord.  Sublandlord shall promptly give Subtenant a copy of any notice of default, termination or otherwise affecting the existence or validity of the Sublease or relating to any casualty or taking, given by Sublandlord or Master Landlord to the other.
2.04Obligations of Master Landlord.  Subtenant agrees that no failure or delay on the part of Master Landlord to supply any service, make any repair or take any action required under the Master Lease shall constitute a default by Sublandlord under this Sublease, constitute a constructive eviction, give rise to a claim against Sublandlord for damages or otherwise constitute a breach of this Sublease by Sublandlord, unless the same arises from the Sublandlord’s failure to pay when due any amounts owed to the Master Landlord or the utility provider (but only in the event that Subtenant has paid such amounts to Sublandlord) or involves a default by Sublandlord under the Master Lease with respect to the portion of the Master Lease Premises not being subleased to Subtenant under this Sublease.  Any obligation of Sublandlord that is contained in this Sublease by incorporating the provisions of the Master Lease shall be observed or performed by Sublandlord’s using commercially reasonable efforts, after written notice from Subtenant, to cause the Master Landlord to observe and/or perform the same, and Sublandlord shall have the same period of time as set forth in the Master Lease to enforce its rights to cause such observance or performance.  If and to the extent that Master Landlord fails to perform its obligations under the Master Lease, Sublandlord shall not be obligated to perform such obligations; provided, however, that so long as no Default (defined below) exists, Sublandlord agrees to use commercially reasonable efforts and reasonably cooperate with Subtenant to cause Master Landlord to observe and/or perform its obligations under the Master Lease, and upon the request of Subtenant, to exercise Sublandlord’s rights and remedies as set forth in the Master Lease on account of any such default of Master Landlord.  Notwithstanding the immediately preceding sentence, Sublandlord shall have no obligation whatsoever to commence any litigation or arbitration proceeding to enforce the terms and conditions of the Master Lease, however, Sublandlord shall assign to Subtenant its rights to pursue in litigation any claim against Master Landlord in the name of and on behalf of Sublandlord.  If as a result of any default by Master Landlord as landlord under the Master Lease, Sublandlord as tenant under the Master Lease is entitled to any offset or similar rights against Master Landlord, Subtenant shall be entitled to a fair and equitable share of such offset or similar rights.
ARTICLE 3.
SUBLEASE PREMISES
3.01Sublease Premises.  Sublandlord hereby subleases to Subtenant, and Subtenant hereby subleases from Sublandlord, the Sublease Premises, subject to the terms and conditions herein contained.

122587136v.1


-7-

3.02Condition of Sublease Premises.  On the Sublease Commencement Date, Sublandlord shall deliver, and Subtenant shall accept possession of, the Sublease Premises in “as-is” “where-is” condition.  The Sublandlord makes no representations or warranties with respect to the condition of the Sublease Premises.  Notwithstanding anything in this Sublease to the contrary, Sublandlord shall deliver the Sublease Premises to Subtenant on the Sublease Commencement Date vacant, free of all trash, debris, and personal property other than the FF&E (as defined below), and in broom clean condition.  Sublandlord represents that as of the date hereof, it has not received written notice that the Sublease Premises is not in compliance with any statutes, codes, ordinances, orders, rules or regulations of any municipal or governmental entity, including the Americans with Disabilities Act, or that the Sublease Premises contains any hazardous or toxic materials as defined by federal law.  If, prior to the Sublease Commencement Date, Sublandlord receives notice that the Sublease Premises is in violation of any law with which Sublandlord must comply under the Master Lease, Sublandlord shall comply with such law or remove such hazardous or toxic materials from the Sublease Premises, as the case may be.
3.03Building Common Areas.  Subtenant shall have the right, in common with others, to reasonable use of the Common Areas of the Building, as and to the extent permitted, and subject to the rules and regulations imposed, by Master Landlord under the Master Lease, and subject to such other reasonable rules and regulations as may be established by Sublandlord from time to time.  Sublandlord shall give advance written notice to Subtenant of any such rule or regulation.
ARTICLE 4.
TERM
4.01Term.  The Sublease Term shall commence on the Sublease Commencement Date and shall expire on the Sublease Expiration Date, unless this Sublease is sooner terminated as provided herein.
4.02Master Landlord Consent to Sublease.  Pursuant to Section 23 of the Master Lease, the Master Landlord’s consent is required for this Sublease.  Accordingly, this Sublease shall be of no force and effect unless and until Master Landlord consents in writing.  In addition, Subtenant hereby agrees to provide any and all information, documents and financial reports required by Master Landlord pursuant to Section 23 of the Master Lease in connection with Sublandlord’s request for Master Landlord’s consent to this Sublease, and Sublandlord shall deliver to Master Landlord any other documents required under Section 23 of the Master Lease in connection with Master Landlord’s evaluation of this Sublease.
4.03No Renewal Option.  Sublandlord and Subtenant hereby acknowledge that this Sublease shall terminate on the Expiration Date without any express or implied option of the Subtenant to renew the Sublease Term or otherwise extend the Sublease Term.
4.04Early Entry Period.  Subject to the terms hereof, during the Early Entry Period Sublandlord shall allow Tenant a nonexclusive license to access the Sublease Premises for the purposes of Subtenant installing furniture, fixtures and equipment (including Subtenant’s data and telephone equipment) in the Sublease Premises, provided that: (i) prior to Subtenant first entering the Sublease Premises, Subtenant has (a) paid the Security Deposit to Sublandlord, and (b) delivered to Sublandlord certificates of insurance and other evidence sufficient to show that

122587136v.1


-8-

Subtenant is carrying the insurance required under this Sublease, and (ii) Subtenant shall have no access to the “Server Room” (as depicted on Exhibit A attached hereto) unless and until Sublandlord has (a) removed its personal property contained therein, and (b) provided Subtenant with advance written consent; provided, however, Sublandlord shall remove such personal property and provide such consent on or prior to December 30, 2021.  In connection with any such entry, Subtenant acknowledges and agrees that Subtenant’s employees, agents, contractors, consultants, workmen, mechanics, suppliers and invitees shall fully cooperate, work in harmony and not, in any manner, materially interfere with Sublandlord’s or Sublandlord’s contractors’ work at the Master Lease Premises.  If at any time during the Early Entry Period, any such person representing Subtenant shall not be cooperative or shall otherwise cause or threaten to cause any such disharmony or interference, including, without limitation, labor disharmony, and Subtenant fails to promptly institute and maintain corrective actions as directed by Sublandlord in written notice to Subtenant, then Sublandlord may temporarily revoke Subtenant’s entry rights upon twenty-four (24) hours’ prior written notice to Subtenant.  Subtenant acknowledges and agrees that any such entry into and occupancy of the Sublease Premises or any portion thereof by Subtenant or any person or entity working for or on behalf of Subtenant during the Early Entry Period shall be deemed to be subject to all of the terms, covenants, conditions and provisions of the Sublease, excluding only the covenant to pay Rent.  Subtenant further acknowledges and agrees that Sublandlord shall not be liable for any injury, loss or damage which may occur to any of Subtenant’s work made in or about the Sublease Premises in connection with such entry or to any property placed therein during the Early Entry Period, the same being at Subtenant’s sole risk and liability.  Subtenant shall be liable to Sublandlord for any damage to any portion of the Sublease Premises caused by Subtenant or any of Subtenant’s employees, agents, contractors, consultants, workmen, mechanics, suppliers or invitees during the Early Entry Period, except to the extent directly caused by the gross negligence or willful misconduct of Sublandlord and subject to the waiver of subrogation incorporated from the Master Lease into this Sublease.
ARTICLE 5.
RENT
5.01Base Rent.  Commencing upon the Base Rent Commencement Date, Subtenant covenants and agrees to pay to Sublandlord an annual base rent (“Base Rent”) in the Amounts set forth in Article 1 hereof, payable in equal monthly installments, in advance.  The monthly installments of Base Rent shall be due in advance on the first (1st) day of each calendar month beginning on the Base Rent Commencement Date.  In the event the Base Rent Commencement Date or the Expiration Date is a day other than the first (1st) day of a calendar month, then in any such event the monthly installment of Base Rent payable hereunder for the applicable calendar month shall be prorated based on the number of days in such calendar month.  The term “Rent” as used in this Sublease, unless otherwise stated, shall mean the Base Rent set forth in this Section 5.01, plus all additional amounts payable by Subtenant hereunder (“Additional Rent”), and Sublandlord shall have all rights and remedies for non-payment of Additional Rent as it has for non-payment of Base Rent.  Subtenant shall be entitled to a fair and equitable share of all rent abatements to which Sublandlord is entitled under the Master Lease, if any, with respect to the Sublease Premises.
5.02Payment of Base Rent.  Base Rent hereunder shall be payable in equal monthly installments, in advance, commencing on the Base Rent Commencement Date and on the first (1st

122587136v.1


-9-

day of each calendar month thereafter during the Sublease Term, without demand, setoff, abatement or deduction, except as otherwise expressly provided herein, and shall be payable to Sublandlord in lawful money of the United States at the address stated in this Sublease (or at such other place as Sublandlord may designate in writing).
5.03Additional Rent.  Additional Rent hereunder shall be payable within thirty (30) days after Sublandlord provides Subtenant with a commercially reasonable written invoice therefor commencing on the Sublease Commencement Date, without demand, setoff, abatement or deduction, except as otherwise expressly provided herein, and shall be payable to Sublandlord in lawful money of the United States at the address stated in this Sublease (or at such other place as Sublandlord may designate in writing).
5.04Security Deposit.  Concurrent with its execution of this Sublease, Subtenant shall deliver to Sublandlord, as security for Subtenant’s faithful payment of Rent and performance of all Subtenant’s other obligations hereunder, the Security Deposit.  Sublandlord shall not be required to pay any interest on the Security Deposit.  Sublandlord shall be entitled to draw upon the Security Deposit, and use, apply and retain the proceeds thereof to cure any Default of Subtenant under this Sublease.  If Sublandlord so draws upon the Security Deposit, or uses, applies or retains the proceeds thereof, Subtenant shall, within five (5) business days of receipt of written notice, tender to Sublandlord cash in an amount sufficient to restore the Security Deposit to the full amount required under this Section 5.04.  Sublandlord shall return the Security Deposit (less any amounts used or applied as permitted herein) to Subtenant within forty-five (45) days after the later to occur of (i) the expiration or earlier termination of this Sublease and (ii) Subtenant’s surrender of the Sublease Premises in the condition required under this Sublease.
5.05Late Payments.  In the event any Monthly Base Rent payment, Additional Rent payment or any other payment due from Subtenant hereunder is not paid within five (5) days after Sublandlord provides written notice to Subtenant that the same is overdue, Subtenant shall also pay to Sublandlord a late fee of five percent (5%) of such delinquent payment; provided, however, Sublandlord shall only be obligated to provide such written notice to Subtenant prior to such late fee being due one (1) time in any consecutive twelve (12) month period.  The parties agree that the amount of said late charge represents a reasonable estimate of the cost and expense that would be incurred by Sublandlord in processing each delinquent payment of Rent by Subtenant and that such late charge shall be paid to Sublandlord as liquidated damages for each delinquent payment.  In addition, unpaid Monthly Base Rent and Additional Rent shall also bear interest at the lesser of eight percent (8%) per annum or the maximum rate per annum which Sublandlord is permitted by law to charge, from the date due until paid in the event any such sums are not paid within five (5) business days after written notice from Sublandlord.  The aforesaid late charges and interest are intended to compensate Sublandlord for its costs arising by reason of any such late payment and are not intended to constitute a waiver by Sublandlord of any other right or remedy available to Sublandlord arising by reason of Subtenant’s failure to timely perform its monetary obligations hereunder.

122587136v.1


-10-

ARTICLE 6.
SERVICES
6.01Services.  The Sublease Premises is separately metered for electricity and Subtenant shall pay to Sublandlord, as Additional Rent, any and all costs, fees and/or expenses in connection with Subtenant’s consumption of electricity within the Sublease Premises.  Sublandlord and Subtenant hereby acknowledge that: (i) gas and water utility costs are included within Utility Expenses, and shall be included within Subtenant’s obligation to pay Additional Rent, and (ii) Subtenant shall directly contract with the applicable utility providers for any other utilities furnished to the Sublease Premises, including cable and telephone service.  Should Subtenant desire additional utilities, it shall make all arrangements for and pay for all such additional hookups and may only make application for them with Sublandlord’s and Master Landlord’s written consent, which, with respect to Sublandlord, shall not be unreasonably withheld, conditioned or delayed.  Neither Sublandlord nor Master Landlord shall be liable to Subtenant, in damages or otherwise, for any interruption in the service of any utility serving the Sublease Premises unless resulting from the negligence or willful misconduct of Sublandlord or Master Landlord.
6.02Parking.  Subtenant shall have the rights to use three (3) nonexclusive and undesignated parking spaces in the Parking Area (as defined in the Master Lease) subject to the terms of Section 44 of the Master Lease (“Subtenant’s Parking Spaces”).  Subtenant shall pay to Sublandlord, as Additional Rent, any and all parking charges imposed by Master Landlord in connection with Subtenant’s Parking Spaces.  Any and all parking of motor vehicles in said parking area shall be at the risk of the owner of the same.
6.03Signage.  Subtenant shall have the rights to signage within the Building’s main electronic lobby directory, as set forth in Section 18 of the Master Lease, and in the lobby of the 19th floor of the Building, which such signage shall be subject to Master Landlord’s prior approval, and any approval by Master Landlord shall be deemed an approval of Sublandlord.
ARTICLE 7.
MAINTENANCE AND REPAIRS
7.01Maintenance and Repairs.  As set forth in Section 2.01 hereof, during the Sublease Term, Subtenant shall assume all of Sublandlord’s obligations under the Master Lease in relation to maintenance and repair of the Sublease Premises.
7.02Conduct of Repairs.  Subtenant shall notify Sublandlord of all repairs required to the Sublease Premises prior to conducting such repairs.  At the option of Sublandlord or Master Landlord, all repairs to the Sublease Premises that are Subtenant’s responsibility as provided in this Sublease may be performed or constructed, at Subtenant’s reasonable expense, by Sublandlord or Master Landlord or such other person as Sublandlord or Master Landlord may designate, provided that Sublandlord or Master Landlord respond to such notification of repairs from Subtenant with its election to perform such repairs or permit Subtenant to conduct such repairs within three (3) business days of receipt of such request for repairs.
7.03Surrender of Sublease Premises.  At the expiration or sooner termination of the Sublease Term, Subtenant shall surrender the Sublease Premises in compliance with the

122587136v.1


-11-

obligations set forth in Section 11 of the Master Lease.  Subtenant shall arrange for a joint inspection of the Sublease Premises by Sublandlord, Subtenant and Master Landlord prior to Subtenant vacating the Sublease Premises.
ARTICLE 8.
USE OF SUBLEASE PREMISES
8.01Use.  As set forth in Section 2.01 hereof, during the Sublease Term, Subtenant shall comply with and is subject to all terms set forth in Section 9 of the Master Lease in connection with use of the Sublease Premises and compliance with laws.
8.02Condition of Sublease Premises; Furniture.  Sublandlord shall provide the Sublease Premises to Subtenant at the Sublease Commencement Date, and Subtenant otherwise accepts the Sublease Premises, in the “as-is, where-is” condition existing as of the Sublease Commencement Date.  Sublandlord shall include within the Sublease Premises certain furniture, fixtures and equipment (“FF&E”) currently located in the Sublease Premises and identified on Exhibit C-1 attached hereto, which Subtenant shall acquire from Sublandlord for One Dollar ($1.00) on the Sublease Commencement Date pursuant to a Bill of Sale in substantially similar form to that attached hereto as Exhibit C.  Subtenant acknowledges that it has inspected the Building and the Sublease Premises and neither Sublandlord nor any agent of Sublandlord has made any representations or warranties, except as otherwise expressly provided in this Sublease, with respect to the Sublease Premises including, without limitation, any representation or warranty with respect to the suitability or fitness of the Sublease Premises or the Building for the conduct of Subtenant’s business, or the condition, safety, repair or habitability of the Sublease Premises and acknowledges further that Sublandlord is under no obligation to construct or install any alterations or improvements in or to the Sublease Premises or provide any labor or materials or provide any allowances.  Subtenant’s taking possession of the Sublease Premises or occupying the Sublease Premises shall be conclusive evidence that Subtenant accepts the Sublease Premises as suitable for the purposes for which they are leased.  Sublandlord represents and warrants to Subtenant that Sublandlord owns the FF&E free and clear of any liens, encumbrances or rights of third parties.
8.03Compliance with Laws Regarding Use.  As set forth in Section 2.01 hereof, during the Sublease Term, Subtenant shall comply with and is subject to all terms set forth in Section 9 of the Master Lease in connection with compliance with laws.
8.04Modification of Sublease Premises.  Subtenant shall not make, install, alter, construct, remove or demolish any alterations or any other installations, additions, improvements or modifications of any kind in the Sublease Premises or the Building (collectively, “Modifications”) without the prior written consent of Sublandlord and Master Landlord.  Any such Modifications made by Subtenant shall be made in accordance with the Master Lease.  Unless Sublandlord or Master Landlord notifies Subtenant in writing at the time of providing its consent to any Modifications that such Modifications shall become the property of Master Landlord and remain upon and be surrendered with the Sublease Premises, at the expiration or earlier termination of this Sublease, Subtenant shall restore the Sublease Premises to the same condition they were in on the Sublease Commencement Date, except for reasonable wear and tear and damage by fire, condemnation or other casualty, or damage caused by Sublandlord or Master Landlord or any

122587136v.1


-12-

agent, employee, contractor or invitee of Sublandlord or Master Landlord, and remove any Modifications made to the Sublease Premises during the Sublease Term prior to Subtenant’s surrender of the Sublease Premises.
8.05Right of Entry.  As set forth in Section 2.01 hereof, during the Sublease Term, Subtenant and Sublandlord shall comply with and are subject to all terms set forth in Section 20 of the Master Lease in connection with entry by Master Landlord and Sublandlord.
8.06Covenants of Subtenant.  Subtenant agrees to pay the Rent herein reserved, to abide by, observe and perform all of the terms, covenants and conditions of this Sublease, and to surrender the Sublease Premises to Sublandlord on the expiration or sooner termination of this Sublease in the condition required hereunder.  Subtenant shall abide by the provisions of the Master Lease as applicable, and by the rules and regulations established by Master Landlord from time to time.
8.07Hazardous Substances; Environmental and Safety Law.  As set forth in Section 2.01 hereof, during the Sublease Term, Subtenant and Sublandlord shall comply with and are subject to all terms set forth in Section 32 of the Master Lease in connection with Environmental Covenants.
8.08Mechanics’ Liens.  As set forth in Section 2.01 hereof, during the Sublease Term, Subtenant shall comply with and is subject to all terms set forth in Section 19 of the Master Lease in connection with keeping the Building free from liens.
ARTICLE 9.
INSURANCE; INDEMNIFICATION; EXCULPATION
9.01Subtenant’s Insurance.  As set forth in Section 2.01 hereof, during the Sublease Term, Subtenant shall comply with and is subject to all terms set forth in Section 15 of the Master Lease in connection with Subtenant’s insurance obligations.  In addition to such insurance obligations set forth in the Master Lease, Subtenant shall also comply with the following requirements:
(a)Each policy of liability insurance required to be obtained by Subtenant under this Section shall:  (i) contain a separation of insureds clause or otherwise provide cross-liability coverage; and (ii) name Sublandlord and Master Landlord, and their respective partners, property managers, mortgagees, and such other parties in interest as Sublandlord and Master Landlord may from time to time reasonably designate to Subtenant in writing, as additional insureds.  Such additional insureds shall be provided at least the same extent of coverage as is provided to Subtenant under such policies.
(b)Sublandlord and Master Landlord shall be provided coverage under such insurance required to be obtained by Subtenant to the extent of their insurable interest and, if requested by Sublandlord and/or Master Landlord, Sublandlord and/or Master Landlord and Subtenant shall sign all documents reasonably necessary or proper in connection with the settlement of any claim or loss under such insurance.  Sublandlord shall maintain the insurance required to be carried by “Tenant” under Section 15 of the Master Lease, except that Sublandlord

122587136v.1


-13-

will have no obligation to carry insurance on any improvements, alterations, trade fixtures or personal property of Subtenant.
(c)In the event Master Landlord requires Sublandlord to carry and maintain any other policy of insurance in accordance with Section 15 of the Master Lease, upon written notice to Subtenant, Subtenant shall be required to carry and maintain such additional policy of insurance required by the Master Landlord.
9.02Indemnification and Exculpation.  Sublandlord, its officers and directors, shall not be liable to Subtenant for any loss, injury or other damage to Subtenant or to Subtenant’s property in or about the Sublease Premises, Building and/or Property at any time (including defects in the Subleased Premises, Building and/or Property or in any equipment located therein or thereon; fire, explosion or other casualty; bursting, rupture, leakage or overflow of any plumbing or other pipes or lines, sprinklers, tanks, drains, drinking fountains or washstands in, above, or about the Sublease Premises, Building and/or the Property; or acts of other tenants in the Building or on the Property) not arising from or out of or as a result of the negligent or willful acts or omissions of the Sublandlord, its officers and directors.  Except for claims expressly excluded from the operation of the foregoing indemnity, Subtenant hereby waives all claims against Sublandlord, its officers and directors, for any such loss, injury or damage to Subtenant or Subtenant’s property, and the cost and expense of defending against claims relating thereto.
9.03Subtenant acknowledges and agrees that it shall be Subtenant’s responsibility to fully insure all of Subtenant’s property of any sort or nature located on the Sublease Premises and/or Property, and the conduct of Subtenant’s business on the Sublease Premises and/or the Property against any and all risks of loss or damage; to insure against any and all forms of liability; and to insure Subtenant’s business conducted on the Sublease Premises against interruption and other risks.
9.04Notwithstanding any other provision of this Sublease to the contrary, Sublandlord shall not be liable to Subtenant for any damages to Subtenant or Subtenant’s property or business that results, directly or indirectly from, any issue relating to access to the Property and the Sublease Premises by means of any access roads to the Property, it being acknowledged and agreed that said access roads, and the use, repair and maintenance of same, are under the control of and the sole responsibility of the City of Boston, Massachusetts.
9.05Subtenant shall indemnify, defend and hold Sublandlord harmless from all losses, liabilities, costs, expenses and claims arising from (a) Subtenant’s use of the Sublease Premises or the conduct of its business or any activity, work, or thing done, permitted or suffered by Subtenant in or about the Sublease Premises; (b) any default in the performance of any obligation to be performed by Subtenant under the terms of this Sublease beyond all applicable notice and cure periods; (c) any act, neglect, fault or omission of Subtenant or of its agents or employees or invitees in violation of this Sublease; and (d) all reasonable costs, attorneys’ fees, expenses and liabilities incurred in or about such claims or any action or proceeding brought thereon, excluding in all instances any losses, liabilities, costs, expenses and claims arising the gross negligence or willful misconduct of Sublandlord.  In case any action or proceeding shall be brought against Sublandlord by reason of any claim against which Subtenant is obligated to indemnify or provide a defense hereunder, Subtenant upon receipt of reasonable written notice from Sublandlord shall defend the

122587136v.1


-14-

same at Subtenant’s expense by counsel approved in writing by Sublandlord.  Subtenant, as a material part of the consideration to Sublandlord, hereby assumes all risk of and waives all claims against Sublandlord with respect to damage to property or injury to persons in, upon or about the Sublease Premises from any cause whatsoever except that which is caused by the failure of Sublandlord to observe any of the terms and conditions of this Sublease where such failure has persisted for an unreasonable period of time after written notice to Sublandlord of such failure.
9.06Sublandlord shall indemnify, defend and hold Subtenant harmless from all losses, liabilities, costs, expenses and claims arising from (a) any default in the performance of any obligation to be performed by Sublandlord under the terms of this Sublease beyond all applicable notice and cure periods; (b) any act, neglect, fault or omission of Sublandlord or of its agents or employees or invitees in violation of this Sublease; and (c) all reasonable costs, attorneys’ fees, expenses and liabilities incurred in or about such claims or any action or proceeding brought thereon, excluding in all instances any losses, liabilities, costs, expenses and claims arising the gross negligence or willful misconduct of Subtenant.  In case any action or proceeding shall be brought against Subtenant by reason of any claim against which Sublandlord is obligated to indemnify or provide a defense hereunder, Sublandlord upon receipt of reasonable written notice from Subtenant shall defend the same at Sublandlord’s expense by counsel approved in writing by Subtenant.
9.07In no event, however, shall either Subtenant or Sublandlord be liable hereunder for punitive or consequential damages.
9.08A party’s obligation under this Article 9 to indemnify and hold the other party harmless shall be limited to the sum that exceeds the amount of insurance proceeds, if any, received by the party being indemnified.  If any party entitled to indemnification under this Article 9 fails to maintain insurance coverage as required by this Sublease, then the total indemnification obligation of the party required to provide such indemnification shall be no greater than would have been the case had the party entitled to such indemnification maintained all insurance coverage required by this Sublease in the form required by this Sublease.
9.09The obligations of the parties under this Article 9 shall survive the expiration or termination of the Sublease.
ARTICLE 10.
DEFAULTS
10.01Subtenant Default.  Subtenant shall be in default under this Sublease (“Default”) if:
(a)Subtenant fails to pay any Rent or other amount due under this Sublease within five (5) days after Sublandlord provides written notice to Subtenant that the same is overdue; provided, however, Sublandlord shall only be obligated to provide such written notice to Subtenant prior to a Default occurring one (1) time in any consecutive twelve (12) month period;
(b)Except for those defaults referenced in 10.01(a), (d), (e), (f) and (g), Subtenant fails to comply with any other provision of this Sublease and does not cure such failure within twenty (20) days after receipt (or refusal to accept receipt) of written notice from

122587136v.1


-15-

Sublandlord; provided, however, that such twenty (20) day period shall be deemed extended to include such additional time reasonably required to cure any such default not reasonably capable of being cured within the initial twenty (20) day period provided Subtenant is using reasonable diligence to diligently and continuously prosecute to completion its cure and actually completes such cure within eighty (80) days after the giving of such written notice;
(c)Subtenant violates any of the provisions of Section 11.03 of this Sublease;
(d)The filing of a voluntary petition in bankruptcy by Subtenant, the filing by Subtenant of a voluntary petition or arrangement, the filing by or against Subtenant of a petition, voluntary or involuntary, for reorganization, or the filing of an involuntary petition in bankruptcy by the creditors of Subtenant, said involuntary petition remaining undischarged for a period of sixty (60) days; or Subtenant makes a general assignment for the benefit of its creditors;
(e)Receivership, attachment or other judicial seizure of substantially all of Subtenant’s assets on the Sublease Premises, such attachment or other seizure remaining undismissed or undischarged for a period of ninety (90) days after levy thereof;
(f)Failure of Subtenant to restore the Security Deposit in accordance with the terms of Section 5.04; or
(g)Any insurance required to be maintained by Subtenant pursuant to this Sublease shall be canceled or terminated or shall expire or be reduced or materially changed, except as provided under this Sublease.
10.02Remedies for Subtenant De fault.
(a)In the case of Default by Subtenant, Sublandlord may:
(i)Terminate this Sublease, recover the Sublease Premises and collect from Subtenant any and all Rent remaining to be paid for the entire Sublease Term, less any amounts Subtenant proves could reasonably be recouped by re-letting the Sublease Premises;
(ii)Elect not to terminate this Sublease and continue to collect all Rent and other sums under this Sublease as they come due;
(iii)Collect from Subtenant any other damages resulting from such Default by Subtenant;
(iv)Cure such Default for or on behalf of Subtenant after five (5) business days’ written notice to Subtenant, whereupon Subtenant shall reimburse to Sublandlord any and all reasonable costs and expenses of doing so upon demand, and such amounts shall be deemed to be Rent hereunder for all purposes;
(v)Avail itself of any and all other remedies provided by law, at equity or otherwise; and/or

122587136v.1


-16-

(vi)Exercise all the rights and remedies of Master Landlord under the Master Lease.
(b)The above remedies shall be cumulative and not exclusive.
10.03Holding Over.  If Subtenant fails to surrender the Sublease Premises upon the expiration or sooner termination of the Sublease Term, this Sublease shall nevertheless terminate as of the expiration or termination date, and Subtenant shall become a tenant at sufferance and Subtenant shall pay to Sublandlord the holdover rent at a monthly rental equal to 175% of the monthly Rent due under the terms of this Sublease for the final full calendar month of the Sublease Term and, if Subtenant holds over in the Sublease Premises for thirty (30) or more days, hold over rent shall increase to 200% of the monthly Rent due under the terms of this Sublease for the final full calendar month of the Sublease Term.  In addition to the payment of such holdover rent, Subtenant shall indemnify and hold Sublandlord harmless from any and all damages incurred by Sublandlord on account of such holding over, including, without limitation, any damages for failure to timely deliver the Sublease Premises to such new subtenant, holdover rent or other charges, penalties, damages or costs charged to, imposed upon, suffered or incurred by Sublandlord (including, without limitation, claims made against Sublandlord by Master Landlord or any parties claiming under or through Master Landlord) as a result of Subtenant’s failure to surrender the Sublease Premises on time.
ARTICLE 11.
OTHER PROVISIONS
11.01Sublandlord’s Rights Under Master Lease.  Any options or rights to renew, extend, terminate or otherwise amend the Master Lease or expand or contract the Master Lease Premises, and any rights of first offer or refusal or any other such options or rights granted Sublandlord in the Master Lease are for the sole benefit of the Sublandlord, and Sublandlord shall have no obligation to exercise or decline any such right or option for the benefit of Subtenant or otherwise, provided, however, Sublandlord shall not agree to amend or modify the Master Lease in any way that would increase Subtenant’s obligations or diminish Subtenant’s rights under this Sublease, which includes, the exercise of any contraction rights or termination rights afforded to Sublandlord under the Master Lease affecting the Sublease Premises, without the prior written consent of Subtenant in its sole and absolute discretion.
11.02Notices.  Any notice or demand required or permitted to be given hereunder shall be in writing and shall be sent by hand delivery, or by nationally recognized overnight express carrier or by registered or certified mail, postage prepaid, return receipt requested, addressed to the respective parties at the respective addresses noted in Article 1 hereof.  However, no such notice to or demand upon Sublandlord or Subtenant shall be effective unless a true and complete copy thereof is also served upon its counsel.

If intended for Sublandlord, a copy shall be given to Nixon Peabody, LLP, 900 Elm Street, Manchester, New Hampshire 03101, Attn: Mark E.  Beaudoin, Esquire, or at such other address as such counsel may hereafter specify in writing.

122587136v.1


-17-

If intended for Subtenant, a copy shall be given to Anderson & Kreiger LLP, 50 Milk Street, 21st Floor, Boston, Massachusetts 02109, Attn: David L.  Wiener, Esquire, or at such other address as such counsel may hereafter specify in writing.

Any such notice shall be deemed to be delivered upon actual receipt (or refusal to accept delivery) thereof.  Either party may, by notice in writing so delivered to the other, specify a different address for notice purposes.

11.03Transfers.
(a)Sublandlord may assign, transfer or convey this Sublease to any successor to Sublandlord as tenant under the Master Lease without any need to obtain the consent or approval of Subtenant, provided that any such successor and assigns, shall be bound by the terms and provisions of this Sublease.
(b)Subtenant shall not assign, encumber or in any way transfer this Sublease, nor further sublet all or any part of the Sublease Premises, whether voluntarily, involuntarily or by operation of law, nor permit the use or occupancy of all or art of the Sublease Premises by anyone other than Subtenant (collectively, “Transfer”) without, in compliance with the Master Lease, obtaining the advance written consent of Master Landlord and Sublandlord; provided, however, Sublandlord’s consent shall not be unreasonably withheld, conditioned or delayed.  Without limitation, the sale of all or substantially all of Subtenant’s assets, or the sale of 50% or more of any class of its capital stock, voting, securities, or member interests, by operation of law or otherwise, shall not be considered a Transfer and shall not require the prior written consent of Sublandlord; provided, however, that such a sale shall be subject to the prior written consent of Master Landlord to the extent required pursuant to the Master Lease.  Notwithstanding anything in this Sublease to the contrary, wherever term “Landlord” is used in Section 23 of the Master Lease in connection with Landlord’s recapture rights, such term shall be deemed to refer to Master Landlord only and not Sublandlord.
11.04Attorney’s Fees.  As set forth in Section 2.01 hereof, during the Sublease Term, Subtenant and Sublandlord shall comply with and are subject to all terms set forth in Section 27 of the Master Lease in connection with payment of attorneys’ fees.
11.05Time of Essence.  Time is of the essence with respect to each and every provision of this Sublease.
11.06Quiet Enjoyment.  Sublandlord represents that the Master Lease is in full force and effect and that, to the best of Sublandlord’s knowledge, there are no defaults on Sublandlord’s or Master Landlord’s part under the Master Lease as of the date first set forth above.  Sublandlord covenants that, subject to the provisions of this Sublease, so long as there exists no uncured Default after all applicable notice and cure periods, Subtenant shall lawfully, peaceably and quietly have, hold, occupy and enjoy the Sublease Premises for the Sublease Term without hindrance or ejection by Sublandlord or by any person lawfully claiming under Sublandlord.
11.07Waiver.  The waiver by a party of a breach of any term in this Sublease shall not be deemed to be a waiver of any subsequent breach of the same or any other term of this Sublease.  

122587136v.1


-18-

The subsequent acceptance of rent by Sublandlord shall not be deemed to be a waiver of any preceding breach by Subtenant of any term of this Sublease, other than the failure of Subtenant to pay the particular rental so accepted, regardless of Sublandlord’s knowledge of such preceding breach at the time Sublandlord accepts such rent.
11.08Brokers’ Fees.  Sublandlord and Subtenant represent and warrant to each other that they have not dealt with any real estate brokers, finders or other persons in connection with this Sublease except CBRE and JLL (collectively, the “Brokers”).  Sublandlord shall be responsible for payment of a brokerage commission pursuant to a separate agreement in connection with the Brokers.  The parties shall indemnify and hold each other harmless from and against any and all liability, loss, damage, expense, claim, action, demand, suit, or obligation, including but not limited to reasonable attorneys’ fees, arising out of or relating to a respective breach of this representation.
11.09Entire Agreement.  This Sublease, including all exhibits hereto, contains the entire agreement between the parties with respect to the subject matter herein, and no representations, inducements, promises or agreements, oral or otherwise, not expressly stated herein shall be of any force or effect.
11.10Submission.  Submission of this instrument for examination or signature by Subtenant shall not be construed as an offer and shall not be effective as a Sublease or otherwise until executed by both Subtenant and Sublandlord, and a fully-executed original delivered to Subtenant.
11.11Authority and Counterparts.  Each party represents and warrants that its respective signatory is duly authorized to execute and deliver this Sublease, and to bind the person for which such signatory signs.  This Sublease may be signed in counterparts, each of which shall be equivalent to a signed original, and which together shall form one and the same instrument.
11.12Successors and Assigns.  Each provision hereof shall be binding on and inure to the benefit of the parties and their respective agents, employees, successors and permitted assigns, provided that this Sublease shall not inure to the benefit of any assignee or transferee of Subtenant except with Sublandlord’s and Master Landlord’s written consent.
11.13Governing Law and Jurisdiction.  This Sublease shall be governed by the laws of the Commonwealth of Massachusetts (without regard to conflicts of laws principles).
11.14Fire and other Casualty; Condemnation.  In the event of any taking by eminent domain or deed in lieu thereof or damage by fire or other casualty to the Sublease Premises thereby rendering the Sublease Premises wholly or in part untenantable, Subtenant shall acquiesce in and be bound by any action taken by or agreement entered into between Master Landlord and Sublandlord with respect thereto.  If, pursuant to the Master Lease, there is an abatement of rent due under the Master Lease for any period, the rent due and payable under this Sublease shall also abate under this Sublease if and to the extent that the affected portion of the Demised Premises includes the Sublease Premises or a portion thereof.  Notwithstanding anything to the contrary in the Master Lease if (i) the Sublease Premises are materially damaged during the last twelve (12) months of this Sublease, both Subtenant and Sublandlord shall have the right to terminate this

122587136v.1


-19-

Sublease upon thirty (30) days prior written notice to the other party, and (ii) if any part of the Sublease Premises is taken by eminent domain, both Subtenant and Sublandlord shall have the right to terminate this Sublease upon thirty (30) days prior written notice to the other party.
11.15Consequential Damages.  In no event shall Sublandlord or Subtenant be liable for any consequential, special, punitive or indirect loss or damage which the other party may incur or suffer in connection with this Sublease.

[SIGNATURES ON NEXT PAGE]

122587136v.1


-20-

IN WITNESS WHEREOF the parties have executed this Sublease as of the date first above written.

SUBLANDLORD:

INSTITUTE FOR HEALTHCARE

IMPROVEMENT, a Michigan corporation

By:/s/ Amy Hosford-Swan​ ​

Name:Amy Hosford-Swan

Title:Chief Financial Officer

SUBTENANT:

ALBIREO PHARMA, INC., a Delaware corporation

By:/s/ Ronald Cooper​ ​

Name:Ronald Cooper

Title:President and Chief Executive Officer

LIST OF EXHIBITS:

Exhibit A:Sublease Premises

Exhibit B:Master Lease

Exhibit C:Form of Bill of Sale

Exhibit C-1:List of FF&E

[Signature Page to Sublease]

122587136v.1


-21-

Exhibit A

Sublease Premises

Sublease Premises Exhibit A is intended only to show the general outline of the Sublease Premises. The depiction of interior windows, cubicles, modules, furniture and equipment in this Exhibit is for illustrative purposes only, but does not mean that such items exist. It is not to be scaled; any measurements or distances shown should be taken as approximate.

Graphic

[Signature Page to Sublease]

122587136v.1


-22-

Exhibit B

Master Lease

[Signature Page to Sublease]

122587136v.1


-23-

Exhibit C

Form of Bill of Sale

[Signature Page to Sublease]

122587136v.1


-24-

Exhibit C-1

List of FF&E

[Signature Page to Sublease]

122587136v.1


Exhibit 14.1

ALBIREO PHARMA, INC.

CORPORATE CODE OF CONDUCT AND ETHICS

AND WHISTLEBLOWER POLICY

Effective October 25, 2016

INTRODUCTION

Albireo Pharma, Inc. (“we” or the “Company” and, together with our direct and indirect subsidiaries, “Albireo”) has adopted this Corporate Code of Conduct and Ethics and Whistleblower Policy (the “Code”) to provide our associates, as defined below, with a clear understanding of the principles of business conduct and ethics that are expected of them and to aid them in making decisions when conducting Albireo’s business and performing day-to-day duties. The standards set forth in the Code apply to us all. Each associate of the company must acknowledge his or her review of, and agree to comply with, the Code as a condition of his or her relationship with Albireo (see Appendix A attached hereto). The term “us” or “associate” as used throughout the Code means (i) every full and part-time employee of Albireo, (ii) all members of the Company’s senior management, including the Chief Executive Officer and Chief Financial Officer, and (iii) every member of the Company’s Board of Directors (the “Board”), even if such member is not employed by the Company. The term “you” means any associate.

REPORTING VIOLATIONS UNDER THE CODE; ANTI-RETALIATION PLEDGE

It is the responsibility of each of us to conduct ourselves in an ethical business manner and also to ensure that others do the same. If any one of us violates these standards, he or she can expect a disciplinary response, up to and including termination of employment or other relationship with Albireo or, potentially, legal action. If you are aware of any breach of the Code, you are obligated to report violations to the Corporate Compliance Officer, to the chairperson of the Audit Committee of the Board (the “Audit Committee”) or to the anonymous Whistleblower Compliance Hotline that the Company has engaged to receive such reports (the “Hotline”), as described in more detail below.

The Code contains a clear anti-retaliation pledge, meaning that if you in good faith report a violation of the Code by any associate, or by Albireo or agents acting on its behalf, to the Hotline, the Corporate Compliance Officer or the chairperson of the Audit Committee, you will not be fired, demoted, reprimanded or otherwise harmed for reporting the violation. Note however that, although you will not be disciplined for reporting a violation, you may be subject to discipline if you are involved in the underlying conduct or violation. You are entitled to make the report on a confidential and anonymous basis. To the extent an investigation must be initiated, the Company will endeavor to keep confidential any report you make, except to the extent disclosure is required by applicable law, regulation or court order or is necessary to permit a complete investigation of such report.


COMPLYING WITH THE CODE

The ultimate responsibility for maintaining the Code rests with each of us. As individuals of personal integrity, we can do no less than to behave in a way that will continue to bring credit to ourselves and our company. Applying these standards to our business lives is an extension of the values by which we are known as individuals and by which we want to be known as a company. To that end, the Company has made the Code publicly available on its website. It is our responsibility to conduct ourselves in an ethical business manner and also to ensure that others do the same. If any one of us violates these standards, he or she can expect a disciplinary response, up to and including termination of employment or other relationship with Albireo or, potentially, legal action.

While it is impossible for this Code to address specifically every situation that may arise, the principles embodied in the Code should govern our conduct at all times. If you are confronted with a situation not covered by the Code, or have questions regarding any matter that is specifically addressed in the Code, you are urged to consult with the Corporate Compliance Officer or another member of senior management of the Company. Furthermore, the policies set forth in this Code are in addition to other Albireo policies that associates must comply with, including those set forth in any Employee Handbook in effect from time to time or in any other policy referenced in the Code.

The provisions of the Code regarding the actions the Company will take are guidelines which the Company intends to follow. There may be circumstances, however, that in the Company’s judgment require different measures or actions and, in such cases, the Company may act accordingly while still seeking to remain consistent with the principles embodied in the Code.

In the case of any inconsistency between the provisions set out in this Code and the rules contained in any mandatory text, laws or interpretive case law applicable to Albireo or associates, such mandatory text, laws or interpretive case law controls. In no instance should this Code be interpreted as modifying, amending or otherwise changing any legal text or precedent that applies to Albireo or associates.


Table of Contents

   

Page

I.

WHISTLEBLOWER POLICY

1

A.

Obligation to Report Violations or Suspected Violations

1

B.

Whistleblower Compliance Hotline for Confidential and Anonymous Reporting

1

C.

Anti-Retaliation Pledge

2

II.

IMPLEMENTATION OF THE CODE

2

III.

GENERAL REQUIREMENTS

3

IV.

CONFLICTS OF INTEREST

3

V.

PROTECTION AND PROPER USE OF COMPANY ASSETS

4

A.

Proper Use of Company Property

5

B.

Confidential Information

5

C.

Accurate Records and Reporting

5

D.

Document Retention

6

E.

Corporate Advances

7

VI.

FAIR DEALING WITH CUSTOMERS, SUPPLIERS, COMPETITORS, AND ASSOCIATES

7

A.

Giving Gifts

7

B.

Receiving Gifts

7

C.

Unfair Competition

8

D.

Antitrust Concerns

8

E.

Unfair Practices in International Business

10

VII.

GOVERNMENT RELATIONS

10

A.

Government Procurement and Funding

10

B.

Payments to Officials

11

C.

Political Contributions

11

VIII.

COMPLIANCE WITH LAWS, RULES AND REGULATIONS

11

A.

Insider Trading Policy

11

B.

Equal Employment Opportunity

12

C.

Sexual Harassment Policy

12

D.

Health, Safety & Environment Laws

12

E.

Health Care Regulations

12

IX.

QUESTIONS UNDER THE CODE AND WAIVER PROCEDURES

13

X.

FREQUENTLY ASKED QUESTIONS AND ANSWERS (FAQ’S) REGARDING REPORTING VIOLATIONS UNDER THE CODE, WHISTLEBLOWER POLICY AND HOTLINE

14

APPENDIX A

ASSOCIATE’S AGREEMENT TO COMPLY

17


I.           WHISTLEBLOWER POLICY

A. Obligation to Report Violations or Suspected Violations

Any associate having any information or knowledge regarding the existence of any violation or suspected violation of the Code has a duty to report the violation or suspected violation to the Hotline (the contact details for which are below), the Corporate Compliance Officer or the chairperson of the Audit Committee. Associates are also encouraged to raise any issues or concerns regarding Albireo’s business or operations. Failure to report a suspected or actual violation is itself a violation of the Code and may subject the associate to disciplinary action, up to and including termination of employment or other relationship with Albireo or, potentially, legal action. Reports may be made on a completely confidential and anonymous basis. To the extent any investigation is necessitated by a report, the Company will endeavor to keep the proceedings and the identity of the reporting associate confidential, except to the extent disclosure is required by law, regulation or court order or is necessary to permit a complete investigation of such report.

Individuals should consider leaving, but are not required to leave, their name or a contact number when submitting a report. Such information may facilitate a more thorough and efficient investigation. The Corporate Compliance Officer will strive to maintain the integrity and confidentiality of all compliance-related communications. However, in certain circumstances, the identity of the person reporting the issue may become known or may need to be revealed, particularly if federal or state enforcement authorities become involved in the investigation. The Company cannot guarantee confidentiality, particularly when material evidence of a violation of the law is disclosed or if the person is identified during the normal course of an investigation.

B. Whistleblower Compliance Hotline for Confidential and Anonymous Reporting

If you are aware of any breach of the Code, you are obligated to report violations to the Hotline, to the Corporate Compliance Officer or to the chairperson of the Audit Committee. The Hotline is operated by a third party service provider, which the Company has engaged to receive such reports, the contact details for which are below. You may make such reports on a completely anonymous and confidential basis by contacting the Hotline. Associates may report to the Hotline any concerns he or she may have with respect to Albireo, including, but not limited to, concerns with Albireo’s business or operations, suspected violations of the Code, securities or antifraud laws, accounting issues, any law relating to fraud against stockholders, or any other issue concerning Albireo or such associate’s employment or other relationship with Albireo. Reports made to the Hotline will, in turn, be provided directly to the Corporate Compliance Officer and the Audit Committee on an anonymous (to the extent the report was made anonymously) and confidential basis. The Hotline may be reached 24 hours a day, 7 days a week at the following toll-free number and internet address:

Contact Information for the Whistleblower Compliance Hotline:

Toll-Free Telephone Number

1-866-654-1548 (US)

Compliance Hotline E-mail Address

albo@openboard.info

Compliance Hotline Internet Address

https://www.openboard.info/albo/index.cfm

1


C. Anti-Retaliation Pledge

Any associate who in good faith (a) reports a suspected violation under the Code by any associate, or by Albireo or its agents acting on its behalf, or (b) raises issues or concerns regarding Albireo’s business or operations, in either case to the Hotline, to the Corporate Compliance Officer or to the chairperson of the Audit Committee, may not be fired, demoted, reprimanded or otherwise harmed for, or because of, the reporting of the suspected violation, issue or concern, regardless of whether the suspected violation, issue or concern involves the associate, his or her supervisor or senior management of the Company.

In addition, any associate who in good faith reports a suspected violation under the Code that he or she reasonably believes constitutes a violation of a federal statute by Albireo, or its agents acting on its behalf, to a federal regulatory or law enforcement agency may not be reprimanded, discharged, demoted, suspended, threatened, harassed or in any manner discriminated against in the terms and conditions of his or her employment for, or because of, the reporting of the suspected violation, regardless of whether the suspected violation involves the associate, his or her manager or senior management of the Company.

II.          IMPLEMENTATION OF THE CODE

The following questions and answers address the Company’s implementation of the Code. The Company has attempted to design procedures that promote confidentiality, anonymity and, most importantly, freedom from the fear of retaliation for complying with and reporting violations under the Code. In addition, each associate shall be required from time to time to sign the Associate’s Agreement to Comply with the Code in substantially the form attached as Appendix A hereto.

Q:       Who is responsible for administering, updating and enforcing the Code?

A:        The Board has appointed a Corporate Compliance Officer to administer, update and enforce the Code.

Q:        How can I contact the Corporate Compliance Officer?

A:        The name, phone number and email address of the initial Corporate Compliance Officer are listed below.

Natasha Thoren

Chief Compliance Officer

(857) 401-8467

Natasha.thoren@albireopharma.com

The Corporate Compliance Officer may change from time to time. You are encouraged to consult the copy of the Code that is included on the Company’s website to obtain the most current information.

2


III.        GENERAL REQUIREMENTS

Each of us is expected to be honest, fair, and accountable in all business dealings and obligations, and to ensure:

·         the ethical handling of conflicts of interest between personal and professional relationships;

·         full, fair, accurate, timely and understandable disclosure in the reports required to be filed by the Company with the Securities and Exchange Commission (the “SEC”) and in other public communications made by Albireo; and

·         compliance with applicable governmental laws, rules and regulations.

IV.         CONFLICTS OF INTEREST

Associates should avoid any situation that may involve, or even appear to involve, a conflict between their personal interests and the interests of Albireo. In dealings with current or potential customers, suppliers, contractors, and competitors, each associate should act in the best interests of Albireo to the exclusion of personal advantage. Immediate family members of associates, executive officers and directors are also covered in certain circumstances. For purposes of this section, an “immediate family member” in respect of any person means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of such person, and any person (other than a tenant or employee) sharing the household of such person.

Associates and, in certain circumstances, their immediate family members, are prohibited from any of the following activities which could represent an actual or perceived conflict of interest:

·         No associate or immediate family member of an associate shall have a financial interest in, or significant obligation to, any outside enterprise which does or seeks to do business with Albireo or which is an actual or potential competitor of Albireo, without prior approval of the Corporate Compliance Officer and the Company’s Chief Executive Officer or, in the case of executive officers or members of the Board, without prior approval of the Board or a committee thereof; provided however, that this provision shall not prevent any associate from investing in any mutual fund or owning up to 1% of the outstanding stock of any publicly traded company.

·         No associate shall conduct business on Albireo’s behalf with an outside enterprise which does or seeks to do business with Albireo if an immediate family member of such associate is a principal or officer of such enterprise, or an employee of such enterprise who will play a significant role in the business done or to be done between Albireo and such enterprise, without prior approval of the Corporate Compliance Officer and the Company’s Chief Executive Officer or, in the case of executive officers or members of the Board, without prior approval of the Board or a committee thereof.

3


·          No executive officer of the Company or employee of Albireo, or immediate family member of an executive officer of the Company or employee of Albireo, shall serve as a director, officer or in any other management or consulting capacity of any actual competitor of Albireo.

·          No director or immediate family member of a director shall serve as a director, officer or in any other management or consulting capacity of any actual competitor of Albireo, without prior approval of the Board or a committee thereof.

·         No associate shall use any Albireo property or information or his or her position at Albireo for his or her personal gain.

·         No associate shall engage in activities that are directly competitive with those in which Albireo is engaged.

·          No associate shall divert a business opportunity from Albireo to his or her own benefit. If an associate becomes aware of an opportunity to acquire or profit from a business opportunity or investment in which Albireo is or may become involved or has or may have an existing interest, the associate should disclose the relevant facts to the Corporate Compliance Officer. The associate may proceed to take advantage of such opportunity only if Albireo is unwilling or unable to take advantage of such opportunity as notified in writing by the Corporate Compliance Officer.

·          No associate or immediate family member of an associate shall receive any loan or advance from Albireo or be the beneficiary of a guarantee by Albireo of a loan or advance from a third party, except for customary advances or corporate credit in the ordinary course of business or approved by the Corporate Compliance Officer and the Company’s Chief Executive Officer. Please see Section V.E. below, “Corporate Advances,” for more information on permitted corporate advances.

In addition, the Audit Committee will review and approve, in advance, all related-person transactions, as required by the SEC, The Nasdaq Stock Market or any other regulatory body to which the Company is subject from time to time.

Each associate should make prompt and full disclosure in writing to the Corporate Compliance Officer of any situation that may involve a conflict of interest. Failure to disclose any actual or perceived conflict of interest is a violation of the Code.

V.          PROTECTION AND PROPER USE OF COMPANY ASSETS

Proper protection and use of Albireo assets and assets entrusted to it by others, including proprietary information, is a fundamental responsibility of each associate of Albireo. Associates must comply with security programs to safeguard such assets against unauthorized use or removal, as well as against loss by criminal act or breach of trust. The provisions hereof relating to protection of Albireo’s property also apply to property of others entrusted to it (including proprietary and confidential information).

4


A. Proper Use of Albireo Property

The removal from Albireo’s facilities of Albireo’s property is prohibited, unless authorized by Albireo. This applies to furnishings, equipment, and supplies, as well as property created or obtained by Albireo for its exclusive use – such as vendor lists, files, personnel information, reference materials and reports, computer software, data processing programs and data bases. Neither originals nor copies of these materials may be removed from Albireo’s premises or used for purposes other than Albireo’s business without prior written authorization from the Corporate Compliance Officer and the Company’s Chief Executive Officer.

Albireo’s products, product candidates and services are its property; contributions made by any associate to their development and implementation are Albireo’s property and remain Albireo’s property even if the associate’s employment or other relationship with Albireo terminates.

Each associate has an obligation to use the time for which he or she receives compensation from Albireo productively. Work hours should be devoted to activities directly related to Albireo’s business.

B. Confidential Information

Albireo provides its associates with confidential information relating to Albireo and its business with the understanding that such information is to be held in confidence and not communicated to anyone who is not authorized to see it, except as may be required by law. The types of information that each associate must safeguard include, by way of example only, to the extent unannounced or otherwise nonpublic, Albireo’s plans and business strategy; inventions, discoveries, clinical and nonclinical data, results, protocols or other information; products; product candidates; intellectual property, regulatory, corporate partnering or M&A information, developments, prospects or communications; contracts; sales data; significant projects; customer and supplier lists; trade secrets; manufacturing techniques and sensitive financial information, in each case whether in electronic or paper format. These are costly, valuable resources developed for the exclusive benefit of Albireo. No associate shall disclose Albireo’s confidential information to an unauthorized third party or use Albireo’s confidential information for his or her own personal benefit.

C. Accurate Records and Reporting

Under law, the Company is required to keep books, records and accounts that accurately and fairly reflect all Albireo transactions, dispositions of assets and other events that are the subject of specific regulatory record keeping requirements, including generally accepted accounting principles and other applicable rules, regulations and criteria for preparing financial statements and for preparing periodic reports filed with the SEC. All Albireo reports, accounting records, sales reports, expense accounts, invoices, purchase orders, and other documents must accurately and clearly represent the relevant facts and the true nature of transactions. Reports and other documents should state all material facts of a transaction and not omit any information that

5


would be important in interpreting such report or document. Under no circumstance shall there be any unrecorded liability or fund of Albireo, regardless of the purposes for which the liability or fund may have been intended, or any improper or inaccurate entry knowingly made on the books or records of Albireo. No payment on behalf of Albireo may be approved or made with the intention, understanding or awareness that any part of the payment is to be used for any purpose other than that described by the documentation supporting the payment. In addition, intentional accounting misclassifications (e.g., expense versus capital) and intentional improper acceleration or deferral of expenses or revenues are unacceptable reporting practices that are expressly prohibited.

The Company has or will develop and maintain (a) a system of internal controls to provide reasonable assurance that transactions are executed in accordance with management’s authorization, are properly recorded and posted and are in compliance with regulatory requirements and (b) disclosure controls and procedures to ensure that all of the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Associates are expected to be familiar with, and to adhere strictly to, these internal controls and disclosure controls and procedures, in each case to the extent applicable to their roles at Albireo. For clarity, responsibility for compliance with these internal controls and disclosure controls and procedures rests not solely with Albireo’s accounting personnel, but with all associates involved in approving transactions, supplying documentation for transactions, and recording, processing, summarizing and reporting of transactions and other information required by periodic reports filed with the SEC. Because the integrity of the Company’s external reports to stockholders and the SEC depends on the integrity of Albireo’s internal reports and recordkeeping, all associates must adhere to the highest standards of care with respect to our internal records and reporting. The Company is committed to full, fair, accurate, timely, and understandable disclosure in its periodic reports required to be filed with the SEC.

Any associate who believes Albireo’s books and records are not in accord with these requirements should immediately report the matter to the Hotline, the Corporate Compliance Officer or the chairperson of the Audit Committee.

D. Document Retention

Numerous federal and state statutes require the proper retention of many categories of records and documents that are commonly maintained by companies. In consideration of those legal requirements and Albireo’s business needs, all associates must maintain records in accordance with these laws and any records retention policy that Albireo may adopt from time to time.

Any record, in paper or electronic format, relevant to a threatened, anticipated or actual internal or external inquiry, investigation, matter or lawsuit may not be discarded, concealed, falsified, altered or otherwise made unavailable after the associate in possession of such record has become aware of the existence of such threatened, anticipated or actual internal or external inquiry, investigation, matter or lawsuit.

6


When in doubt regarding retention of any record, do not discard or alter the record in question and seek guidance from the Corporate Compliance Officer.

E. Corporate Advances

Under law, Albireo may not loan money to associates except in limited circumstances. It shall be a violation of the Code for any associate to advance Albireo funds to any other associate or to himself or herself except for usual and customary business advances for legitimate corporate purposes that are approved by a manager or pursuant to any corporate credit card for usual and customary, legitimate business purposes. It is Albireo’s policy that any advance to an associate over $5,000 be approved in advance by the Corporate Compliance Officer and the Company’s Chief Executive Officer.

Any Albireo credit cards are to be used only for authorized, legitimate business purposes. An associate will be responsible for any unauthorized charges to an Albireo credit card.

VI.         FAIR DEALING WITH CUSTOMERS, SUPPLIERS, COMPETITORS AND ASSOCIATES

Albireo does not seek to gain any advantage through the improper use of favors or other inducements. Good judgment and moderation must be exercised to avoid misinterpretation and adverse effect on the reputation of Albireo or associates. Offering, giving, soliciting or receiving any form of bribe to or from a vendor, service provider, supplier, regulatory official, physician, clinical investigator, investigative site or the like to influence its conduct is strictly prohibited.

A. Giving Gifts

Cash or cash-equivalent gifts must not be given by any associate to any person or enterprise. Gifts, favors and entertainment may be given to non-governmental employees if what is given:

·          is consistent with customary business practice;

·          is not excessive in value and cannot be construed as a bribe or pay-off;

·          is not in violation of applicable law or ethical standards; and

·          will not embarrass Albireo or any associate if publicly disclosed.

See also subsection E below for considerations relating to gifts to foreign officials and Section VII.B below for considerations relating to gifts to government employees.

B. Receiving Gifts

Gifts, favors, entertainment or other inducements may not be accepted by associates or members of their immediate families from any person or organization that does or seeks to do business with, or is a competitor of, Albireo, except as common courtesies usually associated with customary business practices. If the gift is of more than token value, the Corporate Compliance Officer and the Company’s Chief Executive Officer must approve its acceptance.

7


An especially strict standard applies when suppliers, physicians, clinical investigators or investigative sites are involved. If a gift unduly influences or makes an associate feel obligated to “pay back” the other party with business, receipt of the gift is unacceptable.

It is never acceptable to accept a gift in cash or cash equivalent. Even cash gifts of token value must be declined and returned to the sender.

C. Unfair Competition

Although the free enterprise system is based upon competition, rules have been imposed providing what can and what cannot be done in a competitive environment. The following practices can lead to liability for “unfair competition” and should be avoided. They are violations of the Code.

Disparagement of Competitors. It is not illegal to point out weaknesses in a competitor’s product, product candidate, service or operation; however, associates may not spread false rumors about competitors or make misrepresentations about their businesses. For example, an associate may not pass on anecdotal or unverified stories about a competitor’s product, product candidate, service or operation as the absolute truth.

Disrupting a Competitor’s Business. This includes bribing a competitor’s employees, posing as prospective customers or using deceptive practices such as enticing away employees in order to obtain secrets or destroy a competitor’s organization.

Misrepresentations of Price and Product. Lies or misrepresentations about the nature, quality or character of any Albireo product, product candidate or service are both illegal and contrary to Company policy.

D. Antitrust Concerns

Federal and state antitrust laws are intended to preserve the free enterprise system by ensuring that competition is the primary regulator of the economy. Every corporate decision that involves customers, competitors, and business planning with respect to output, sales and pricing raises antitrust issues. Compliance with the antitrust laws is in the public interest, in the interest of the business community at large, and in Albireo’s interest.

Failing to recognize antitrust risk is costly. Antitrust litigation can be very expensive and time consuming. Moreover, violations of the antitrust laws can, among other things, subject you and Albireo to the imposition of injunctions, treble damages and heavy fines. Criminal penalties may also be imposed, and individual associates can receive heavy fines or even be imprisoned. For this reason, antitrust compliance should be taken seriously at all levels within Albireo.

8


A primary focus of antitrust laws is on dealings between competitors. In all interactions with actual or potential competitors, associates must follow these rules:

·          Never agree with a competitor or a group of competitors to charge the same prices or to use the same pricing methods, to allocate services, customers, private or governmental payor contracts or on any other improper basis, to boycott or refuse to do business with a provider, vendor, payor or any other third party, or to refrain from the sale or marketing of, or limit the supply of, particular products or services.

·          Never discuss past, present, or future prices, pricing policies, bundling, discounts or allowances, royalties, terms or conditions of sale, costs, choice of customers, territorial markets, production quotas, allocation of customers or territories, or bidding on a job with a competitor.

·          Be careful of your conduct. An “agreement” that violates the antitrust laws may be not only a written or oral agreement, but also a “gentlemen’s agreement” or a tacit understanding. Such an “agreement” need not be in writing. It can be inferred from conduct, discussions or communications of any sort with a representative of a competitor.

·          Make every output- and sales-related decision (pricing, volume, etc.) independently, in light of costs and market conditions and competitive prices.

·          Carefully monitor trade association activity. These forums frequently create an opportunity for competitors to engage in antitrust violations.

Another focus of antitrust law is how a company deals with customers, suppliers, contractors and other third parties. The following practices could raise issues, and associates should always consult with the Corporate Compliance Officer before doing any of the following:

·          refusing to sell to any customer or prospective customer;

·          conditioning a sale on the customer’s purchasing another product or service, or on not purchasing the product of a competitor;

·          agreeing with a customer on a minimum or maximum resale price of our products;

·          requiring a supplier to purchase products from Albireo as a condition of purchasing products from that supplier;

·          entering into an exclusive dealing arrangement with a supplier or customer; or

·          offering different prices, terms, services or allowances to different customers who compete or whose customers compete in the distribution of commodities.

Finally, always immediately inform the Corporate Compliance Officer if local, state or federal law enforcement officials request information from Albireo concerning its operations.

9


E. Unfair Practices in International Business

Under the Foreign Corrupt Practices Act (“FCPA”), associates are prohibited from making certain gifts to foreign officials. “Foreign officials” include not only persons acting in an official capacity on behalf of a foreign government (which may include government-owned hospitals or institutions), agency, department or instrumentality, but also representatives of international organizations, foreign political parties and candidates for foreign public office. The gift is “corrupt” under the FCPA if it is made for the purpose of:

·           influencing any act or decision of a foreign official in his official capacity;

·           inducing a foreign official to do or omit to do any act in violation of his lawful duty;

·           inducing a foreign official to use his position to affect any decision of the government; or

·           inducing a foreign official to secure any “improper advantage.”

A gift is still “corrupt” even when paid through an intermediary. Any associate who has any questions whatsoever as to whether a particular gift might be “corrupt” under the FCPA, please contact the Corporate Compliance Officer.

VII.       GOVERNMENT RELATIONS

Associates must adhere to the highest standards of ethical conduct in all relationships with government employees and must not improperly attempt to influence the actions of any public official.

A. Government Procurement and Funding

The U.S. government, governments of other countries and many state, regional and local governments have adopted comprehensive laws and regulations governing the purchase of products from private contractors or the provision of funds to the private sector for research and development. These laws and regulations are intended to assure that governmental entities receive pricing, terms, and conditions equivalent to those granted to Albireo’s most favored commercial counterparties and that there is full and open competition in contracting.

When selling products or services to, or seeking funding from, government agencies, Albireo is accountable for complying with all applicable laws, regulations and other requirements. Certifications to, and contracts with, government agencies are to be signed by an associate authorized by the Board to sign such documents, based upon knowledge that all requirements have been fully satisfied.

10


B. Payments to Officials

Payments or gifts shall not be made directly or indirectly to any government official or other government associate if the gift or payment is illegal under the laws of the country having jurisdiction over the transaction, or if it is for the purpose of influencing or inducing the recipient to do, or omit to do, any act in violation of his or her lawful duty. Under no circumstances should gifts be given to any government employees.

C. Political Contributions

Albireo funds, property or services may not be contributed to any political party or committee, or to any candidate for or holder of any office of any government. This policy does not preclude, where lawful, company expenditures to support or oppose public referendum or separate ballot issues, or, where lawful and when reviewed and approved in advance by the Corporate Compliance Officer and the Company’s Chief Executive Officer, the formation and operation of a political action committee.

VIII.     COMPLIANCE WITH LAWS, RULES AND REGULATIONS

A. Insider Trading Policy

The Company expressly forbids any associate from trading on material nonpublic information or communicating material nonpublic information to others in violation of the law. This conduct is frequently referred to as “insider trading.” This policy applies to every associate and extends to activities both within and outside their duties to Albireo, including trading for a personal account.

The concept of who is an “insider” is broad. It includes officers, directors and employees of a company. In addition, a person can be a “temporary insider” if he or she enters into a special confidential relationship in the conduct of a company’s affairs and as a result is given access to information solely for the company’s purpose. A temporary insider can include, among others, a company’s investment advisors, agents, attorneys, accountants and lending institutions, as well as the employees of such organizations. One may also become a temporary insider of another company with which Albireo has a contractual or other relationship.

Trading while aware of inside information is not a basis for liability unless the information is material. Generally, this is information that a reasonable investor would consider important in making his or her investment decisions or information that is likely to have a significant effect on the price of a company’s securities.

Information is nonpublic until it has been effectively communicated to the marketplace. Tangible evidence of such dissemination is the best indication that the information is public. For example, information found in a report filed with the SEC or appearing in a national newspaper would be considered public.

Each associate should be familiar with and abide by Albireo’s Insider Trading Policy. A copy of this policy is given to all new associates and is available from the Corporate Compliance Officer.

11


B. Equal Employment Opportunity

The Company makes employment-related decisions without regard to a person’s race, color, religious creed, age, sex, sexual orientation, marital status, national origin, ancestry or any other legally protected status. “Employment decisions” generally mean decisions relating to hiring, recruiting, training, promotions and compensation, but the term may encompass other employment actions as well.

Albireo encourages its associates to bring any problem, complaint or concern regarding any alleged employment discrimination to the attention of the Corporate Compliance Officer. Associates who have concerns regarding conduct they believe is discriminatory should also feel free to make a report to the Hotline, to the Corporate Compliance Officer or to the chairperson of the Audit Committee.

C. Sexual Harassment Policy

Albireo is committed to maintaining a collegial work environment in which all individuals are treated with respect and dignity and which is free of sexual harassment. In keeping with this commitment, Albireo will not tolerate sexual harassment of associates by anyone, including any manager, coworker, director, consultant, vendor, supplier or customer, whether in the workplace, at assignments outside the workplace, at Albireo-sponsored social functions or elsewhere.

D. Health, Safety & Environment Laws

Health, safety, and environmental responsibilities are fundamental to Albireo’s values. Associates are responsible for ensuring that Albireo complies with all provisions of the health, safety, and environmental laws of each country in which Albireo has operations.

The penalties that can be imposed against Albireo and associates for failure to comply with health, safety, and environmental laws can be substantial and include imprisonment and fines.

E. Health Care Regulations

The Company is committed to full compliance with federal and state laws, including laws prohibiting health care fraud and abuse such as the federal and state anti-kickback laws, the physician self-referral law commonly known as the Stark law and the federal and state false claims laws.

The federal antikickback statute prohibits the knowing and willful payment of remuneration to a physician, hospital or other source with the intent to induce the physician, hospital or other source to refer patients or order or recommend any items or services paid for by any federal health care program. There are certain “safe harbor” exceptions to this statute; however, their application is complicated. A violation of the federal anti-kickback statute can result in severe penalties, including criminal conviction, fines and exclusion from Medicare and

12


Medicaid programs. Many other jurisdictions, including many states, have similar anti-kickback laws governing items or services payable under government programs or by private insurance companies.

A federal statute similar to the federal anti-kickback statute is the Stark Law. The Stark Law prohibits physicians who have certain financial relationships with health care entities from ordering designated health services for their patients from such entities. Certain safe harbor provisions exist, but are complicated in their application. A violation of the Stark Law can result in denial of payment and civil monetary penalties.

Federal and state false claims laws prohibit knowing and willful false statements or representations made in connection with a claim submitted for reimbursement to health care programs such as Medicare and Medicaid. Claims that (i) provide misleading or incomplete information to customers regarding health care products or services, (ii) fail to include proper documentation or show a failure to obtain proper diagnosis information and (iii) bill for services not rendered, coded improperly or otherwise not rendered in the manner required, have resulted in penalties to providers under false claims statues. A violation of a false claims statute can result in severe consequences including civil penalties and criminal conviction.

As the application of federal and state anti-kickback and false claims laws is very complicated and nuanced, it is imperative that an associate with questions about the application of these laws contact the Corporate Compliance Officer for guidance in advance of taking any action where any such law may be applicable.

IX.         QUESTIONS UNDER THE CODE AND WAIVER PROCEDURES

Each associate is encouraged to consult with the Corporate Compliance Officer about any uncertainty or questions he or she may have about the Code.

If any situation should arise where a course of action would likely result in a violation of the Code but for which you think a valid reason for the course of action exists, you should contact the Corporate Compliance Officer to obtain a waiver prior to the time the action is taken. You should never pursue a course of action that is unclear under the Code without first consulting the Corporate Compliance Officer and, if necessary, obtaining a waiver from the Code. Except as noted below, the Corporate Compliance Officer will review all the facts surrounding the proposed course of action, consult with the Company’s Chief Executive Officer and determine whether a waiver from any policy in the Code should be granted.

Waiver Procedures for Executive Officers and Directors. Waiver requests by an executive officer or member of the Board shall be referred by the Corporate Compliance Officer to the Board or a committee thereof for consideration. If either (i) a majority of the independent directors on the Board or (ii) a committee comprised solely of independent directors agrees that the waiver should be granted, it will be granted and, to the extent required by the rules of the SEC or The Nasdaq Stock Market, disclosed publicly. If the Board denies the request for a waiver, the waiver will not be granted and the associate shall not pursue the intended course of action.

13


Waivers from the Code will be granted only in limited and extraordinary circumstances.

X.          FREQUENTLY ASKED QUESTIONS AND ANSWERS (FAQ’s) REGARDING REPORTING VIOLATIONS UNDER THE CODE, WHISTLEBLOWER POLICY AND HOTLINE

The following questions and answers address each associate’s obligation to comply with the Code. The Company has attempted to design procedures that promote confidentiality and, most importantly, freedom from the fear of retaliation for complying with and reporting violations under the Code.

Q:        Do I have a duty to report violations under the Code?

A:        Yes, participation in the Code is mandatory. You must immediately report any violation or suspected violation of the Code to the Hotline, the Corporate Compliance Officer or to the chairperson of the Audit Committee. The Company will endeavor to keep reports confidential, except to the extent disclosure is required by law, regulation or court order or is necessary to permit a complete investigation of such report. Failure to report violations or suspected violations is itself a violation of the Code and may subject you to disciplinary action, up to and including termination of employment or other relationship with Albireo or, potentially, legal action.

Q:        I’m afraid of being fired for raising questions or reporting violations under the Code. Will I be risking my job if I do?

A:        The Code contains a clear anti-retaliation pledge, meaning that if you in good faith report a violation of the Code by any associate, or by Albireo or its agents acting on its behalf, to the Hotline, to the Corporate Compliance Officer or to the chairperson of the Audit Committee, you will not be fired, demoted, reprimanded or otherwise harmed for reporting the violation, even if the violation involves you, your manager, or senior management of the Company. Note however that, although you will not be disciplined for reporting a violation, you may be subject to discipline if you are involved in the underlying conduct or violation. You are entitled to make the report on a confidential and anonymous basis. To the extent an investigation must be initiated, the Company will endeavor to keep confidential any report you make, except to the extent disclosure is required by law, regulation or court order or is necessary to permit a complete investigation of such report.

In addition, if you in good faith report a suspected violation under the Code that you reasonably believe constitutes a violation of a federal statute by any associate, or by Albireo or its agents acting on its behalf, to a federal regulatory or law enforcement agency, you may not be reprimanded, discharged, demoted, suspended, threatened, harassed or in any manner discriminated against in the terms and conditions of your employment for reporting the suspected violation, regardless of whether the suspected violation involves you, your manager or senior management of the Company.

14


Individuals should consider leaving, but are not required to leave, their name or a contact number when submitting a report. Such information may facilitate a more thorough and efficient investigation. The Corporate Compliance Officer will strive to maintain the integrity and confidentiality of all compliance-related communications. However, in certain circumstances, the identity of the person reporting the issue may become known or may need to be revealed, particularly if federal or state enforcement authorities become involved in the investigation. The Company cannot guarantee confidentiality when material evidence of a violation of the law is disclosed.

Nothing in the Code prohibits you from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the SEC, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. You do not need the prior authorization of the Corporate Compliance Officer or any other party to make any such reports or disclosures and you are not required to notify Albireo that you have made such reports or disclosures.

Q:         How are suspected violations investigated under the Code?

A:        When a suspected violation is reported to the Hotline, the Corporate Compliance Officer (or his or her delegate) will gather information about the allegation by interviewing the associate reporting the suspected violation, the associate who is accused of the violation or any co-workers or associates of the accused associates to determine if a factual basis for the allegation exists. The reporting associate’s immediate manager will not be involved in the investigation if the reported violation involved that manager. The Company will endeavor to keep the identity of the reporting associate confidential, except to the extent disclosure is required by law, regulation or court order or is necessary to permit a complete investigation of such report.

If the report is not substantiated, the reporting associate will be informed and at that time will be asked for any additional information not previously communicated. If there is no additional information, the Corporate Compliance Officer will close the matter as unsubstantiated.

If the allegation is substantiated, the Corporate Compliance Officer and the Company’s Chief Executive Officer will make a judgment as to the degree of severity of the violation and the appropriate disciplinary response. In more severe cases, the Corporate Compliance Officer will refer the matter to the Board. The Board’s decision as to disciplinary and corrective action will be final. In the case of less severe violations, the Corporate Compliance Officer may refer the violation to the individual’s manager for appropriate disciplinary action.

The Corporate Compliance Officer shall provide a summary of all matters considered under the Code to the Board or a committee thereof at each regular meeting thereof, or sooner if warranted.

15


Q:        Do I have to participate in any investigation under the Code?

A:        Your full cooperation with any pending investigation under the Code is a condition of your continued employment or other relationship with Albireo. The refusal to cooperate fully with any investigation is a violation of the Code and grounds for discipline, up to and including termination.

Q:        What are the consequences of violating the Code?

A:        As explained above, associates who violate the Code may be subject to discipline, up to and including termination of employment or other relationship with Albireo or, potentially, legal action. Associates who violate the Code may simultaneously violate federal, state, local or foreign laws, regulations or policies. Such associates may be subject to prosecution, imprisonment and fines, and may be required to make reimbursement to Albireo, the government or any other person for losses resulting from the violation. They may be subject to punitive or treble damages depending on the severity of the violation and applicable law.

Q:        What if I have questions under the Code or want to obtain a waiver under any provision of the Code?

A:        The Corporate Compliance Officer can help answer questions you may have under the Code. In addition, Section IX of the Code provides information on how you may obtain a waiver from the Code. Waivers will be granted only in very limited circumstances. You should never pursue a course of action that is unclear under the Code without first consulting the Corporate Compliance Officer and, if necessary, obtaining a waiver from the Code.

16


APPENDIX A

ASSOCIATE’S AGREEMENT TO COMPLY

I have read the Albireo Pharma, Inc. Corporate Code of Conduct and Ethics and Whistleblower Policy (the “Code”). I have obtained an interpretation of any provision about which I had a question. I agree to abide by the provisions of the Code. Based on my review, I acknowledge that

_____

To the best of my knowledge, I am not in violation of, or aware of any violation by others of, any provision contained in the Code;

OR

_____

I have made a full disclosure on the reverse side of this acknowledgement of the facts regarding any possible violation of the provisions set forth in the Code.

In addition, I understand that I am required to report any violation or suspected violation of the Code and that I may make such reports on a fully anonymous basis through the mechanisms described in this Code. I understand that I am required to cooperate fully with the Company in connection with the investigation of any suspected violation. I understand that my failure to comply with the Code or its procedures may result in disciplinary action, up to and including termination of employment or other relationship with Albireo or, potentially, legal action.

By:

    

Date:

Name (Please print):

Department/Location:

17


Exhibit 21.1

Subsidiaries of the Registrant

Albireo AB, a limited liability company registered in Sweden

Elobix AB, a limited liability company registered in Sweden

Albireo Pharma Limited, a limited liability company registered in UK

Albireo Pharma Security Corporation, a Massachusetts corporation


Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

1.Registration Statements (Form S-3 Nos. 333-238063, 333-241680 and 333-253506) of Albireo Pharma, Inc., and
2.Registration Statements (Form S-8 Nos. 333-144407, 333-168903, 333-180409, 333-215264, 333-222131, 333-226718, 333-228280, 333-233111, and 333-2535000) pertaining to equity incentive plans of Albireo Pharma, Inc;

of our report dated March 1, 2022, with respect to the consolidated financial statements of Albireo Pharma, Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2021.

/s/ Ernst & Young LLP

Boston, Massachusetts

March 1, 2022


Exhibit 31.1

CERTIFICATIONS UNDER SECTION 302

I, Ronald H.W. Cooper, certify that:

1.            I have reviewed this annual report on Form 10-K of Albireo Pharma, Inc.;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)            Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)            Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)            All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2022

 

 

/s/ Ronald H.W. Cooper

 

Ronald H.W. Cooper

 

President and Chief Executive Officer

 

(principal executive officer)

 


Exhibit 31.2

CERTIFICATIONS UNDER SECTION 302

I, Simon N.R. Harford, certify that:

1.            I have reviewed this annual report on Form 10-K of Albireo Pharma, Inc.;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)            Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)            Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)            All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2022

/s/ Simon N.R. Harford

 

Simon N.R. Harford

 

Chief Financial Officer and Treasurer

 

(principal financial officer and principal accounting officer)

 


Exhibit 32.1

CERTIFICATIONS UNDER SECTION 906

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Albireo Pharma, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Annual Report for the year ended December 31, 2021 (the “Form 10-K”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Arc 1

Dated: March 1, 2022

/s/ Ronald H.W. Cooper

Ronald H.W. Cooper

President and Chief Executive Officer

(principal executive officer)

arc

Dated: March 1, 2022

/s/ Simon N.R. Harford

Simon N.R. Harford

Chief Financial Officer and Treasurer

(principal financial officer and principal accounting officer)