Item 1. Business.

Our Company

We are a clinical-stage biotechnology company focused on discovering and developing innovative protein therapeutics to improve the lives of patients with serious diseases. Each of our product candidates has an innovative mechanism of action and addresses patient populations for which better therapies are needed. We have an emphasis in immuno-oncology, an area in which we have clinical, preclinical and discovery programs and product and discovery collaborations. In addition, we plan to use companion diagnostics where appropriate to allow us to select patients most likely to benefit from treatment with our product candidates. Our most advanced product candidates are identified below.

We have a differentiated target discovery platform and comprehensive libraries of transmembrane and extracellular soluble proteins that we believe encompass substantially all the body’s medically important targets for protein therapeutics. We have identified approximately 700 of these proteins, which we refer to as the immunome, that we believe modulate immune cell interactions and may be important in understanding and treating cancer in patients using immuno-oncology therapeutics. Our target discovery platform and capabilities position us well to explore pathways in cancer and inflammation and their intersection in immuno-oncology, an area of oncology with significant therapeutic potential and the focus of our research activities. We are applying our biologics discovery platform, including cell-based screening, immunome-by-immunome biophysical interaction screening, in vivo screening, receptor-ligand matching technologies and bioinformatics, to our immuno-oncology research programs. We have identified several targets that we believe could be useful in immuno-oncology that we are actively validating. We are also conducting research to discover additional targets. We generate and preclinically test therapeutic proteins, including antibodies and fusion proteins containing or directed to the targets we discover and validate. We plan to continue to advance selected therapeutic candidates into clinical development.

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Clinical Strategy

Our goal is to use our differentiated target discovery platform and libraries to maintain our leadership position in the discovery of innovative protein therapeutic targets and to build a leadership position in the development and commercialization of immuno-oncology therapeutics. The key elements of our strategy to achieve this goal are:

Our Pipeline

The following table shows the stage of development of our most advanced product candidates:

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Clinical Programs

Cabiralizumab

Cabiralizumab is an antibody that inhibits CSF1R. CSF1R is a cell surface protein that controls the survival and function of certain immune response cells called monocytes and macrophages. Monocytes and macrophages are elevated or activated in multiple disease settings. In cancer, macrophages suppress the immune system’s ability to kill cancer cells. In joint diseases, macrophages contribute to inflammation and, in diseases such as PVNS, can form tumor masses. Cabiralizumab blocks the activation and survival of these cell types. In many cancers, inhibition of CSF1R reduces the number of immunosuppressive tumor-associated macrophages, or TAMs, thereby facilitating an immune response against tumors. The staining images in Figure 1 below show the inhibitory effect cabiralizumab has on TAMs in a tumor model. We believe the combination of cabiralizumab with T cell checkpoint inhibitors, such as PD-1 inhibitors, or immune agonists may have synergistic therapeutic effects in treating cancer.

Figure 1: Inhibition of Tumor-Associated Macrophages by Cabiralizumab

F4/80 Staining for Macrophages in the MC38 Tumor Model

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Using our differentiated target discovery platform and libraries, we discovered a protein called interleukin-34, or IL-34, that is a key regulator of monocyte and macrophage numbers and activity. Once we discovered IL-34, we were able to use our protein libraries and ligand-receptor matching technology to identify its receptor, CSF1R. This receptor is known to be expressed on the surface of monocytes and macrophages. Before our discovery of IL-34, CSF1R was thought to have only one ligand called CSF1. Both CSF1 and IL-34 bind to and activate CSF1R and therefore promote the survival and activity of monocytes and macrophages. Cabiralizumab blocks the binding of both CSF1 and IL-34 to CSF1R and thereby inhibits the activity and survival of these cells (Figure 2).

Figure 2: Cabiralizumab Mechanism of Action

Cabiralizumab in Immuno-Oncology

We believe that there is a strong rationale for combining cabiralizumab with checkpoint inhibitors to treat cancer, including that:

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These points suggest that combining an anti-CSF1R antibody, such as cabiralizumab, with an anti-PD1 antibody, such as Opdivo , may benefit cancer patients. In preclinical studies, we observed cabiralizumab to be highly effective in blocking the growth of pancreatic tumors when combined with an anti-PD1 antibody and gemcitabine, as shown in Figure 3 below.

Figure 3: Tumor Weight Reduction of Cabiralizumab in Combination with Anti-PD1 Antibody and Gemcitabine

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Clinical Development of Cabiralizumab in Immuno-Oncology

We are currently conducting a Phase 1a/1b clinical trial to evaluate the safety, tolerability and preliminary efficacy of combining cabiralizumab with Opdivo  as a potential treatment for a variety of cancers. We have completed enrollment in this trial and continue to treat patients still on study. In the Phase 1b portion of the trial we are evaluating the safety, tolerability and preliminary efficacy of cabiralizumab in combination with  Opdivo   in the following tumor settings:

In parallel with advancing into the Phase 1b portion of the trial, we expanded the Phase 1a portion of the trial to enable us to continue to study cabiralizumab as monotherapy and as combination therapy with  Opdivo  in patients with certain tumor types beyond those addressed in the Phase 1b cohorts, including in patients whose tumors are refractory to PD-1 checkpoint inhibitors.

In November 2017, we presented preliminary safety, tolerability and efficacy data from patients from the Phase 1a/1b clinical trial at the Society for Immunotherapy of Cancer 32nd Annual Meeting, or the SITC presentation. As of the August 1, 2017 data cutoff for the SITC presentation, we had tested cabiralizumab as monotherapy in advanced solid tumors at escalating doses in 24 patients, in combination with Opdivo in advanced solid tumors at escalating doses of cabiralizumab in 10 patients, and in combination with Opdivo in advanced solid tumors in disease-specific cohorts at a dose of 4 mg/kg of cabiralizumab every two weeks in 195 patients. We observed a tolerable safety profile of cabiralizumab monotherapy and of cabiralizumab in combination with Opdivo . The most common treatment-related laboratory abnormalities were elevations in creatine kinase and serum liver enzymes without an associated elevation in bilirubin levels or other clinical sequelae. These treatment-related adverse abnormalities are believed to be secondary to cabiralizumab’s depletion of Kupffer cells and have been observed with other CSF1R-targeting agents. The most common treatment-related adverse events were: periorbital edema (20.8%), fatigue (29.2%), nausea (12.5%) and pruritus (8.3%). Grade 5 treatment-related adverse events in the trial occurred in three (1.3%) patients treated with a combination of cabiralizumab and Opdivo . The Grade 5 events were pneumonitis in a patient with thyroid cancer and respiratory distress and acute respiratory distress in two patients with lung cancer.

Among the other data, we observed preliminary evidence of a durable clinical benefit of the combination therapy in the cohort of patients with advanced pancreatic cancer. Based on radiographic assessments of anti-tumor activity in the 31 second- or later-line patients who had advanced pancreatic cancer, we observed, as of the August 1, 2017 data cutoff date:

All four confirmed objective responses were in patients with microsatellite stable tumors who had received an average of three prior therapies. In addition, the responses were accompanied by steep declines in levels of the pancreatic tumor marker CA-19-9 over the baseline.

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The data suggest that a combination therapy of cabiralizumab with Opdivo may benefit patients with pancreatic cancer , including those with microsatellite stable tumors, and support further study of cabiralizumab in combination with Opdivo in pancreatic cancer.

Based on the clinical data we observed in the cohort of patients with pancreatic cancer in the Phase 1b portion of this trial, we enrolled 35 patients with second- or later-line pancreatic cancer in the expansion of the Phase 1a portion of our Phase 1a/1b clinical trial to further evaluate the combination of cabiralizumab and Opdivo in this patient population. We are collecting pre- and on-treatment tumor biopsy samples from these patients, and are conducting comprehensive biomarker analyses to evaluate potential biomarker signatures that may predict responsiveness to this therapeutic combination and to assess changes that occur in the tumor microenvironment following treatment.

Also based on the clinical data we presented at the SITC presentation, BMS opened and is currently enrolling patients in a randomized, multi-arm Phase 2 clinical trial to determine the efficacy of cabiralizumab in combination with Opdivo , with and without chemotherapy, as a treatment for patients with second-line pancreatic cancer (NCT03336216). BMS plans to enroll approximately 160 patients with pancreatic cancer in the study , who will be randomized to one of four study arms based on the patient’s prior therapy. In January 2018, the dosing of the first patient in the trial by BMS triggered a $25 million milestone payable to us pursuant to the license and collaboration agreement between the companies established in 2015.

Cabiralizumab in PVNS

PVNS is a rare neoplastic joint disease, characterized by a locally aggressive tumor of the synovium. It is characterized by local overexpression of CSF1, which recruits macrophages into the joints, forming a non-malignant tumor mass. It is associated with high morbidity, and there are no approved therapies for the condition. We believe that administering cabiralizumab to PVNS patients will reduce infiltration of monocytes and macrophages into affected joints of these patients and inhibit the activity and survival of the monocytes and macrophages that form the bulk of the tumor mass, resulting in tumor shrinkage, pain reduction and increased use of affected joints.

There are two primary forms of PVNS: localized and diffuse. In localized PVNS, the tumor involves the tendons that support the affected joint or occurs in just one area of the affected joint. Localized PVNS is often surgically resectable and typically responds well to surgical treatment. Diffuse PVNS is more widespread throughout an entire joint. Accordingly, diffuse PVNS tends to be more destructive, may not be resectable and is more difficult to treat than localized PVNS.

Clinical Development of Cabiralizumab in PVNS

We are conducting a Phase 1/2 clinical trial of cabiralizumab monotherapy as a potential treatment for diffuse PVNS. During the Phase 2 portion of the trial, we are evaluating tumor response rate and duration and measures of pain and joint function in PVNS patients. We completed patient enrollment in the initially-planned 30-patient Phase 2 cohort in April 2017.

In June 2017, we presented a poster at the 2017 American Society of Clinical Oncology, or ASCO, Annual Meeting with updated pharmacokinetics, or PK, pharmacodynamics, or PD, and safety data from 21 patients treated with cabiralizumab and efficacy data from 11 patients treated with cabiralizumab in our ongoing Phase 1/2 clinical trial.

Based on the data, we concluded that the PK and PD of cabiralizumab support dosing of up to 4 mg/kg administered every two weeks. We did not observe any dose-limiting toxicities of cabiralizumab at doses up to 4 mg/kg administered every two weeks. The most common treatment-related adverse events were periorbital and eyelid edema, rash and pruritis, which are all class effects for compounds targeting the CSF1R pathway.

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We also observed clinical benefit in patients with diffuse PVNS in doses of cabiralizumab of up to 4mg/kg administered every two weeks. Based on radiographic assessments by RECIST 1.1 of anti-tumor activity of the 11 patients treated with cabiralizumab at the 4mg/kg dose, we observed, as of the March 7, 2017 data cut-off date:

In September 2017, we amended the study to enroll up to 30 additional patients with diffuse PVNS in the Phase 2 portion of the trial to refine the dosing schedule and optimize the therapeutic index of cabiralizumab in PVNS. Data from these additional patients are intended to support the design of our planned pivotal trial of cabiralizumab in PVNS. We plan to decide in the second half of 2018 whether to advance cabiralizumab to a pivotal trial in diffuse PVNS patients based on the data we obtain from the new dosing schedule.

In January 2016, the U.S. Food and Drug Administration, or the FDA, granted cabiralizumab Orphan Drug Designation for the treatment of PVNS. Orphan Drug Designation is granted by the FDA to products that treat rare diseases, defined as those affecting fewer than 200,000 people in the United States.

In December 2016, the European Commission, following an evaluation by the European Medicines Agency’s Committee for Orphan Medicinal Products, designated cabiralizumab as an orphan medicinal product for the treatment of PVNS. The European Commission grants orphan medicinal product designation to products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 people in the European Union.

Orphan Drug Designation in the United States and orphan medicinal product designation in the European Union each provide certain benefits and incentives in their respective jurisdictions, including a potential period of marketing exclusivity for the first marketing application if regulatory approval is received for the designated indication, potential tax credits for certain activities and waiver of certain administrative fees.

Bemarituzumab (FPA144)

Bemarituzumab is an antibody that inhibits FGFR2b that we are initially developing to treat a subset of gastric (stomach) and GEJ cancer patients whose tumors overexpress FGFR2b, as determined by an immunohistochemistry, or IHC, diagnostic test, or amplify the FGFR2 gene, as determined by a circulating tumor DNA, or ctDNA, blood-based diagnostic test. This subset of patients with tumors that overexpress the FGFR2b protein or amplify the FGFR2 gene is associated with lower overall survival. We are working with third-parties specializing in companion diagnostic development to develop IHC and blood-based companion diagnostics to identify gastric and GEJ cancer patients who have FGFR2b overexpressing tumors or FGFR2 gene amplification and who would be most likely to benefit from treatment with bemarituzumab.

We believe that bemarituzumab acts on tumor cells in two ways:

Clinical Development of Bemarituzumab

We are conducting a Phase 1 clinical trial of bemarituzumab to evaluate the safety, PK and efficacy of bemarituzumab as monotherapy in patients with metastatic gastric and GEJ cancer and bladder cancer whose tumors overexpress the FGFR2b protein. We have closed enrollment in the four cohorts in the expansion portion of the Phase 1 trial in which we were evaluating bemarituzumab in patients with metastatic gastric and GEJ cancer. We continue to enroll and treat patients in the cohort of patients with bladder cancer.

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In June 2017, we presented updated safety and efficacy data from 64 patients from the Phase 1 clinical trial in a clinical poster at the 2017 ASCO Annual Meeting, or the ASCO presentation. As of the March 20, 2017 data cut-off date for the ASCO presentation, we had tested bemarituzumab in advanced solid tumors at doses of up to 15 mg/kg given as monotherapy every two weeks, including in patients with gastric or GEJ cancer. We did not observe any dose-limiting toxicities or a maximum-tolerated dose. In addition, unlike small molecule FGF receptor kinase inhibitors, which block signaling through a broad number of FGF receptors and can lead to hyperphosphatemia, we did not observe any treatment-related hyperphosphatemia in patients treated with bemarituzumab. All treatment-related adverse events were Grades 1, 2 or 3. All treatment-related ocular adverse events were Grades 1 or 2, and no retinal toxicity was reported.

With respect to the patients with gastric or GEJ cancer, we observed preliminary anti-tumor activity with bemarituzumab monotherapy in late-line patients who had a median of three prior therapies and whose tumors overexpress the FGFR2b protein. Based on radiographic assessments by RECIST 1.1 of anti-tumor activity in the 21 patients who had high FGFR2b+ overexpressing gastric or GEJ cancer, we observed, as of the March 20, 2017 data cut-off date:

We designed our initial Phase 1 clinical trial testing bemarituzumab as monotherapy to evaluate the safety and tolerability of bemarituzumab as well as to gain early evidence of effectiveness, including by evaluating ORR, DCR and duration of response of patients with gastric or GEJ cancer that overexpresses FGFR2b. We believe that the ORR, DCR and duration of response and safety data that we have generated in our initial Phase 1 clinical trial support the evaluation of bemarituzumab in a registrational trial. Because patients with gastric or GEJ cancer that overexpresses FGFR2b have a worse prognosis as compared to those patients that do not overexpress FGFR2b, we believe that patients with FGFR2b-overexpressing disease progress more rapidly and that such patients are less likely to survive and become third- or even second-line patients. As a result, we believe testing bemarituzumab as a front-line treatment would increase the pool of patients that would be eligible to enroll in the trial and would result in faster enrollment and completion of a registrational trial than had we decided to test bemarituzumab as a second- or third-line treatment. In addition, because of the heterogeneity of advanced gastric and GEJ cancer, and because our preclinical data show additive efficacy against FGFR2b-overexpressing gastric cancer when adding bemarituzumab to chemotherapy, we believe that testing bemarituzumab in combination with chemotherapy may increase the extent and duration of response as compared to treatment with bemarituzumab alone. Moreover, we believe that bemarituzumab’s safety profile allows for the combination of bemarituzumab with chemotherapy while maintaining an acceptable safety profile. Based on the foregoing, we designed a global Phase 1/3 registrational trial to test bemarituzumab in combination with 5-fluorouracil (5-FU), leucovorin, and oxaliplatin, or mFOLFOX6, as front-line treatment of patients with gastric or GEJ cancer that overexpresses FGFR2b , or the FIGHT trial .

Because we had not yet clinically tested bemarituzumab in combination with mFOLFOX6, we included a Phase 1 safety lead-in for the FIGHT trial. During this Phase 1 safety lead-in portion, we will evaluate the safety, tolerability, PK and pharmacodynamics of bemarituzumab in combination with mFOLFOX6 in patients with any type of gastrointestinal cancer to identify a recommended dose of bemarituzumab to use in the Phase 3 portion of the trial. In December 2017, we initiated dosing in the Phase 1 safety lead-in portion of our FIGHT trial . We expect to initiate the global randomized, controlled Phase 3 portion of the trial in mid-2018.

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We estimate that approximately 10% of patients with gastric or GEJ cancer have tumors that either have  FGFR2  gene amplification or overexpress the FGFR2b protein. Accordingly, in the Phase 3 portion of the FIGHT trial, we will select for enrollment those patients whose tumors have  FGFR2  gene amplification or FGFR2b protein overexpression. We plan to identify  FGFR2  gene amplification using a ctDNA blood-based test, which will allow us to detect  DNA shed from tumors that circulates in blood plasma outside of cells . We plan to identify FGFR2b overexpression using an IHC test, which will allow us to determine FGFR2b overexpression in tumor tissue samples. We are developing both tests in parallel with our clinical development of bemarituzumab in collaboration with third-party diagnostic development partners and plan to use both companion diagnostics concurrently to more effectively identify gastric and  GEJ  cancer patients whose tumors overexpress FGFR2b or have  FGFR2  gene amplification. We plan to pursue regulatory approval of each companion diagnostic contemporaneously with regulatory approval of bemarituzumab .

Because the observed incidence of gastric and GEJ cancer is higher in Asian populations than in other populations, in December 2017, we entered into the China collaboration agreement with Zai Lab, pursuant to which we granted Zai Lab an exclusive license to develop and commercialize bemarituzumab in China, Hong Kong, Macau and Taiwan, and pursuant to which Zai Lab will conduct the Phase 3 portion of the FIGHT trial in China . We believe that our collaboration with Zai Lab will allow us to expedite the initiation of the Phase 3 portion of the FIGHT trial at clinical sites in China and will enhance our ability to enroll patients at clinical sites in China, which we believe will reduce the overall time to fully enroll the Phase 3 portion of the FIGHT trial.

In addition, in July 2017, we initiated dosing in a Phase 1 clinical trial in Japan evaluating bemarituzumab as a monotherapy to treat patients with gastric or GEJ cancer. We expect to complete this trial in 2018. This trial is intended to enable the inclusion of Japanese patients in our FIGHT trial.

Market Opportunity

Globally, gastric cancer is the fifth most common malignancy with the third highest mortality. In the United States, the prevalence of gastric cancer is approximately 95,700 patients, of which we believe approximately 9,570 have tumors that overexpress FGFR2b or are FGFR2  gene-amplified and are more likely to respond to bemarituzumab. Globally, the prevalence of gastric cancer is approximately 1.5 million patients, of which we believe approximately 150,000 have tumors that overexpress FGFR2b and or are FGFR2  gene-amplified are more likely to respond to bemarituzumab.

In June 2016, the FDA granted Orphan Drug Designation to bemarituzumab for the treatment of gastric cancer, including GEJ cancer, in patients whose tumors overexpress FGFR2b. We believe that our clinical development organization is well-suited to conduct a focused clinical development plan for FGFR2b-overexpressing or FGFR2 gene-amplified gastric and GEJ cancer.

Under our China collaboration agreement, we granted Zai Lab an exclusive license to develop bemarituzumab in China, Hong Kong, Macau and Taiwan. We plan to continue to seek strategic collaborators to develop and commercialize bemarituzumab in other territories. We plan to retain the right to commercialize or co-commercialize bemarituzumab in the United States.

FPA150

FPA150 is a CD8 T cell checkpoint inhibitor antibody that targets B7-H4. B7-H4 is a member of the B7 family of checkpoint inhibitors and shares significant homology with the other B7 family members, including PD-L1 and PD-L2. B7-H4 is expressed in several human tumors, including breast, ovarian, endometrial, lung and pancreatic cancers, and its expression correlates with poor prognosis. We designed FPA150 to target tumor cells through two distinct mechanisms of action: (i) by blocking B7-H4 from sending an inhibitory signal to CD8 T cells, and (ii) by enhancing ADCC against B7-H4-expressing tumor cells.

In December 2017, we filed an investigational new drug application, or IND, to initiate a Phase 1a/1b clinical trial to evaluate the safety, tolerability and preliminary efficacy of FPA150 monotherapy as a potential therapy in patients with a variety of cancers. In January 2018, we received clearance from the FDA to proceed with the clinical development of FPA150.

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We plan to evaluate FPA150 in escalating doses in advanced solid tumors in the Phase 1a portion of our Phase 1a/1b clinical trial, which we expect to initiate in the first half of 2018. Because FPA150 is expected to have an immunomodulatory effect and our Phase 1 trial is the first-in-human evaluation of FPA150, the starting dose of the dose escalation portion of the trial is lower than we would have selected for a development candidate that does not have an immunomodulatory effect. We expect the Phase 1a dose-escalation portion of our trial will continue into 2019. In the Phase 1b portion of the trial, we plan to evaluate FPA150 in various disease-specific cohorts, including in breast cancer, ovarian cancer, endometrial cancer and urothelial bladder cancer. We plan to develop an IHC-based assay in collaboration with a diagnostic development partner to select patients whose tumors overexpress B7H4 during the Phase 1b portion of the trial.

FPT155

FPT155 is a soluble CD80-Fc fusion protein. CD80 is a member of the B7 family of checkpoint inhibitors that is involved in modulating T cell priming and activation. This program came from our in vivo screens, which demonstrated that a soluble form of CD80 had potent in vivo anti-tumor activity when compared with 500 other immunome proteins. FPT155 uses the binding interactions of soluble CD80 to (i) block CTLA-4 from competing for endogenous CD80, allowing CD28 signaling to prevail in T cell activation in the tumor microenvironment and (ii) directly engage CD28 to further enhance its co-stimulatory T-cell activation activity without inducing super agonism.

We are currently conducting IND-enabling activities for FPT155, with the goal of filing an IND or its foreign equivalent in the second half of 2018.

Immuno-Oncology Drug Discovery and Research Programs

Overview

We are currently focusing our internal research efforts in the area of immuno-oncology. Cancers grow and spread because tumor cells have developed ways to evade elimination by the immune system. For example, cancer cells make proteins that apply the “brakes” to immune cells and prevent the immune cells from killing the tumor cells. One of the most exciting recent discoveries in cancer therapy has been the identification of ways to release these “brakes” and allow the immune cells to once again kill tumor cells. This approach has the potential to not only reduce tumor growth like traditional therapies, but also to potentially eliminate the cancer entirely in some patients. In addition to releasing the “brakes” on immune cells, other discoveries in immuno-oncology have focused on identifying ways to “press on the gas” to amplify the anti-tumor immune response. This second approach targets stimulatory pathways on immune cells. Agents that agonize stimulatory pathways can help immune cells overcome inhibitory signals in the tumor microenvironment, resulting in tumor cell killing.

While checkpoint inhibitor therapies have been validated in the clinic with agents targeting the PD-1/PD-L1 and CTLA-4 pathways to release the “brakes,” a significant proportion of patients do not respond to these treatments. New targets for immuno-oncology are needed to address those patients who do not respond to or cannot tolerate traditional therapies or agents currently in development. We are applying all aspects of our differentiated discovery platform to identify protein partners for molecules known to be involved in the anti-tumor immune response. We believe we have identified promising new antibody targets and ligand traps and are actively researching and validating additional immuno-regulatory targets.

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Our Biologics Discovery Platform

We are focused on discovering and developing innovative protein therapeutics. Targets for protein therapeutics are proteins in the body that when inappropriately produced or altered can result in human diseases. Protein therapeutics can be designed to reverse these disease-causing mechanisms. There are thousands of proteins in the body that represent potential protein therapeutic targets or therapeutics themselves, but only a few are targeted by currently marketed protein drugs in immuno-oncology, such as PD-1, PD-L1, CTLA-4, IL-2, interferon alpha and CD3.

Traditional ways to discover new targets for protein therapeutics have relied on a “trial-and-error” approach studying a single or a small number of proteins at a time. We have developed a platform to improve the traditionally difficult process of discovering new protein therapeutic targets. Our platform is based on two components:

We believe our platform improves and accelerates the discovery of new drug targets and protein therapeutics because it can:

We have used our platform to identify dozens of targets validated in rodent models in several different disease areas, including in collaboration with our partners, and to build a growing pipeline of product candidates. We believe our platform is particularly well positioned to explore new pathways in immuno-oncology.

Growing Database of Protein Function

We have tested each of the proteins in our libraries in numerous screens on different cell types, providing us with an extensive database of information regarding how each protein performs in different screens and whether it is specific to a given disease process or has a broader range of activities. The cumulative data from all our screens allows us to identify the most appropriate target for our product candidates.

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Collaborations

A part of our strategy is to establish collaborations with strategic partners. These collaborations supplement our development, manufacturing, regulatory and commercialization capabilities, provide us with significant funding to advance our pipeline and validate our technology. A summary of our key product, clinical and discovery collaborations is set forth below. For information regarding the financial terms of the following agreements, including amounts we have received through December 31, 2017, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Overview – Collaboration and License Revenue.”

Cabiralizumab Collaboration Agreement with BMS

In October 2015, we entered into the cabiralizumab collaboration agreement with BMS, pursuant to which we granted to BMS an exclusive, worldwide license to develop and commercialize certain CSF1R antibodies, including cabiralizumab, and all modifications, derivatives, fragments or variants of such antibodies, each of which we refer to as a licensed antibody. The cabiralizumab collaboration agreement superseded the clinical trial collaboration agreement that we entered into with BMS in November 2014.

Under the terms of the cabiralizumab collaboration agreement, BMS is responsible, at its expense, for developing cabiralizumab under a development plan, subject to our option, at our own expense, to conduct certain future studies, including registration-enabling studies to support approval of cabiralizumab in PVNS and in combination with our proprietary internal or in-licensed compounds, including in oncology, each of which we refer to as a Five Prime independent development path . BMS will have the option, prior to our commencement of a clinical trial with respect to a Five Prime independent development path, to include any such clinical trial in the development plan, and BMS would thereafter bear the associated development costs and milestone payments to us with respect to BMS’s development of such Five Prime independent development path. If BMS elects to include in the development plan a clinical trial that would have been a Five Prime independent development path, BMS would reimburse us for our development expenses incurred since November 2015, the effective date of the cabiralizumab collaboration agreement, with respect to such Five Prime independent development path.

If BMS does not add a Five Prime independent development path to the development plan before the review of any efficacy data from the first Phase 3 or registration-enabling clinical trial in such Five Prime independent development path, and such Five Prime independent development path indication achieves regulatory approval in the United States or marketing approval in the European Union or Japan, then BMS will reimburse us an amount equal to 125% of our development expenses with respect to such Five Prime independent development path.

We continue to conduct the current Phase 1a/1b clinical trial to evaluate the safety, tolerability and preliminary efficacy of combining Opdivo with cabiralizumab in multiple tumor types. BMS bears all costs and expenses relating to this trial, including manufacturing costs for the supply of cabiralizumab, except that we are responsible for our own internal costs, including internal personnel costs.

BMS is responsible for manufacturing and commercialization of cabiralizumab, and we retain rights to a minority co-promotion option in the United States.

Unless earlier terminated by either party, the cabiralizumab collaboration agreement will expire on a licensed product-by-licensed product and country-by-country basis upon the expiration of BMS’s payment obligations with respect to each licensed product under the agreement. BMS may terminate the agreement in its entirety or on a region-by-region basis at any time with advance written notice. BMS may also terminate the agreement in its entirety (or on a licensed product-by-licensed product basis) upon written notice based on certain safety reasons. Either party may terminate the agreement in its entirety with written notice for the other party’s material breach if such party fails to cure the breach. We may terminate the agreement in its entirety with written notice for BMS’s material breach of its diligence obligations with respect to development and obtaining marketing approval, and may terminate the agreement on a region-by-region basis for BMS’s breach of its diligence obligations with respect to timely commercialization of a licensed product in a region following marketing approval. Either party also may terminate the agreement in its entirety upon certain insolvency events involving the other party.

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Zai Lab China License and Collaboration Agreement

In December 2017, we entered into the China collaboration agreement with Zai Lab, pursuant to which we granted Zai Lab an exclusive license to develop and commercialize bemarituzumab , and all fragments, conjugates, derivatives and modifications thereof, or the licensed antibody, in China, Hong Kong, Macau, and Taiwan, each a region, and collectively, the territory.

Under the terms of the China collaboration agreement, Zai Lab will be responsible, at its expense, for (i) developing and commercializing products containing the licensed antibody, each, a licensed product, under a territory development plan and (ii) performing certain development activities to support our global development and registration of licensed products, including the Phase 3 portion of the FIGHT trial, in the territory, under a global development plan.

Unless earlier terminated by either party, the China collaboration agreement will expire on a licensed product-by-licensed product and region-by-region basis upon the expiration of Zai Lab’s payment obligations with respect to each licensed product under the agreement. Zai Lab may terminate the agreement in its entirety at any time with advance written notice. Either party may terminate the agreement in its entirety with written notice for the other party’s material breach if such party fails to cure the breach. We may terminate the agreement in its entirety with written notice for Zai Lab’s material breach of its diligence obligations with respect to development and obtaining marketing approval, and may terminate the agreement on a region-by-region basis for Zai Lab’s breach of its diligence obligations with respect to timely commercialization of a licensed product in a region following marketing approval. We may terminate the agreement in its entirety if Zai Lab or its affiliates or sublicensees commences a legal action challenging the validity, enforceability or scope of any of our patents in the territory. Either party also may terminate the agreement in its entirety upon certain insolvency events involving the other party.

BMS Immuno-oncology Research Collaboration

In March 2014, we entered into a research collaboration and license agreement, or the immuno-oncology research collaboration, with BMS pursuant to which we and BMS are collaborating to carry out a research program to (i) discover novel interacting proteins in two undisclosed immune checkpoint pathways using our target discovery platform, (ii) further the understanding of target biology with respect to targets in these checkpoint pathways, and (iii) discover and pre-clinically develop compounds suitable for development for human therapeutic uses against targets in these checkpoint pathways. Based on data arising from our initial screens, in January 2016, we amended the immuno-oncology research collaboration to add an additional undisclosed checkpoint pathway to the research program, for a total of three immune checkpoint pathways.

In December 2017, we earned a $5 million milestone payment under the discovery collaboration agreement in connection with BMS’s filing of an IND for its fully human monoclonal antibody targeting T-cell immunoglobulin and mucin domain-3, or TIM-3, an immune checkpoint receptor that is known to limit the duration and magnitude of T-cell responses. This antibody is BMS’s first clinical candidate arising from the collaboration.

The initial three-year research term of the immuno-oncology research collaboration ended in March 2017 and BMS’s first extension of the research term will end in March 2018. BMS exercised its option to extend the research term for an additional year to March 2019. BMS will provide us with funding for the additional research we will conduct during the extended term.

Unless earlier terminated by either party, the immuno-oncology research collaboration will expire on a product-by-product and country-by-country basis upon the expiration of all of BMS’s payment obligations under the immuno-oncology research collaboration agreement. BMS may terminate the immuno-oncology research collaboration agreement in its entirety or on a collaboration target-by-collaboration target basis at any time with advance written notice. Either party may terminate the immuno-oncology research collaboration agreement in its entirety or on a collaboration target-by-collaboration target basis with written notice for the other party’s material breach if such other party fails to timely cure the breach. Either party also may terminate the immuno-oncology research collaboration agreement in its entirety upon certain insolvency events involving the other party.

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GSK Muscle Diseases Collaboration

In July 2010, we entered into a research collaboration and license agreement, or the muscle diseases collaboration, with Glaxo Group Limited, or GSK, to identify potential drug targets and drug candidates to treat skeletal muscle diseases. We conducted three customized cell-based screens and one in vivo screen of our protein libraries under the muscle diseases collaboration. The research term under this collaboration ended in May 2014. GSK has exercised its option under the muscle diseases collaboration to obtain an exclusive, worldwide license to one undisclosed muscle disease target we identified using our proprietary discovery platform.

The muscle diseases collaboration agreement will terminate upon the expiration of the royalty terms of any products that incorporate or target the protein exclusively licensed under the collaboration. In addition, GSK may terminate the agreement at any time with advance written notice, and either party may terminate the agreement with written notice for the other party’s material breach if such party fails to cure the breach or upon certain insolvency events.

GSK Respiratory Diseases Collaboration

In April 2012, we entered into a research collaboration and license agreement, or the respiratory diseases collaboration, with GSK to identify new therapeutic approaches to treat refractory asthma and chronic obstructive pulmonary disease, or COPD, function, with a particular focus on identifying novel protein therapeutics and antibody targets. We conducted six customized cell-based screens of our protein libraries under the collaboration. The research term for this collaboration ended in July 2016.

GSK has exercised options under the respiratory diseases collaboration to obtain an exclusive, worldwide license to two undisclosed respiratory disease targets we identified using our proprietary discovery platform. GSK continues to have the right for limited periods of time to evaluate a limited number of proteins we identified under the respiratory diseases collaboration and obtain an exclusive worldwide license to develop and commercialize products that incorporate or target such proteins.

The respiratory diseases collaboration agreement will terminate upon the expiration of the royalty terms of any products that incorporate or target a protein exclusively licensed under the collaboration. In addition, GSK may terminate the agreement at any time with advance written notice, and either party may terminate the agreement with written notice for the other party’s material breach if such party fails to cure the breach or immediately in the case of failure to comply with certain anti-bribery and anti-corruption policies or upon certain insolvency events.

UCB Fibrosis and CNS Collaboration

In March 2013, we entered into a research collaboration and license agreement with UCB, referred to as the fibrosis and CNS collaboration, to identify innovative biologics targets and therapeutics in the areas of fibrosis-related immunologic diseases and central nervous system, or CNS, disorders. We conducted five customized cell-based and in vivo screens of our protein libraries under the fibrosis and CNS collaboration. We completed our initial research activities under the fibrosis and CNS collaboration in March 2016. Following the completion of the research activities, UCB has up to a two-year evaluation period during which we may be obligated to perform additional services at UCB’s request.

In the course of screening our protein libraries in the collaboration we discovered proteins that may be potential drug targets or drug candidates for fibrosis-related immunologic diseases. Under the collaboration, UCB has the right for limited periods of time to evaluate proteins identified in the screens we conducted and obtain an exclusive worldwide license to develop and commercialize products that incorporate or target the protein. If UCB elects to obtain an exclusive license to a protein it has evaluated, UCB would have sole responsibility for the further development and commercialization of products that incorporate or target the protein, at UCB’s cost and expense.

The collaboration agreement will terminate upon the expiration of the royalty terms of any products that incorporate or target a protein exclusively licensed under the collaboration. In addition, UCB may terminate the agreement at any time with advance written notice, and either party may terminate the agreement with written notice for the other party’s material breach if such party fails to cure the breach or upon certain insolvency events.

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License Agreements

License Agreement with Galaxy

In December 2011, we entered into a license agreement with Galaxy Biotech LLC, or Galaxy, pursuant to which Galaxy granted us an exclusive worldwide license to develop and commercialize FGFR2b antibodies, including bemarituzumab. Under the license agreement, we are obligated to use commercially reasonable efforts to develop and commercialize at least one licensed product in at least one tumor indication.

In May 2016, we amended the license agreement to revise certain milestone definitions, reduce certain milestone payments and add certain development-related milestone payments that were triggered by dosing of certain patients in the current Phase 1 clinical trial of bemarituzumab, which milestones were deemed achieved as of December 31, 2016. In May 2017, we further amended the license agreement to align the net sales definition under the agreement to the net sales definition under any sublicense we may grant under the agreement and to amend the termination provisions to allow for a direct license between Galaxy and any sublicensee upon termination of the agreement.

Our license agreement with Galaxy will remain in effect until the expiration of our royalty obligations in all countries. For each licensed product, we are obligated to pay Galaxy royalties on net sales of such product on a country-by-country basis for the longer of the life of the licensed patents covering such licensed product in such country or 10 years after the first commercial sale of such licensed product in such country. We cannot determine the date on which our royalty payment obligations to Galaxy would expire because no commercial sales of bemarituzumab have occurred and the last-to-expire relevant patent covering bemarituzumab in a given country may change in the future. Galaxy currently has issued patents, which we have licensed, covering bemarituzumab in the United States, Europe, China, Japan and other countries that expire in 2029. Further patents may issue from pending patent applications in these and other countries, and these patents would expire in 2029. These patent expiration dates do not reflect any patent term adjustments or extensions that may be available.

We may terminate the license agreement for convenience in its entirety or on a country-by-country basis upon prior written notice to Galaxy. Either party may terminate the license agreement in its entirety or with respect to certain countries after the first commercial sale of a licensed product in certain circumstances in the event of an uncured material breach by the other party. Either party may terminate the license agreement in the event of the other party’s filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings or upon an assignment of a substantial portion of its assets for the benefit of creditors. Galaxy may terminate the license agreement if we or any of our affiliates challenge the validity or enforceability of any patent licensed to us by Galaxy under the license agreement or if we aid or assist any affiliate or third-party in such a challenge other than as required by law.

Non-Exclusive License with BioWa-Lonza

In February 2012, we entered into a license agreement with BioWa, Inc. and Lonza Sales AG, or BioWa-Lonza, pursuant to which BioWa-Lonza granted us a non-exclusive license to use their Potelligent ^® CHOK1SV technology, including the CHOK1SV cell line, and a non-exclusive license to related know-how and patents. This license is necessary to produce our bemarituzumab antibody.

We are obligated to pay BioWa-Lonza aggregate milestone payments of up to $25.4 million for development, regulatory and commercialization milestones achieved in our bemarituzumab antibody program. We are also obligated to pay BioWa-Lonza tiered royalties on net sales of bemarituzumab up to mid-single digit percentages of the proceeds of such sales.

Our license agreement with BioWa-Lonza will remain in effect until the expiration of our royalty obligations. For each licensed product, we are obligated to pay BioWa-Lonza royalties on net sales of such licensed product on a country-by-country basis for the longer of the life of the licensed patents covering such licensed product in such country or 10 years after the first commercial sale of such licensed product in a major market country, which includes the United States. However, because we believe the last-to-expire patents currently licensed to us under the license agreement would expire in less than 10 years, we believe the date on which our royalty payment obligations to BioWa-Lonza would expire in any country would be 10 years after the first commercial sale of such product in a major market country.

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We may terminate the license agreement for convenience subject to our continuing obligation to pay royalties. BioWa-Lonza may terminate the license agreement in the event of our uncured material breach, if we oppose or dispute the validity of patents licensed to us under the license agreement or if we are declared insolvent, make an assignment for the benefit of creditors, are the subject of bankruptcy proceedings or have a receiver or trustee appointed for substantially all of our property.

Intellectual Property

Our intellectual property is critical to our business and we strive to protect it, including by obtaining and maintaining patent protection in the United States and internationally for our product candidates and other biological discoveries relating to new targets, pathways and relevant inventions and technologies that are important to our business. For our product candidates, we generally initially pursue patent protection covering both compositions of matter and methods of use.

Throughout the development of our product candidates, we seek to identify additional means of obtaining patent protection that would potentially enhance commercial success, including through additional methods of use, combination therapy, biomarker and companion diagnostic related claims. We also rely on trade secrets relating to our discovery platform and product candidates and seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.

Our success will also depend significantly on our ability to obtain rights to intellectual property held by third-parties that may be necessary or useful to our business, including for the discovery, development and commercialization of our product candidates. We generally obtain rights to third-party intellectual property through exclusive or non-exclusive licenses. For example, we entered into a non-exclusive license with BioWa-Lonza to use their Potelligent ^® CHOK1SV technology, which is necessary to produce our bemarituzumab antibody. If we are not able to obtain rights to intellectual property held by third-parties that are necessary or useful to our business, our business could be harmed, possibly materially.

The patent positions of biotechnology companies like ours are generally uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly limited before the patent is issued, and its scope can be reinterpreted after issuance. Consequently, we may not obtain or maintain adequate patent protection for any of our product candidates. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient proprietary protection from competitors. Any patents that we hold may be challenged, circumvented or invalidated by third-parties. For a more comprehensive discussion of the risks related to our intellectual property, please see “Risk Factors—Risks Related to Our Intellectual Property.”

The patent portfolios for our most advanced programs are summarized below:

Cabiralizumab

Our cabiralizumab patent portfolio includes patents and patent applications wholly owned by us as well as patents jointly owned with BMS. Our patent portfolio includes issued U.S. and foreign patents as well as pending U.S. and foreign patent applications covering compositions of matter, methods of use, biomarkers and combination therapies relating to cabiralizumab. The issued U.S. patents and issued foreign patents covering the composition of matter and methods of use expire in 2031. Patents that may issue from the pending U.S. and foreign applications would expire between 2031 and 2038.

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Bemarituzumab

Our patent portfolio for bemarituzumab includes patents and patent applications we exclusively licensed from Galaxy, as well as pending U.S. and foreign patent applications wholly owned by us. The patent portfolio, covering compositions of matter, methods of use, companion diagnostic and combination therapy relating to bemarituzumab, includes issued U.S. and foreign patents as well as pending U.S. and foreign patent applications. The issued U.S. patents expire between 2029 and 2030. The issued foreign patents expire in 2029. Patents that may issue from these pending U.S. and foreign applications would expire between 2029 and 2038.

FPA150

Our patent portfolio for FPA150 includes provisional U.S. patent applications wholly owned by us. Those provisional applications cover various aspects of the FPA150 program. U.S. and foreign patent applications claiming priority to those provisional applications, if filed and issued, would expire in 2038.

Manufacturing

We have process development and small-scale, non-clinical manufacturing capabilities. We generally perform cell line and process development for our product candidates and manufacture quantities of our product candidates necessary to conduct preclinical studies of our investigational product candidates. We do not have and we do not currently plan to acquire or develop the facilities or capabilities to manufacture bulk drug substance or filled drug product for use in human clinical trials or commercialization. We rely on third-party manufacturers to produce bulk drug substance required for our clinical trials and expect to continue to rely on third-parties to manufacture clinical trial drug supplies for the foreseeable future. BMS has the exclusive right to manufacture cabiralizumab drug substance and filled drug product. BMS will supply us with cabiralizumab, at its cost and expense, for our use in the conduct of the current trial and our Phase 2 clinical trial of cabiralizumab in patients with PVNS and will supply us with cabiralizumab for the conduct of our independent cabiralizumab development activities in exchange for a pre-negotiated service fee. We also contract with additional third-parties for the filling, labeling, packaging, storage and distribution of investigational drug products. We have personnel with significant technical, manufacturing, analytical, quality and project management experience to oversee our third-party manufacturers and to manage manufacturing and quality data and information for regulatory compliance purposes.

We must manufacture drug product for clinical trial use in compliance with current Good Manufacturing Practices, or cGMP. The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports, and returned or salvaged products. The manufacturing facilities for our products must meet cGMP requirements and FDA satisfaction before any product is approved. Our third-party manufacturers are also subject to periodic inspections of facilities by the FDA and other authorities, including procedures and operations used in the testing and manufacture of our products to assess our compliance with applicable regulations. Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including warning letters, the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations and civil and criminal penalties. These actions could have a material impact on the availability of our products. Contract manufacturers often encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel.

Commercialization

We have not yet established sales, marketing or product distribution operations. We generally expect to retain some commercial rights in the United States for our product candidates in specialty markets. Pursuant to our cabiralizumab collaboration agreement, we have a co-promotion right in the United States which, if we exercise, will allow us to field a minority percentage of the total United States sales force promotional effort. If we exercise our option to co-promote cabiralizumab in the United States prior to submission of a biological license application, or BLA, we expect to commence commercialization activities by building a focused sales and marketing organization in the United States. We believe that such an organization will be able to address the community of oncologists who are the key specialists in treating the patient populations for which cabiralizumab is being developed.

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Competition

The biotechnology and pharmaceutical industries are characterized by continuing technological advancement and significant competition. While we believe that our product candidates, technology, knowledge, experience and scientific resources provide us with competitive advantages, we face competition from major pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions, among others. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. Key product features that would affect our ability to effectively compete with other therapeutics include the efficacy, safety and convenience of our products and the ease of use and effectiveness of any companion diagnostics. The level of generic competition and the availability of reimbursement from government and other third-party payors will also significantly affect the pricing and competitiveness of our products. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

Many of the companies against which we may compete 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. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Government Regulation and Product Approval

In the United States, the FDA regulates protein therapeutics like cabiralizumab, bemarituzumab, FPA150 and our other product candidates as biological drug products, or biologics, under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and related regulations. Biologics are also subject to other federal, state and local statutes and regulations. Failure to comply with the applicable United States regulatory requirements at any time during the product development process, approval process or after approval may subject an applicant to administrative or judicial actions. These actions could include the suspension or termination of clinical trials by the FDA or an Institutional Review Board, or IRB, the FDA’s refusal to approve pending applications or supplements, revocation of a biologics license, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, import detention, injunctions, civil penalties or criminal prosecution. Any administrative or judicial action could have a material adverse effect on us.

The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing of biologics. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, purity, potency, labeling, storage, distribution, record keeping and reporting, approval, import and export, advertising and promotion and post-market surveillance of our products.

The FDA’s policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of any future product candidates or approval of product or manufacturing changes, new disease indications, or label changes. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the United States or abroad.

Biologics Product Development  

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

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The testing and approval process requires substantial time and financial resources, and we cannot be certain that any new approvals for our product candidates will be granted on a timely basis, if at all.

Before testing any compound in human subjects, a company must develop extensive preclinical data. Preclinical testing generally includes laboratory evaluation of product chemistry and formulation as well as toxicological and pharmacological studies in several animal species to assess the quality and safety of the product. Animal studies must be performed in compliance with the FDA’s Good Laboratory Practice, or GLP, regulations and the United States Department of Agriculture’s Animal Welfare Act and related regulations.

Prior to commencing the first clinical trial in humans, an initial IND application must be submitted to the FDA. A company must submit preclinical testing results to the FDA as part of the IND, and the FDA must evaluate whether there is an adequate basis for testing the drug in humans. The IND application automatically becomes effective 30 days after receipt by the FDA unless the FDA within the 30-day time period raises concerns or questions about the conduct of the clinical trial and places the trial on clinical hold. In such case, the IND application sponsor must resolve any outstanding concerns with the FDA before the clinical trial may begin. A separate submission to the existing IND application or a new IND submission must be made for each successive clinical trial to be conducted during product development. Further, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences at that site. Informed consent must also be obtained from each study subject. Regulatory authorities, an IRB, a data safety monitoring board or the study sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the participants are being exposed to an unacceptable health risk.

A clinical trial sponsor is required to submit to the National Institutes of Health, or NIH, for public posting on NIH’s clinical trial website details about certain active clinical trials and clinical trial results. For purposes of BLA approval, human clinical trials are typically conducted in the following phases, which may overlap:

All of these trials must be conducted in accordance with Good Clinical Practice, or GCP, requirements in order for the data to be considered reliable for regulatory purposes.

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The Biologic License Application Approval Process

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

The FDA will initially review a BLA for completeness before it accepts it for filing. Under the FDA’s procedures, the agency has 60 days from its receipt of a BLA, or the filing period, to determine whether the application will be accepted for filing based on the agency’s threshold determination that the application is sufficiently complete to permit substantive review. After the BLA submission is accepted for filing, the FDA reviews the BLA to determine, among other things, whether the proposed product is safe, pure and potent, which includes determining whether it is effective for its intended use, and whether the product is being manufactured in accordance with cGMP, and to assure and preserve the product’s identity, strength, quality, potency and purity. The FDA may refer applications for novel products or products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and, if so, under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

During the approval process, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to assure that the benefits of the biologic outweigh its risks. A REMS may include various elements depending on what the FDA considers necessary for the safe use of the drug. These elements range from a medication guide or patient package insert to training and certification requirements for prescribers and/or pharmacies to safe use conditions that must be in place before the drug is dispensed. If the FDA concludes that a REMS is needed, the BLA sponsor must submit a proposed REMS or the FDA will not approve the BLA.

The FDA’s standard review time for a BLA for a new molecular entity is 10 months from the end of the 60-day filing period. Based on pivotal clinical trial results submitted in a BLA, at the discretion of the FDA or upon the request of an applicant, the FDA may grant a priority review designation to a product, which sets the target date for FDA action on the application at six months from the end of the filing period. Priority review is given for a product that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness compared to marketed products or offer a therapy where no satisfactory alternative therapy exists. Priority review designation does not change the scientific or medical standard for approval or the quality of evidence necessary to support approval.

After the FDA completes its review of a BLA, it will either communicate to the sponsor that it will approve the product, or issue a complete response letter to communicate that it will not approve the BLA in its current form and to inform the sponsor of changes that the sponsor must make or additional clinical, nonclinical or manufacturing data that must be received before the FDA can approve the application, with no implication regarding the ultimate approvability of the application. If a complete response letter is issued, the sponsor may either resubmit the BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. Resubmitting a BLA in response to a complete response letter can add additional time to the approval process for a product.

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

The testing and approval process for a biologic requires substantial time, effort and financial resources and this process may take several years to complete. Data obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis or at all. We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals, which could delay or preclude us from marketing our products.

The FDA may require, or companies may pursue, additional clinical trials after a product is approved. These so-called Phase 4 clinical trials may be made a condition to be satisfied for continuing product approval. The results of Phase 4 clinical trials can confirm the effectiveness of a product candidate and can provide important safety information. Conversely, the results of Phase 4 clinical trials can raise new safety or effectiveness issues that were not apparent during the original review of the product, which may result in product restrictions or even withdrawal of product approval. The FDA has express statutory authority to require sponsors to conduct post marketing studies or clinical trials to specifically address safety issues identified by the agency. If any of our products are subject to post-marketing requirements and commitments, there may be resource and financial implications for our business.

Even if a product candidate receives regulatory approval, the approval will be limited to specific disease states, patient populations and/or dosages, or might contain significant limitations on use in the form of warnings, precautions or contraindications, or in the form of onerous risk management plans, restrictions on distribution, or post-marketing study or clinical trial requirements. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product, requirements to conduct additional studies or trials, or even complete withdrawal of the product from the market. In addition, we cannot predict what adverse governmental regulations may arise from future United States or foreign governmental action.

FDA Post-Approval Requirements

Any products manufactured or distributed by us or on our behalf pursuant to FDA approvals are subject to continuing regulation by the FDA, including requirements for record-keeping, reporting of adverse experiences with the biologic, and submitting biological product deviation reports to notify the FDA of unanticipated changes in distributed products. Manufacturers are required to register their facilities with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP standards. This requires us and our third-party manufacturers to implement certain quality processes, manufacturing controls and documentation requirements in order to ensure that the product is safe, has the identity and strength, and meets the quality, purity and potency characteristics that it purports to have. Certain states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. We cannot be certain that we or our present or future suppliers will be able to comply with the cGMP and other FDA regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, refuse to approve any BLA or other application, force us to recall a drug from distribution, shut down manufacturing operations or withdraw approval of the BLA for that biologic. Noncompliance with cGMP or other requirements can result in issuance of warning letters, civil and criminal penalties, seizures, and injunctive action.

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The FDA and other federal and state agencies closely regulate the labeling, marketing and promotion of drugs. While doctors may prescribe any product approved by the FDA for any use as long as consistent with any REMS restrictions, if applicable, a company can only make claims relating to safety and efficacy of a product that are consistent with FDA approval, and the company is allowed to market a drug only for the particular use and treatment approved by the FDA. In addition, any claims we make relating to our products in advertising or promotion must be appropriately balanced with important safety information and otherwise be adequately substantiated. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising, injunctions, potential civil and criminal penalties, criminal prosecution, and agreements with governmental agencies that materially restrict the manner in which we may promote or distribute drug products. Government regulators, including the Department of Justice and the Office of the Inspector General of the Department of Health and Human Services, as well as state authorities, recently have increased their scrutiny of the promotion and marketing of drugs.

Orphan Drug and Orphan Medicinal Product Designation and Exclusivity

The Orphan Drug Act provides incentives for the development of products intended to treat rare diseases or conditions, which are generally diseases or conditions that affect fewer than 200,000 individuals in the United States. If a sponsor demonstrates that a biologic is intended to treat rare diseases or conditions, the FDA will grant orphan designation for that product. Orphan designation must be requested before submitting a BLA.

Under the Pediatric Research Equity Act, or the PREA, submission of a pediatric assessment is not typically required for pediatric investigation of a product that has been granted orphan drug designation. However, under the FDA Reauthorization Act of 2017, the scope of the PREA was extended to require pediatric studies for products intended for the treatment of an adult cancer that are directed at a molecular target that the Secretary of Health and Human Services determines to be substantially relevant to the growth or progression of a pediatric cancer. In addition, the FDA issued guidance in 2017 that it no longer intends to grant orphan drug designation to products for pediatric subpopulations of common diseases unless the use of the drug in the pediatric subpopulation meets the criteria for an orphan disease or unless the disease in the pediatric subpopulation is considered a different disease from the disease in the adult population.

The benefits of orphan drug designation include research and development tax credits and exemption from FDA user fees. Orphan designation, however, does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. Generally, if a product that receives orphan designation is approved for the orphan indication, it receives orphan drug exclusivity, which for seven years prohibits the FDA from approving another product with the same active ingredient for the same use. Additionally, if a biologic designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan drug exclusivity.

Orphan exclusivity will not bar approval of another product under certain circumstances, including if a subsequent product with the same active ingredient for the same indication is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or provides a major contribution to patient care, or if the company with orphan drug exclusivity is not able to meet market demand. Further, the FDA may approve more than one product for the same orphan indication or disease as long as the products contain different active ingredients. As a result, even if one of our product candidates receives orphan exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication or disease, which could create a more competitive market for us.

After the FDA grants orphan designation, the identity of the applicant, as well as the name of the therapeutic agent and its designated orphan use, are disclosed publicly by the FDA.

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Similarly, the European Commission grants orphan medicinal product designation to products intended for the treatment, prevention or diagnosis of a disease that is life-threatening or chronically debilitating affecting not more than five in 10,000 people . In order to receive orphan designation, there must also be no satisfactory method of diagnosis, prevention or treatment of the condition, or if such a method exists, the medicine must be of significant benefit to those affected by the condition. In addition, sponsors are required to submit to the EMA’s Pediatric Committee, or the PDCO, and comply with a pediatric investigation plan, or a PIP, in order to seek marketing authorization in the EU.

Designated orphan medicinal products are entitled to a range of incentives during the development and regulatory review process, including scientific assistance for study protocols, a partial or total reduction in fees and eligibility for conditional marketing authorization. Once authorized, orphan medicinal products are entitled to 10 years of market exclusivity in all EU member states. However, marketing authorization may be granted to a similar medicinal product with the same orphan indication during the 10-year period with the consent of the marketing authorization holder for the original orphan medicinal product or if the manufacturer of the original orphan medicinal product is unable to supply sufficient quantities of such product. Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if the similar product is established to be safer, more effective or otherwise clinically superior to the original orphan medicinal product. After five years, a member state can request that the period of market exclusivity be reduced to six years if it can be demonstrated the criteria for orphan designation no longer apply and the medicine is sufficiently profitable. The period of market exclusivity may be extended by two years for medicines that have also complied with an agreed PIP. 

Biologics Price Competition and Innovation Act of 2009

The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created a licensure framework for biosimilars, which could ultimately subject our biological product candidates to competition from biosimilars. Under the BPCIA, a manufacturer may submit an abbreviated application for licensure of a biologic that is “biosimilar to” a referenced branded biologic. This abbreviated approval pathway is intended to permit a biosimilar to come to market more quickly and less expensively than if a “full” BLA were submitted, by relying to some extent on the FDA’s previous review and approval of the reference biologic to which the proposed product is similar.

Under the BPCIA, a biosimilar sponsor’s ability to seek or obtain approval through the abbreviated pathway is limited by periods of exclusivity granted to the sponsor of the reference product. No biosimilar application may be submitted until four years after the date of approval of the reference product, and no such application, once submitted, may receive final approval until twelve years after that same date (with a potential six-month extension of exclusivity if certain pediatric studies are conducted and the results are reported to the FDA). Once approved, biosimilar products likely would compete with (and in some circumstances, may be deemed under the law to be “interchangeable with”) the previously approved reference product.

FDA Regulation of Companion Diagnostics

As part of our clinical development plans, we plan to engage third-party collaborators to develop companion diagnostics to identify patients most likely to respond to our product candidates. Companion diagnostics are classified as medical devices under the Federal Food, Drug, and Cosmetic Act in the United States. The FDA regulates medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, reporting, recordkeeping, advertising and promotion, export and import, sales and distribution, and post-market surveillance. Unless an exemption applies, companion diagnostics require marketing clearance or approval from the FDA prior to commercial distribution. The two primary types of FDA marketing authorization applicable to a medical device are premarket notification, also called 510(k) clearance, and premarket approval, or PMA. According to a 2014 guidance issued by FDA officials, the use of companion diagnostics with therapeutic products raises important concerns about the safety and effectiveness of both the companion diagnostic devices and the corresponding therapeutic products and, therefore, ordinarily will require a PMA before they are marketed. Because the diagnostic tests that we plan to develop are essential for the safety and effective use of our therapeutics in selected patients, these diagnostic tests would be subject to the PMA approval process.

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The PMA process is costly, lengthy and uncertain. PMA applications must be supported by valid scientific evidence, which typically requires extensive data, including technical, preclinical, clinical and manufacturing data, to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. For companion diagnostic tests, a PMA application typically includes data regarding analytical and clinical validation studies. As part of its review of the PMA, the FDA will conduct a pre-approval inspection of the manufacturing facility or facilities to ensure compliance with the Quality System Regulation, which requires manufacturers to follow design, testing, control, documentation and other quality assurance procedures. FDA review of an initial PMA application is required by statute to take between six to ten months. If the FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA will either issue an approval letter or an approvable letter, which usually contains a number of conditions that must be met in order to secure final approval of the PMA. If the FDA’s evaluation of the PMA or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. A not approvable letter will outline the deficiencies in the application, and where practical, will identify what is necessary to secure approval of the PMA. The FDA may also determine that additional clinical trials are necessary, in which case the PMA may be delayed for several months or years while the trials are conducted and the data then submitted in an amendment to the PMA. Once granted, a PMA may be withdrawn by the FDA if compliance with post-approval requirements, conditions of approval or other regulatory standards are not maintained or problems are identified following initial marketing.

We and any third-party collaborator who we engage to develop companion diagnostics will work cooperatively to generate the data required for submission with the PMA application, and will remain in contact with the Center for Devices and Radiological Health, or CDRH, at the FDA to ensure that any changes in requirements are incorporated into the development plans. We anticipate that meetings with the FDA with regard to our drug product candidates, as well as companion diagnostic product candidates, will include representatives from the Center for Drug Evaluation and Research, or the CDER, and CDRH to ensure that the BLA and PMA submissions are coordinated to enable the FDA to conduct a parallel review of both submissions. The 2014 guidance issued by the FDA addresses issues critical to developing companion diagnostics, such as biomarker qualification, establishing clinical validity, the use of retrospective data, the appropriate patient population and when the FDA will require that the device and the drug be approved simultaneously. According to the guidance, if safe and effective use of a therapeutic product depends on a diagnostic, then the FDA generally will require approval or clearance of the diagnostic at the same time that the FDA approves the therapeutic product. We plan to structure our programs for the development of our companion diagnostics to be consistent with this guidance.

In the European Economic Area, or the EEA, in vitro medical devices are required to conform with essential requirements by undergoing a conformity assessment procedure. The conformity assessment varies according to the type of medical device and its classification. For low-risk devices, the conformity assessment can be carried out internally, but for higher risk devices it requires the intervention of an accredited EEA Notified Body. If successful, the conformity assessment concludes with the drawing up by the manufacturer of an EC Declaration of Conformity entitling the manufacturer to affix the CE mark to its products and to sell them throughout the EEA. We expect our companion diagnostic will require a conformity assessment through an accredited EEA Notified Body, and that the data generated for the U.S. registration will be sufficient to satisfy the regulatory requirements for the European Union and other countries.

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Coverage and Reimbursement

In both domestic and foreign markets, sales of any products for which we may receive regulatory approval will depend in part upon the availability of coverage and reimbursement from third-party payors. Such third-party payors include government health programs, such as Medicare and Medicaid, private health insurers and managed care providers, and other organizations. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Assuming coverage is granted, the reimbursement rates paid for covered products might not be adequate. Even if favorable coverage status and adequate reimbursement rates are attained, less favorable coverage policies and reimbursement rates may be implemented in the future. The marketability of any products for which we may receive regulatory approval for commercial sale may suffer if the government and other third-party payors fail to provide coverage and adequate reimbursement to allow us to sell such products on a competitive and profitable basis. For example, under these circumstances, physicians may limit how much or under what circumstances they will prescribe or administer our products and patients may decline to purchase such products. This, in turn, could affect our ability to successfully commercialize our products and impact our profitability, results of operations, financial condition, and future success.

The market for any product candidates for which we may receive regulatory approval will depend significantly on the degree to which these products are listed on third-party payors’ drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included on such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug on their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available. In addition, because each third-party payor may individually establish coverage and reimbursement policies, obtaining coverage and adequate reimbursement can be a time-consuming and costly process. We may be required to provide scientific and clinical support for the use of any product to each third-party payor separately with no assurance that approval would be obtained, and we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our products. We cannot be certain that our product candidates will be considered cost-effective. This process could delay the market acceptance of any product candidates for which we may receive approval and could have a negative effect on our future revenues and operating results.

Anti-Kickback, False Claims, Physician Payments Sunshine and Other Healthcare Laws

In addition to FDA restrictions on marketing, several other types of U.S. state and federal laws are relevant to certain marketing practices in the pharmaceutical and medical device industries and their other interactions with health care providers. These laws include the Federal Anti-Kickback Statute, false claims statutes, and the Federal Physician Payments Sunshine Act and other healthcare laws. We are subject to these laws and they may affect our business. The Federal Anti-Kickback Statute prohibits, among other things, any person or entity from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good or service for which payment may be made under federal health care programs such as the Medicare and Medicaid programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Violations of the Federal Anti-Kickback Statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. The Federal Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 and subsequent legislation, or collectively, the Affordable Care Act, among other things, amends the intent requirement of the Federal Anti-Kickback Statute. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the Federal False Claims Act. There are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions; however, the exceptions and safe harbors are drawn narrowly, and practices that do not fit squarely within an exception or safe harbor may be subject to scrutiny.

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The Federal False Claims Act prohibits, among other things, any person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment, or knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim. Many pharmaceutical and other healthcare companies have faced investigations and private lawsuits and, in many cases, have agreed to significant and burdensome settlements under these laws for a variety of allegedly improper promotional and marketing activities, including inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates; providing free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting fees and other benefits to physicians to induce them to prescribe products; or engaging in promotion for “off-label” uses. Federal False Claims Act violations may result in significant civil monetary penalties, including three times the damages incurred by the government from the violation and exclusion from participation in federal healthcare programs. The majority of U.S. states also have statutes or regulations similar to the Federal Anti-Kickback Statute and False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, and in some states, apply regardless of the payor.

The federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and its implementing regulations, or HIPAA, imposes criminal liability for knowingly and willfully executing a scheme to defraud any healthcare benefit program, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense, or knowingly and willfully making false statements relating to healthcare matters. HIPAA also imposes obligations on certain covered entity health care providers, health plans and health care clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.

The federal Physician Payments Sunshine Act, being implemented as the Open Payments Program, requires certain manufacturers of products for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program to track payments and other transfers of value to physicians and teaching hospitals, as well as physician ownership and investment interests, and to publicly report such data. Manufacturers subject to the Open Payments Program must submit a report on or before the 90th day of each calendar year disclosing reportable payments made in the previous calendar year. Failure to comply with the reporting obligations may result in civil monetary penalties.

Several states now require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical products in those states and to report gifts and payments to individual health care providers in those states. Some of these states also prohibit certain marketing related activities including the provision of gifts, meals, or other items to certain health care providers. In addition, some states require pharmaceutical companies to implement compliance programs or marketing codes.

Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If our operations are found to be in violation of any of the federal or state laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including significant criminal and civil monetary penalties, damages, fines, imprisonment, exclusion from participation in government programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, private “qui tam” actions brought by individual whistleblowers in the name of the government, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.

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Healthcare Reform

The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our product candidates profitably, even if they are approved for sale. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical and medical device industries have been a particular focus of these efforts and have been significantly affected by major legislative initiatives.

In March 2010, the Affordable Care Act was enacted, which includes measures that have or will significantly change the way health care is financed by both governmental and private insurers.

Some of the provisions of the Affordable Care Act have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act. Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of certain provision of the Affordable Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. The Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Congress also could consider subsequent additional legislation to replace elements of the Affordable Care Act that are repealed. We expect that healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that may be charged for any of our product candidates, if approved.

Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed federal legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

Foreign Regulation

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our product candidates. Whether or not we obtain FDA approval for a product candidate, we must obtain approval from the comparable regulatory authorities of foreign countries or economic areas, such as the European Union, before we may commence clinical trials or market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.

Other Regulations

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

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Corporate Information and Employees

Our principal corporate offices are located at 111 Oyster Point Boulevard, South San Francisco, California 94080 and our telephone number is (415) 365-5600. We were incorporated in December 2001 in Delaware and completed our initial public offering, or IPO, in September 2013. As of December 31, 2017, we had 216 full-time employees and no part-time employees. Of these employees, 166 were primarily engaged in research and development activities and 62 have an M.D. or a Ph.D. degree.

Available Information

Our website address is www.fiveprime.com. We make available on our website, free of charge, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or the SEC. Further, a copy of this Annual Report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D. C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov. The information found on our website is not incorporated by reference into this Annual Report on Form 10-K or any other report we file with or furnish to the SEC.

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