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TABLE OF CONTENTS
PART IV
KYTHERA BIOPHARMACEUTICALS, INC.

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

Form 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                 to

Commission file number: 001-35663

KYTHERA Biopharmaceuticals, Inc.
(Exact Name of Registrant as Specified in its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	03-0552903 (I.R.S. Employer Identification No.)
30930 Russell Ranch Road, 3rd Floor Westlake Village, California (Address of Principal Executive Offices)	91362 (Zip Code)

(818) 587-4500
(Registrant's Telephone Number, Including Area Code)

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

Title of each class	Name of each exchange on which registered
Common Stock, $0.00001 par value	The NASDAQ Global Select Market

         Securities registered pursuant to Section 12(g) of the Act: None

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

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

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

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer o Accelerated filer ý Non-accelerated filer o
(Do not check if a
smaller reporting company) Smaller reporting company o

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

         The aggregate market value of common stock held by non-affiliates of the Registrant as of June 30, 2014 (the last business day of the Registrant's most recently completed second quarter) was $674,448,828.

         As of February 23, 2015, the number of outstanding shares of the registrant's common stock, par value $0.00001 per share, was 22,755,124.

DOCUMENTS INCORPORATED BY REFERENCE

         Certain sections of the registrant's definitive Proxy Statement for the 2015 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Rule 14A not later than 120 days after end of this fiscal year covered by this Form 10-K are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		42
Item 1B.	Unresolved Staff Comments		73
Item 2.	Properties		73
Item 3.	Legal Proceedings		73
Item 4.	Mine Safety Disclosures		73
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		74
Item 6.	Selected Financial Data		76
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		78
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		92
Item 8.	Consolidated Financial Statements and Supplementary Data		93
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		93
Item 9A.	Controls and Procedures		93
Item 9B.	Other Information		95
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		95
Item 11.	Executive Compensation		95
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		95
Item 13.	Certain Relationships and Related Transactions, and Director Independence		95
Item 14.	Principal Accounting Fees and Services		95
PART IV
Item 15.	Exhibits, Financial Statement Schedules		96
	SIGNATURES		97

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Forward-Looking Statements

        This Annual Report on Form 10-K, including "Business" in Part I Item I and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II Item 7, contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause the results of KYTHERA Biopharmaceuticals, Inc. (KYTHERA or the Company) and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate," or "continue," and similar expressions or variations. The risks and uncertainties referred to above include, without limitation, risks related to our research and development efforts, need for future capital, timely completion of our clinical trials, uncertainty of clinical trial results or regulatory approvals or clearances, manufacturing of our product candidates at scales and costs appropriate for commercialization, enforcement of our patent and proprietary rights, reliance upon our collaborative partners, potential competition and other risks that are described herein and that are otherwise described from time to time in KYTHERA's Securities and Exchange Commission reports including, but not limited to, the factors described in Item 1A, "Risk Factors," of this Annual Report. KYTHERA assumes no obligation and does not intend to update these forward- looking statements.

PART I

ITEM 1.    Business.

Overview

        We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market. Our objective is to develop first-in-class, prescription products using an approach that relies on the scientific rigor of biotechnology to address unmet needs in the rapidly-growing market for aesthetic medicine. Our initial focus is on the facial aesthetics market, which comprises the majority of the aesthetic medicine market. Our product candidate, ATX-101, is a potential first-in-class, injectable drug in late-stage clinical development for the treatment of submental fullness associated with submental fat, which commonly presents as an undesirable "double chin." Based on clinical trials conducted to date, ATX-101 has exhibited significant, meaningful and long-lasting results in the reduction of submental fat. These results correspond with patient satisfaction measures demonstrating meaningful improvement in perceived chin appearance. If approved by applicable regulatory authorities, we believe ATX-101 will be an attractive solution for the treatment of submental fullness, representing a new product category within the rapidly growing facial aesthetics market.

        In 2013, consumers spent nearly $12.0 billion on 11.0 million physician-administered aesthetic procedures, according to the American Society of Aesthetic Plastic Surgery, or ASAPS. Additionally, ASAPS estimates that from 1997 to 2013, surgical aesthetic procedures increased by more than 89%, and non-surgical procedures increased by 521%, reflecting increasing demand for aesthetic procedures over more than a decade. The primary driver of this procedural growth is the demand for facial injectables, such as botulinum toxins, which increased 15.6% from the prior year, and dermal fillers, which increased 31.5% from the prior year. Injectables overall saw a 21% increase in 2013. While botulinum toxins and dermal fillers have created a market for non-surgical facial rejuvenation of the upper and mid-face as Food and Drug Administration, or FDA, approved injectables, liposuction and other surgical procedures remain the only proven treatment options for submental fat reduction. Although effective at fat reduction, these invasive procedures often involve significant pain, downtime and expense, as well as risks associated with invasive surgery.

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        We believe ATX-101 will be an attractive non-surgical solution for the treatment of submental fullness. ATX-101 is a proprietary formulation of a purified synthetic version of deoxycholic acid, a naturally occurring molecule in the body that aids in the breakdown of dietary fat. ATX-101 treatment contours the area under the chin by destroying fat cells while leaving surrounding tissue largely unaffected. Our Phase II and Phase III studies have demonstrated that ATX-101, when injected subcutaneously into the target fat deposit, reduces the localized fat deposit while leaving the surrounding tissue largely unaffected.

        In March 2014, we announced the acquisition of rights to develop and commercialize ATX-101 outside of the United States and Canada from Bayer Consumer Care AG ("Bayer"), our former collaborator. We originally entered into a collaboration arrangement with Bayer in August 2010, pursuant to which Bayer was to develop and commercialize ATX-101 for all indications outside the United States and Canada. Under the collaboration arrangement, we received an aggregate of $76.8 million from Bayer. This was comprised of an upfront license fee of $21.3 million and $22.2 million for Phase III development activities, followed by $15.8 million contingent event payment and an additional $17.4 million for further development activities in connection with Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101 in 2012. Under the Assignment and Novation Agreement between Bayer and KYTHERA Holdings Ltd. ("KHL"), a wholly-owned Bermuda subsidiary of KYTHERA, Bayer transferred all of its right, title, and interest in the Amended License Agreement, and assigned all of its rights and delegated all of its obligations, liabilities and duties thereunder, to KHL for $84.0 million comprised of $33.0 million in KYTHERA common stock, plus a note for $51.0 million which bears interest at 5%, payable no later than 2024. Bayer is also eligible to receive certain long-term sales milestone payments on annual sales outside of the United States and Canada.

        In the United States and Canada, we conducted two pivotal Phase III trials of ATX-101 for the reduction of submental fat. We initiated this pivotal Phase III clinical program in March 2012 and completed enrollment of 1,022 patients in these trials in August 2012. In these multi-center, randomized, double-blind, placebo-controlled pivotal trials, ATX-101 was found to be well tolerated and resulted in a statistically significant reduction in submental fat, as assessed by validated clinician and patient scales. These scales were validated using scientific principles and process recommendations per the FDA's Patient Reported Outcome Guidance (FDA, 2009) in an effort to ensure reliability, construct validity and sensitivity to change over time, and are similar to other rating scales used for approved aesthetic drug products and medical devices, such as botulinum toxins and dermal fillers. ATX-101 also demonstrated statistically significant reduction in submental volume using MRI in a subset of patients. In addition, treatment with ATX-101 resulted in improvements in patients' self-perception related to the appearance of their "chin fat" as measured by a patient-reported treatment impact scale.

        We reported positive topline results in September 2013. These trials formed the basis for our ATX-101 New Drug Application, or NDA, which we submitted in May 2014. The Dermatology and Ophthalmic Drugs Advisory Committee of the FDA is scheduled to review KYTHERA's NDA for ATX-101 (deoxycholic acid) for "improvement in the appearance of moderate to severe submental fullness" on March 9, 2015. The NDA will be subject to a standard review and has a Prescription Drug User Fee Act (PDUFA) action date of May 13, 2015. In addition, in August 2014, we filed a New Drug Submission (NDS) to Health Canada seeking approval for ATX-101 (deoxycholic acid), as a potential first-in-class treatment of submental fullness. In October 2014 we submitted a marketing authorization application, or MAA, in Switzerland and in February 2015 we submitted a drug application to Australia's Therapeutic Goods Administration (TGA) for ATX-101 as a potential first-in-class treatment of submental fullness.

        KYTHERA expects to make additional ex-United States regulatory submissions in 2015.

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The Aesthetics Market

        Today's culture places significant value on physical appearance, leading to widespread adoption of anti-aging and aesthetic treatments among the U.S. population. The aesthetics market has grown dramatically in the United States, driven by a large population of consumers who are looking to delay signs of aging and improve general appearance. In 2013, consumers spent nearly $12.0 billion on over 11.0 million physician-administered surgical and non-surgical aesthetic procedures in the United States, according to ASAPS. This reflects increasing demand for aesthetic procedures over more than a decade. A strong consumer preference for non-surgical options and the increasing availability of effective alternatives has prompted adoption of non-surgical aesthetic procedures by a broader patient population. These trends have made non-surgical procedures the primary driver of growth in the aesthetic medicine market, accounting for 83.5% of the total number of procedures performed in 2013 in the U.S.

Facial Aesthetics—a Large, Rapidly Growing Market

        Leading the growth in the non-surgical aesthetic market are facial injectables, principally botulinum toxins and dermal fillers, which have solidified their place as the foundation of the aesthetic medicine market. According to Millennium Research Group, Inc., in 2012 an estimated $1.0 billion was spent by clinicians in the United States and Canada on facial injectable drugs, and such spending is expected to grow at a compounded annual growth rate of 12% through 2017, as illustrated in Figure 1 below.

Source: Millennium Research Group, North American Markets for Facial Injectables 2013

        Demand for facial injectable procedures is driven by the considerable importance of the face to overall appearance. Patients seek these procedures to help achieve a rejuvenated appearance and improve facial features while avoiding long recovery periods and the associated risks that may result from surgical procedures. As such, non-surgical injectables attract a significantly broader demographic

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compared to surgical interventions. ASAPS reports that younger patients are increasingly opting for facial injectable treatments to delay the appearance of lines and wrinkles. In addition, older men are increasingly trying to minimize and delay the signs of aging and are seeking facial injectable treatments, a market that has traditionally been dominated by female patients. In the United States, facial injectable procedures represented 51.6% of all physician-administered aesthetic procedures in 2013, and are the fastest growing segment of the aesthetic medicine market, according to ASAPS.

        According to ASAPS, approximately 7.2 million facial injectable procedures were performed in the United States in 2013. Based on ASAPS reports and other industry sources, we estimate that approximately 2.1 million patients received botulinum toxin and dermal filler procedures in 2013. The number of facial injectable procedures in North America is expected to grow at a compounded annual growth rate of over 12% through 2017, according to industry sources. We believe this projected growth in the facial injectable market will be driven by a number of trends including:

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high patient demand for non-invasive aesthetic procedures;

•

positive media promotion leading to heightened patient awareness and education and expanding patient pool/demographics;

•

affordability (relative to invasive surgical aesthetic procedures) driven by competitive pricing pressures;

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more indications for current products, new product approvals and emerging alternative technologies;

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increasing popularity of receiving several treatments in combination; and

•

more physician specialties performing facial injectable procedures.

        Beyond the United States and Canada, the facial aesthetics market is also growing at a significant rate, with industry sources projecting the European facial injectable market to reach an annual growth rate of nearly 8% by 2017. We believe the long-term aggregate potential of ex-U.S. markets will approximate the North American market.

Patient and Physician Preference for Facial Injectables

        We believe several factors contribute to patients' increased preference for facial injectables, including:

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significant and predictable results;

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non-surgical alternative;

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minimal or no downtime; and

•

high-degree of patient satisfaction.

        In addition to offering features that are desirable to patients, facial injectable treatments also deliver benefits that are attractive to physicians, including:

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ease of injectable administration, with office visits typically lasting 15 to 20 minutes;

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high-degree of patient satisfaction leading to patient trust and loyalty;

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ability to command premium procedure fees to reflect physician expertise and artistry;

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patient self-pay, insulating physicians from medical reimbursement risk;

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no capital equipment requirements and limited upfront costs; and

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demonstrated safety and efficacy supported by FDA approval.

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        We believe these benefits will drive rapid adoption of new FDA-approved injectable treatments among dermatologists and plastic surgeons, who together perform a significant majority of these procedures.

Unmet Need for Injectable Therapy For Double Chin

        Botulinum toxins and dermal fillers have created a market for non-surgical facial rejuvenation of the upper and mid-face. Despite this, undesirable submental fullness, or "double chin," remains an important yet unaddressed aesthetic target for injectable facial treatments. The following graphic depicts the areas of the face in which currently-approved injectable products are used, and highlights the lack of treatments for undesirable submental fullness.

(1)

American Society of Aesthetic Plastic Surgery, ASAPS, 2013

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        According to the 2014 American Society for Dermatologic Surgery (ASDS) Consumer Survey on Cosmetic Dermatologic Procedures, 68% of consumers were somewhat to extremely bothered by excess fat under the chin.

        Despite the patient and physician shift in favor of non-surgical and injectable procedures, there are no FDA-approved drugs for the treatment of submental fullness, and liposuction and other surgical procedures remain the only proven treatment options. Although effective at fat reduction, these procedures often involve significant pain, downtime and expense, and involve the risks associated with invasive surgery.

Our Injectable Solution for Submental Fullness

        ATX-101 is an injectable, facial treatment that we are initially developing for treatment of submental fullness. Excess submental fat has been found to impact adversely a patient's self-perception. If approved by applicable regulatory authorities, we believe ATX-101 will be an attractive non-surgical solution for the treatment of submental fullness, representing a new product category within the rapidly growing facial aesthetics market, for the following reasons:

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Significant, meaningful and durable results.  Our clinical studies demonstrated a marked reduction in submental fat, which corresponded with patient satisfaction measures demonstrating meaningful improvement in perceived chin appearance. As is consistent across our U.S. Phase IIb study, our pivotal U.S. and Canadian Phase III trials, and the pivotal European Phase III trials, ATX-101 demonstrated statistically significant reduction of submental fat in all three efficacy measures: patient assessment, physician assessment and objective measures (magnetic resonance imaging, or MRI, in the U.S. and Canadian Phase III trials and Phase IIb study, and calipers in the European Phase III trials). In addition, the results from our U.S. and Canadian Phase III trials and the European Phase III trials demonstrated that treatment with ATX-101 resulted in a statistically significant improvement in patient happiness with the appearance of their "chin fat" and associated self-perception of youthfulness, as well as a reduction in feeling embarrassed, bothered and self-conscious about the appearance of their "chin fat." Further, an interim analysis of our long-term follow-up study monitoring Phase II patients who received ATX-101 treatment and were responders in their predecessor study indicates that 87% sustained or improved their response (defined as ³ 1 grade change from baseline on the Clinician-Reported Submental Fat Rating Scale, or CR-SMFRS) at four years (n=33). As is consistent with previous findings, no long-term safety concerns were noted in this interim analysis.

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Ready group of target patients.  Our market research surveys indicated that 78% of existing botulinum toxin or dermal filler patients had excess treatable submental fat and that 89% of dermal filler patients were also botulinum toxin patients. Taken together, we believe these results indicate that patients who have undergone, or are currently receiving facial injectable treatments, are highly likely to adopt new, similar procedures. Our market research in 385 patients receiving botulinum toxin or dermal fillers indicated that 61% of such patients were likely to try ATX-101 after reading the product profile. Accordingly, we believe that there is a large, readily addressable market of experienced patients, already in our target physicians' practices, who are likely to adopt an injectable facial treatment for submental fullness to enhance their facial appearance.

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Low barrier to physician adoption.  If approved, we expect ATX-101 to be an easily adopted solution for the treatment of submental fullness. We believe the short treatment sessions and ease of administration should facilitate physician adoption of ATX-101 as a natural complementary therapy for physicians already administering botulinum toxins and dermal fillers. Unlike some aesthetic procedures that require a physician practice to acquire and make space

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for often expensive and bulky capital equipment, ATX-101 will not require capital equipment. In addition, given the patient self-pay model in aesthetic medicine, physicians receive procedure fees from patients at the time of service and are not exposed to potential reimbursement risks.

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Facilitates physician practice expansion.  We believe ATX-101 will provide dermatologists and plastic surgeons an opportunity to expand the scope and reach of their current aesthetic medicine practices. If approved, ATX-101 for the treatment of submental fullness will be positioned as a naturally complementary procedure for experienced toxin and dermal filler patients, while potentially being an attractive point of entry for new patients that have never received an aesthetic procedure. For example, our market research indicates that men have a significantly higher interest in an injectable solution for submental fat reduction versus other facial injectable treatment options, but according to ASAPS, only comprised 9% of the facial injectable market in 2013. We believe ATX-101 provides an opportunity for dermatologists and plastic surgeons to address a broader patient demographic within the facial aesthetics market while also expanding the scope of treatments they can offer to their patient base.

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A favorable safety profile with no or limited downtime.  ATX-101 has been well tolerated across all clinical studies completed to date, with the most notable side effects being local to the treatment area and typically mild to moderate in severity. Treatment with ATX-101 also avoids the inherent risks and recovery time associated with general anesthesia and invasive surgical methods. Together, these attributes could make ATX-101 an aesthetic option with limited or no downtime with most patients able to resume normal daily activity immediately after treatment.

        We believe ATX-101, if approved, has the potential to reach peak year annual sales of $500 million in the United States.

Our Strategy

        In order to achieve our objective of developing first-in-class, non-surgical, prescription products in aesthetic medicine, our near- and long-term strategies include:

Near-term:

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Develop and commercialize ATX-101 in the United States and Canada for the non-surgical treatment of submental fullness. We believe ATX-101 will satisfy a significant unmet need and view it as a beachhead for our entry into the aesthetics market. If we are successful in receiving regulatory approval, we expect to build a sales organization to commercialize ATX-101 in the United States and Canada. We believe this would include establishing a specialty field sales force initially focused on core aesthetic dermatologists and plastic surgeons.

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Maximize the strategic global value of ATX-101.  We will develop our global business model and a long-term global strategy to maximize the value of ATX-101 on a territory-by-territory basis.

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Assess and prioritize future indications for ATX-101.  While we are initially developing ATX-101 for the treatment of submental fullness, we expect to assess future potential treatment indications for ATX-101. Over time we may develop ATX-101 for the reduction of other small, localized fat deposits with high aesthetic value.

Long-term:

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Build KYTHERA into a leading aesthetics company.  We are focused on high-value, self-pay aesthetic products that yield high patient satisfaction. We expect that ATX-101 will serve as a foundation for us to develop a franchise of aesthetic products. We intend to leverage ATX-101 to build KYTHERA into a leading biopharmaceutical company.

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Leverage our biotechnology and aesthetics experience.  We strive to attract, retain and incentivize a unique team with extensive biotech and aesthetic medicine capabilities to create an environment of high achievement. Our management team, with significant biotechnology and aesthetics experience, played a leadership role in securing FDA approval of and successfully commercializing marquee aesthetic products, such as BOTOX® and JUVEDERM®, and in successfully commercializing established biotechnology products such as Aranesp®, NEUPOGEN® and Neulasta®.

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Apply rigorous clinical, regulatory and scientific practices to the development of novel, FDA-regulated, aesthetic medicine product candidates such as ATX-101. We were founded on the premise of combining the scientific and clinical rigor of biotechnology with the attractive market potential of aesthetics. We believe applying scientific rigor to our product candidates allows both patients and physicians to be confident that the product is efficacious and safe based on clinical data.

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Be capital efficient and opportunistically expand our product portfolio.  Our capital deployment decisions are an integral part of executing our strategy. To date, we have advanced ATX-101 through Phase III clinical development by taking a disciplined approach that utilizes a network of clinical research organizations and contract manufacturers. We are focused on differentiated opportunities in aesthetics, and have been disciplined in our evaluation of opportunities to date. We will continue to search for new opportunities and intend to advance only those product candidates that meet our criteria for innovation, novelty and large addressable markets.

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Continue to build a robust and defensible patent portfolio.  Our ATX-101 patent estate consists, on a worldwide basis, of over 100 issued or allowed patents, including foreign counterparts, and over 100 additional pending patent applications. We will continue to aggressively pursue additional patent protection as well as take appropriate measures to obtain and maintain proprietary protection for our innovative technologies.

Our Drug Candidate: ATX-101

        If approved, we believe ATX-101 will be a first-in-class submental contouring injectable drug. We have completed Phase III clinical trials and submitted our NDA, and have made regulatory filings outside the United States, in Canada, Switzerland and Australia. ATX-101 (deoxycholic acid [DCA] injection) is a first-in-class, injectable drug that has been developed for the treatment of submental fullness. It has been observed to be well tolerated in Phase I, II and III studies. Deoxycholic acid has a long track record of safe administration to humans and is a common excipient in the formulation of several marketed drug products.

Mechanism of Action

        ATX-101 is a proprietary formulation of purified synthetic deoxycholic acid (non-animal derived) available as a sterile, ready-to-use injectable drug. When injected subcutaneously, ATX-101 results in focal adipocytolysis (the destruction of fat cells) and a predicted local tissue response resulting in a reduction in submental fat with unchanged or improved skin laxity in most patients.

Nonclinical Program

        Although DCA is a well-characterized endogenous substance, KYTHERA completed a comprehensive panel of nonclinical studies to characterize the toxicity and safety profile of ATX-101, including:

        1)    In vitro and in vivo pharmacology studies (nonclinical efficacy);

        2)    Cardiovascular, respiratory and central nervous system safety pharmacology studies;

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        3)    Absorption, distribution and toxicokinetic studies;

        4)    Single-dose through chronic repeat-dose toxicity, reproductive and genetic toxicology studies;

        5)    Synthetic DCA and animal-derived sodium deoxycholate (NaDC) bridging toxicity studies; drug product formulation bridging toxicity studies; and impurity evaluations.

        Overall, the results of the extensive nonclinical program encompassing pharmacologic, pharmacokinetic (PK), and toxicological evaluations support the safe use of ATX-101 at the intended maximum dosage for the treatment of submental fullness.

Clinical Development Program

        To support approval of ATX-101, we are pursuing a rigorous, science-based clinical development program. ATX-101 is the subject of four pivotal Phase III clinical trials for the reduction of submental fat, consisting of two completed trials in the United States and Canada, with total enrollment of 1,022 patients, and two completed trials in Europe that involved 723 total patients. These clinical trials were designed based on promising results observed in three multi-center, double-blind, placebo-controlled Phase II studies that evaluated various dosing regimens for ATX-101 and also served to validate potential efficacy endpoints, including patient and physician submental fat rating scales. Altogether, a total of 681 patients have participated in 12 Phase I and Phase II clinical studies of ATX-101 for the treatment of submental fat reduction including two early studies for the treatment of superficial lipomas, a common type of benign fatty tumor found under the skin. This included a 218-patient cardiac safety (QT/QTc) Phase I study that met the pre-specified FDA agreed primary endpoint, demonstrating that ATX-101, at and above therapeutic levels, did not prolong the rate corrected QT interval in healthy individuals. An additional open-label long-term safety study of ATX-101 for the reduction of submental fat was completed in 165 patients, demonstrating ATX-101 was well tolerated and may be effective in reducing SMF by both clinician- and patient-reported outcome measures. Overall, subcutaneous treatment with ATX-101 has been observed to be well tolerated across all clinical studies to date.

        Clinical development of ATX-101 in the United States is being conducted under an Investigational New Drug Application, or IND, that was opened in December 2007 and is currently active with the FDA. In Canada, Europe and other territories, clinical development is being conducted under similar national clinical trial applications.

Phase I Clinical Studies

        Seven Phase I studies were conducted in a total of 319 patients and evaluated safety, tolerability, pharmacokinetics and/or histopathology, and cardiac safety study following administration of ATX-101, as described below:

Pharmacokinetic studies (2008-2009, 2011, 2012).    Three Phase I studies have been conducted to evaluate the pharmacokinetics of ATX-101. The first study was an open-label, single-center, dose-escalation, safety study and was conducted in 24 patients. Each patient received a single ATX-101 treatment at 0-4mg/cm², given subcutaneously into the submental fat, using a variety of concentrations, volumes and injection grid patterns. Treatment with ATX-101 was well tolerated. The most common adverse effects were mild-to-moderate local injection site reactions. Peak deoxycholate blood levels occurred within about 30 minutes after administration of ATX-101 and were dose-related. At all doses, deoxycholate returned to endogenous levels within 12 to 24 hours. The second study was an open-label, single-center, cross-over study in five patients that compared blood levels of deoxycholate following injection of ATX-101 into the abdomen or submental fat. Comparable overall exposure was observed when ATX-101 was injected into the two locations,

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although peak exposure was somewhat higher following injection into submental fat. The third study was an open-label, single-center study conducted in 24 patients to determine the pharmacokinetics of injecting a single dose of ATX-101 in its final proposed commercial formulations. Each patient received a single ATX-101 treatment at 2 mg/cm², given subcutaneously into the submental fat. No serious adverse events were reported and no subjects were discontinued due to adverse events.

Histology study (2008-2009).    In this open-label, vehicle-controlled, multi-center study, various doses of ATX-101 were injected into the abdominal fat of 14 patients who were scheduled to undergo abdominoplasty at differing time points. Histological evaluation of the excised fat tissue demonstrated the initial destruction of adipocytes followed by a local immune response and thickening of fibrous septae within the fat tissue consistent with the proposed mechanism of action of ATX-101.

Lipid study (2010-2011).    This 10-patient, open-label, single-center study evaluated blood levels of lipids and other biological markers following administration of ATX-101. Results confirmed that adipocytolysis induced by ATX-101 did not result in adverse levels of serum lipids (including cholesterol, triglycerides and free fatty acids) or metabolic and inflammatory markers.

Formulation tolerability study (2010).    The comfort and tolerability of two formulations of ATX-101, one with and one without a benzyl alcohol preservative, were compared in 24 patients in this single-dose study. Both formulations were considered acceptable for use in future studies. We intend to use the benzyl alcohol formulation for the U.S. and Canadian markets.

Cardiac safety study (2013).    This 218-patient cardiac safety study of ATX-101, known as the QT/QTc study, met the pre-specified FDA agreed primary endpoint, demonstrating that ATX-101, at and above therapeutic levels, did not prolong the QTc interval in healthy individuals. Further, the study found no relationship between QTc interval and plasma ATX-101 concentrations.

Clinical Development in Reduction of Submental Fat

        The following key measures were developed, and assessed in Phase II and Phase III clinical trials:

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Clinician-Reported Submental Fat Rating Scale (CR-SMFRS):  a physician assessment of the prominence and convexity of submental fat on a 5-point ordinal scale (0-none, 1-mild, 2-moderate, 3-severe, 4-extreme).

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Patient-Reported Submental Fat Rating Scale (PR-SMFRS):  a patient self-assessment of the amount of their "chin fat" on a 5-point ordinal scale (0-none, 1-slight, 2-moderate, 3-large, 4-very large).

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Subject-Self Rating Scale (SSRS):  a patient self-assessment of satisfaction with the appearance of their face and chin on a 7-point ordinal scale (0-extremely dissatisfied, 1-dissatisfied, 2-somewhat dissatisfied, 3-neither satisfied nor dissatisfied, 4-somewhat satisfied, 5-satisfied, 6-extremely satisfied) when asked the following question:

"...how satisfied do you feel with your appearance at the present time whether or not in your judgment it is due to treatment with ATX-101?"

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Patient-Reported Submental Fat Impact Scale (PR-SMFIS):  a patient self-assessment, each on a 10-point ordinal scale, of their perception measuring:

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How happy are you with the appearance with your chin fat?

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How bothered are you by the appearance of your chin fat?

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How self-conscious are you about the appearance of your chin fat?

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How embarrassed are you about the appearance of your chin fat?

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•

How much older do you look because of your chin fat?

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How much overweight do you look because of your chin fat?

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Patient Satisfaction with Treatment:  a patient self-assessment of satisfaction with treatment measured on a 7-point ordinal scale (0-extremely dissatisfied, 1-moderately dissatisfied, 2-a little dissatisfied, 3-neither satisfied nor dissatisfied, 4-a little satisfied, 5-moderately satisfied, 6-extremely satisfied).

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Submental Skin Laxity Grade (SMSLG):  a physician assessment of submental wrinkling, skin folding and apposition to underlying neck structures on a 4-point photo-numeric grading scale (1-none, 2-mild, 3-moderate, 4-severe).

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Change in Submental Volume via Magnetic Resonance Imaging, or MRI:  an objective measure of submental volume within a 1 cm wide sagittal slice acquired through MRI measured in cubic millimeters (mm³).

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Change in Submental Fat Thickness via Calipers:  an objective measure of submental fat thickness measured in millimeters (mm).

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        The following table (Figure 2.) summarizes the results from our completed U.S. and Canadian pivotal Phase III trials:

Figure 2. Summary of Statistical Significance of ATX-101 Effects Compared to Placebo in U.S. and Canadian Phase III Trials

"D" signifies change from baseline

Phase II Clinical Studies

        Three multi-center, randomized, double-blind, placebo-controlled Phase II studies were conducted in 284 patients and evaluated various dosing regimens of ATX-101 vs. placebo for the reduction of submental fat. The Phase II program included two early Phase IIa studies, which formed the basis for Bayer's European Phase III trials, and one Phase IIb study that provided the basis for the U.S. and Canadian Phase III trials.

Phase IIa Studies (2007-2008).    The two initial Phase IIa studies were conducted in a total of 155 patients. The first study evaluated various concentrations of ATX-101 administered subcutaneously directly into the submental fat, using a grid pattern of small-volume injections. The exact number of injections was at the discretion of the clinician based on the distribution of

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submental fat in each particular patient, but could not exceed 10 mL. In a similar manner, the second Phase IIa study utilized a constant concentration of ATX-101 and varied the volume of each injection and the spacing of the grid pattern. In both studies, patients received up to four treatment cycles at 28-day intervals, and agreed to maintain consistent diet and exercise practices throughout the study in order to minimize potential changes in body weight. Principal efficacy measures in these two early studies were the CR-SMFRS and a 7-point patient-reported outcome scale (SSRS), or PRO, assessing satisfaction with appearance of the face and chin. These rating instruments are similar to other rating scales used for approved aesthetic drug products and/or medical devices, such as botulinum toxins and dermal fillers. For both measures, we observed statistically significant improvements in patients treated with ATX-101, particularly patients dosed at 1 or 2 mg/cm² and, following discussions with various European regulatory authorities, the Phase IIa data were deemed sufficient to inform the design of Bayer's European pivotal Phase III clinical trials.

Phase IIb Study (2009-2010).    Subsequent discussions with the FDA led to the development of additional submental fat assessment tools, including the PR-SMFRS, which parallels the clinician-reported assessment, and the PR-SMFIS, which assesses the visual and psychological impacts of "chin fat." These patient-reported scales, along with the CR-SMFRS, were rigorously validated, including demonstrations of multi-patient and multi-physician inter- and intra-rater reliability. These scales were used along with MRI assessments in a definitive Phase IIb dose-ranging study in 129 patients. This study compared ATX-101 at 1 or 2 mg/cm² vs. placebo in patients with moderate to severe submental fat. As in our Phase IIa studies, the exact number of injections of ATX-101 in our Phase IIb study was at the discretion of the clinician based on the distribution of submental fat for each particular patient, with a maximum of 10 mL injected per treatment cycle. Patients were allowed to receive up to six treatments at 28-day intervals and, as in previous studies, were requested to maintain consistent diet and exercise practices. Results from this study indicated that both doses were superior to placebo in most measures; however, the higher 2 mg/cm² dose appeared to consistently outperform the lower 1 mg/cm² dose. Compared to placebo-treated patients, dose-related improvements were observed in ATX-101-treated patients for mean changes in CR-SMFRS ratings, mean changes in PR-SMFRS ratings and mean changes in submental fat volume as assessed using MRI. In addition, treatment with ATX-101 resulted in improvements in patients' self-perception related to their submental fat as measured by the PR-SMFIS. Treated patients reported statistically significant increases in happiness with the appearance of their "chin fat" and self-perceptions of youthfulness and looking less overweight. The patients also reported feeling significantly less embarrassed, bothered and self-conscious about the appearance of their "chin fat."

        Across all three Phase II studies, ATX-101 was well tolerated in all dosing regimens. The observed safety profile of ATX-101 is characterized by transient, local injection site reactions of typically mild to moderate severity. Pain was the most common injection site reaction, followed by numbness, bruising, swelling, induration and redness. Less frequently, itching, nodules and tingling were reported. Most of the injection site reactions resolved within the 28-day treatment interval, with some cases extending beyond the treatment interval gradually diminishing over the treatment period. Rare instances of transient facial nerve or muscle impairment (neuropraxia), which typically manifests as an asymmetric smile, were reported.

Long-Term Phase II Follow-Up Study.    In an effort to assess long-term safety and duration of treatment effects, we are conducting an ongoing observational study to capture up to five years of long-term follow-up data on a subset of patients who completed Phase II studies of ATX-101 for submental fat reduction. An interim analysis of patients who received ATX-101 and were responders in their predecessor Phase II study was conducted. At the longest follow-up timepoint with available data (ongoing Study 12), 4 years after treatment in the early Phase 2 studies, 1-grade

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CR-SMFRS responses were observed to have been maintained in 29 of the 33 responders (87.9%) who attended the 4-year visit. As is consistent with previous findings at the two-year mark, no long-term safety concerns were noted in this interim analysis.

Summary of Regulatory Endpoints

        The table (Figure 3) below summarizes the regulatory endpoints developed during the Phase II studies and used in the Phase III clinical trials to measure ATX-101 performance. These patient and physician scales are similar to other rating scales used for approved aesthetic drug products and medical devices, such as botulinum toxins and dermal fillers, and the CR-SMFRS, PR-SMFRS and PR-SMFIS were validated using scientific principles and process recommendations per the FDA's Patient Reported Outcome Guidance (FDA, 2009) in an effort to ensure reliability, construct validity and sensitivity to change over time.

Figure 3. Summary of Phase III Regulatory Endpoints

European Pivotal Phase III Clinical Trials, (Trial ATX-101-10-16 and Trial ATX-101-17) (2010-2012)

        In Europe, Bayer, our former collaborator, conducted two identical pivotal, multi-center, randomized, double-blind, placebo-controlled, Phase III clinical trials designed to assess the efficacy, safety and tolerability of ATX-101, dosed at 1 or 2 mg/cm², vs. placebo for the reduction of moderate to severe submental fat. The design of these trials was based on results from the prior Phase IIa studies and further informed by the then-ongoing development of additional patient-reported endpoints. Patients received up to four treatments at 28-day intervals and, as in previous studies, were requested to maintain consistent diet and exercise practices. Together, the trials enrolled 723 patients in 57 centers in the United Kingdom, France, Germany, Belgium, Spain and Italy.

        Both trials met the pre-specified primary endpoints by demonstrating statistically significant reduction of moderate to severe submental fat, for both the 1 and 2 mg/cm² doses compared to placebo, as assessed by: percentage of patients with at least a 1-point improvement on the 5-point Clinician-Reported Submental Fat Rating Scale, or CR-SMFRS and percentage of patients expressing satisfaction with their appearance in association with their face and chin as measured by a rating of 4 or higher on the 7-point Subject Self Rating Scale, or SSRS.

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        In addition, treatment with ATX-101 resulted in dose-dependent, statistically significant improvements in a number of secondary outcomes measured by: the 5-point Patient-Reported Submental Fat Rating Scale, or PR-SMFRS, caliper measurements of the submental area and patients' self-perception related to the appearance of their submental fat as measured by the Patient-Reported Submental Fat Impact Scale, or PR-SMFIS. Treated patients reported statistically significant increases in happiness with the appearance of their "chin fat" and associated self-perceptions of youthfulness and looking less overweight. The patients also reported feeling less embarrassed, bothered and self-conscious about the appearance of their "chin fat." Patients also reported a statistically significant difference in overall satisfaction with treatment as compared to placebo.

        In these trials, the observed safety profile of ATX-101 was characterized by transient, local injection site reactions of predominately mild to moderate severity. Pain was the most common injection site reaction, followed by swelling, bruising, numbness, redness and induration. Less frequently, itching, tingling and nodules were reported. Rare instances of transient facial nerve or muscle impairment (neuropraxia), which typically manifests as an asymmetric smile, were reported.

U.S. and Canadian Pivotal Phase III Clinical Trials—"REFINE-1" and "REFINE-2" (2012-2013)

        Based on study results to date, as well as substantive discussions with the FDA, our U.S. and Canadian pivotal Phase III trials were designed following the treatment regimen used in our completed Phase IIb study. These trials were designed to test against regulatory approval requirements using rigorous statistical analysis of validated physician and patient scales. These patient and physician scales are similar to other rating scales used for approved aesthetic drug products and medical devices, such as botulinum toxins and dermal fillers. As a substantiating objective measure, MRI was used to measure the change in submental volume following treatment with ATX-101. In addition, secondary and other measures evaluated patient satisfaction, perception of change and the psychological impacts associated with reduction of submental fat.

        Our pivotal U.S. and Canadian Phase III trials, known as REFINE-1 and REFINE-2, or Randomized Double-blind Evaluation of Submental Fat Reduction IN ATX-101 TrEated Patients, were initiated in March 2012 and were designed to confirm the efficacy, safety and tolerability of ATX-101 for reduction of moderate to severe submental fat. These trials were identical multi-center, randomized, double-blind, placebo-controlled trials that compared subcutaneous injections of ATX-101 dosed at 2 mg/cm² to similar injections of placebo, with the primary efficacy assessments at 12 weeks after final treatment. Patients received up to six treatments at 28-day intervals and agreed to maintain consistent diet and exercise practices throughout the study in order to minimize potential changes in body weight. The trials were conducted in approximately 70 centers across the United States and Canada. We enrolled 1,022 patients across the two trials, randomized 1:1 to ATX-101 or placebo (REFINE-1 enrolled 506 patients and REFINE-2 enrolled 516 patients).

        These Phase III trials had as principal efficacy measures both the CR-SMFRS and the PR-SMFRS. The two scales were used together as a composite to define a responder as a patient who achieved a pre-defined threshold of improvement simultaneously on both measures. Such a composite analysis was designed to eliminate variances that may be seen in data from either scale alone and substantially increased the difficulty in achieving any given threshold of improvement. These trials pre-specified two different thresholds as co-primary endpoints: a 1-grade improvement in the CR-SMFRS / PR-SMFRS composite, and a 2-grade improvement in the CR-SMFRS / PR-SMFRS composite. As co-primary endpoints, both had to be achieved for trial success. ATX-101 studies to date indicate that a 1-grade improvement represents a meaningful and positive change to both patients and physicians as indicated by high patient satisfaction and the patient's global impression of change in submental fat. Based on FDA guidance on interpretation of patient reported outcomes, these scores are used as an "anchor-based" method to establish a clinically meaningful threshold of response. The requirement of a 2-grade

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composite threshold represents a more difficult statistical standard for both product and scale performance.

        To better understand treatment outcomes, secondary endpoints measured patients' self-perception related to the appearance of their submental fat as measured by the Patient-Reported Submental Fat Impact Scale, or PR-SMFIS, including treatment related impacts in patients' happiness with the appearance of their "chin fat" as well as associated self-perceptions of youthfulness, looking overweight, or feeling embarrassed, bothered or self-conscious about the appearance of their "chin fat." In addition, these trials measured the change in submental volume using MRI in a subset of approximately 400 patients at selected centers. We completed enrollment in these trials in August 2012 and reported positive topline results in September 2013. These trials form the basis for our NDA for approval of ATX-101 for the treatment of moderate to severe submental fat.

Trial ATX-101-11-22 (REFINE-1) and Trial ATX-101-11-23 (REFINE-2).

        Pivotal Phase III Studies 22 and 23 each met their co-primary efficacy endpoints: the 1-grade composite SMFRS response rate (ie, proportion of patients with at least 1-grade simultaneous improvement on both the CR-SMFRS and the PR-SMFRS) and 2-grade composite SMFRS response rate (ie, proportion of patients with at least 2-grade simultaneous improvement in both the CR-SMFRS and the PR-SMFRS) at 12 weeks after last treatment, as summarized in Figure 4 below.

Figure 4: Co-primary Efficacy Results—Pivotal Studies 22 and 23

ATX-101 = deoxycholic acid injection; SMFRS = Submental Fat Rating Scale.

Note: Results shown are for protocol-specified co-primary analyses based on intent-to-treat (ITT) datasets consisting of all randomized patients.
Source: Table 1, Section 2.5 of NDA 206333

These trials met the pre-specified co-primary endpoints by demonstrating statistically significant reduction of moderate to severe submental fat for the 2 mg/cm² dose compared to placebo.

Primary Efficacy Endpoints

        REFINE-1 (Study ATX-101-11-22)

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70.0% of ATX-101 (2mg/cm²) REFINE-1 subjects demonstrated a simultaneous improvement of at least one grade from baseline on the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS) vs. 18.6% in placebo (p<0.001) (Figure 25).

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•

13.4% of ATX-101 (2mg/cm²) REFINE-1 subjects demonstrated a simultaneous improvement of at least two grades from baseline on the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS) vs. 0% in placebo (p<0.001) (Figure 27).

        REFINE-2 (Study ATX-101-11-23)

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66.5% of ATX-101 (2mg/cm²) REFINE-2 subjects demonstrated a simultaneous improvement of at least one grade from baseline on the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS) vs. 22.2% in placebo (p<0.001) (Figure 26).

•

18.6% of ATX-101 (2mg/cm²) REFINE-2 subjects demonstrated a simultaneous improvement of at least two grades from baseline on the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS) vs. 3.0% in placebo (p<0.001) (Figure 27).

Secondary Efficacy Endpoints

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Additionally, an assessment of the trials' first secondary endpoint showed 46.3% of REFINE-1 and 40.2% of REFINE-2 patients achieved a predefined, statistically significant reduction in the volume of their submental region vs. 5.3% and 5.2% for placebo, respectively (both p<0.001), as measured by MRI (Figure 28).

•

Subjects also rated the visual and psychological impacts of submental fat using the Patient-Reported Submental Fat Impact Scale (PR-SMFIS), which assessed whether they perceived themselves to be happier, less bothered, less self-conscious, less embarrassed, younger or less overweight after treatment with ATX-101. Statistical significance was achieved for the change from baseline in PR-SMFIS with 3.61 vs. 1.10 for REFINE-1 (Figure 30), and 3.44 vs. 1.46, for ATX-101 (2mg/cm²) and placebo for REFINE-2 (p<0.001 for both). Each individual component within the PR-SMFIS also demonstrated statistical significance vs. placebo in both trials (p<0.001 for all PR-SMFIS measures).

Additional Efficacy Analyses

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79.1% of ATX-101 (2mg/cm²) REFINE-1 subjects demonstrated an improvement of at least one grade from baseline based on clinician assessment using the validated clinician-rated scale (CR-SMFRS) vs. 36.2% in placebo (p<0.001) (Figure 25).

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77.9% of ATX-101 (2mg/cm²) REFINE-2 subjects demonstrated an improvement of at least one grade from baseline based on clinician assessment using the validated clinician-rated scale (CR-SMFRS) vs. 34.5% in placebo (p<0.001) (Figure 26).

•

82.3% of ATX-101 (2mg/cm²) REFINE-1 subjects demonstrated an improvement of at least one grade from baseline using the validated patient-rated scale (PR-SMFRS) vs. 38.5% in placebo (p<0.001) (Figure 25).

•

78.4% of ATX-101 (2mg/cm²) REFINE-2 subjects demonstrated an improvement of at least one grade from baseline using the validated patient-rated scale (PR-SMFRS) vs. 37.8% in placebo (p<0.001) (Figure 26).

•

Furthermore, 88.9% of REFINE-1 and 84.2% of REFINE-2 subjects reported satisfaction with treatment received in the trial, compared to 37.7% and 43.6% of placebo subjects, respectively (p<0.001) (Figure 29).

        Additionally, there were no treatment-related serious adverse events. The most common adverse events, which were predominantly mild to moderate, were bruising, pain, numbness, edema, and swelling (Figure 11). Most AEs were mild or moderate in severity (98% of events in ATX-101 patients; 99% of events in placebo patients), and typically required no action to be taken for the event to resolve

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(88% of events in ATX-101 patients; 85% of events in placebo patients). Rare instances of transient facial nerve or muscle impairment (neuropraxia), which typically manifest as an asymmetric smile, were reported. 1.6% of subjects discontinued the trial due to adverse events.

Analyses of primary efficacy measures shown in the figures below are based on the protocol specified "Intent-to-Treat," or ITT, population which comprises all randomized subjects with baseline efficacy data (CR-SMFRS/PR-SMFRS). For secondary measures of PR-SMFIS and MRI, analysis includes only subjects with available data. Statistically significant results at various levels are denoted by asterisks or p-values in the figures below. The p-value is the probability that the reported result was achieved purely by chance (e.g., a p-value £ 0.01 means that there is a 1% or less chance that the difference between the placebo group and the treatment group is purely due to chance). A p-value £ 0.05 is a commonly used criterion for statistical significance. The symbol "n" is used to denote sample size per group.

Figure 5. U.S. and Canadian Phase III Trials, ATX-101-11-22 (REFINE-1), Percent of Patients with at least a 1-Grade Improvement in Clinician and Patient Rating Scales, CR- SMFRS/PR-SMFRS, at Week 32 by Treatment Group

        All statistical comparisons are ATX-101 vs. placebo, ITT population with multiple imputation

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Figure 6. U.S. and Canadian Phase III Trials, ATX-101-11-23 (REFINE-2), Percent of Patients with at least a 1-Grade Improvement in Clinician and Patient Rating Scales, CR- SMFRS/PR-SMFRS, at Week 32 by Treatment Group

        All statistical comparisons are ATX-101 vs. placebo, ITT population with multiple imputation

Figure 7. U.S. and Canadian Phase III Trials, ATX-101-11-22 and ATX-101-11-23, Percent of Patients with at least a 2-Grade Improvement in Clinician and Patient Rating Scales Composite, CR-SMFRS/PR-SMFRS, at Week 32 by Treatment Group

        All statistical comparisons are ATX-101 vs. placebo, ITT population with multiple imputation

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Figure 8. U.S. and Canadian Phase III Trials, ATX-101-11-22 and ATX-101-11-23, Percent of Patients with MRI Volume Threshold Change, at Week 32 by Treatment Group

        Per protocol, Magnetic Resonance Imaging ("MRI") were planned for approximately 200 subjects per study

        All statistical comparisons are ATX-101 vs. placebo, ITT population with multiple imputation

Figure 9. U.S. and Canadian Phase III Trials, ATX-101-11-22 and ATX-101-11-23, Percent of Patients Treated with ATX-101 Expressing Satisfaction with Treatment, at Week 32 by Treatment Group

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        All statistical comparisons are ATX-101 vs. placebo, ITT population with multiple imputation

Figure 10. U.S. and Canadian Phase III Trials, ATX-101-11-22 (REFINE-1), Patient Reported Improvements in Visual and Psychological Impact of Chin Fat

REFINE-1 (ATX-101-11-22) ITT population, week 32
PR-SMFIS is an 11-point patient scale that rates visual and psychological impacts of SMF

Figure 11. U.S. and Canadian Phase III Trials, Incidence of Common Injection Site Reactions, Pooled Pivotal Studies 22 and 23

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        Rare instances of transient facial nerve or muscle impairment (neuropraxia), which typically manifests as an asymmetric smile, were reported. In the pivotal studies, neuropraxia occurred in 0.9% of ATX-101 treatments, as shown in figure 12 below. In the broader safety population of all SMF studies in the development program, neuropraxia occurred in 0.7% of ATX-101 treatments. Most events were mild or moderate in severity and events were temporary and recovered/resolved without sequelae.

Figure 12: Rate of Occurrence of Neuropraxia on All SMF Studies and Pivotal Studies by ATX-101 Patients vs. Placebo Patients

	Rate Per Treatment						Rate Per Patient
	ATX-101			Placebo			ATX-101			Placebo
All SMF Studies		0.7	%		0.1	%		2.9	%		0.3	%
Pivotal Studies		0.9	%		0.1	%		4.3	%		0.4	%

        Representative before/after photographs of seven Phase III patients are shown in Figures 13, 14, 15, 16, 17, 18 and 19.

Figure 13. U.S. and Canadian Phase III, 26-year-old female

        This 26-year-old female entered the Phase III trial with her baseline submental fat rated as grade 2 (moderate) on the clinician-rated scale (CR- SMFRS) and a grade 3 (severe) on the patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 2-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

*

Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

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Figure 14. U.S. and Canadian Phase III, 34-year-old male

        This 34-year-old male entered the Phase III trial with his baseline submental fat rated as grade 2 (moderate) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 32, he achieved a 1-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

*

Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

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Figure 15. U.S. and Canadian Phase III, 35-year-old female

        This 35-year-old female entered the Phase III trial with her baseline submental fat rated as grade 2 (moderate) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 1-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

*

Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

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Figure 16. U.S. and Canadian Phase III, 45-year-old female

        This 45-year-old female entered the Phase III trial with her baseline submental fat rated as grade 3 (severe) on the clinician-rated scale (CR- SMFRS) and a grade 2 (moderate) on the patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 1-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

*

Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

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Figure 17. U.S. and Canadian Phase III, 55-year-old female

        This 55-year-old female entered the Phase III trial with her baseline submental fat rated as grade 2 (moderate) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 1-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

*

Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

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Figure 18. U.S. and Canadian Phase III, 65-year-old female

        This 65-year-old female entered the Phase III trial with her baseline submental fat rated as grade 3 (severe) on both the clinician-rated scale (CR-SMFRS) and patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 2-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

*

Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

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Figure 19. U.S. and Canadian Phase III, 40-year-old female

        This 40-year-old female entered the Phase III trial with her baseline submental fat rated as grade 2 (moderate) on the clinician-rated scale (CR- SMFRS) and grade 3 (severe) on the patient-rated scale (PR-SMFRS). By the end of study at week 32, she achieved a 0-grade reduction in submental fat according to the CR-SMFRS/PR-SMFRS composite.

*

Satisfaction based on Subject Self-Rating Scale (SSRS); Laxity based on Submental Skin Laxity Grading Scale (SMSLG)

Other Clinical Studies

        In addition, we have initiated further clinical studies of ATX-101 such as studies assessing safety in patients with submental fat grades 1 (mild) and 4 (extreme), in patients over age 65 and an additional long-term follow-up study from our U.S. and Canadian Phase III trials. Completion of these clinical studies was not required for our NDA submission of ATX-101.

        As noted above, a Phase I/II study was conducted in a total of 78 patients to evaluate the potential of ATX-101 as a treatment for superficial lipomas. In these studies, ATX-101 was administered directly into the lipomas by intralipomal injection, and the observed safety profile was similar to that seen in submental fat studies. Adverse effects typically consisted of mild- to-moderate local injection site reactions. While the specific adverse events were similar to those seen in our submental fat studies, the occurrence of local skin ulcerations above the lipomas of four patients appeared to be a notable difference. These occurred at higher doses (average = 7.5 mg/cm²) than are currently being tested and were believed to be due to reflux of excess ATX-101 from encapsulated lipomas.

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Sales and Marketing

        We currently are building our sales and marketing capabilities. We have retained all commercial rights to ATX-101. If ATX-101 is approved by the FDA, we expect to access the market through a focused, specialized sales force in the United States and Canada. We currently plan to hire 8 regional managers and 73 sales reps in 2015.

Core Physicians

        If approved for sale, we will focus our initial marketing of ATX-101 on those core dermatologists, plastic surgeons and facial plastic surgeons we identify as having substantial experience in performing facial injectable procedures. While plastic surgery specialties currently have tools, such as liposuction, for submental fat reduction, ATX-101, if approved as of today, would represent a significant opportunity to expand the number of potential patients. For the dermatologist community, ATX-101, if approved, will provide the only approved non-surgical tool for the treatment of submental fullness. In the United States, we plan to initially market to the top 3,000 high-value facial injectable accounts. We plan to engage and train physicians through a training-led launch, which will include on-demand learning, educational congresses, small group trainings and live webinars.

Patient Marketing

        Our research indicates that the potential for ATX-101 to provide meaningful changes to lower facial appearance will interest both injectable "experienced" and injectable "naive" patients (i.e., patients that have not received injectable toxins or fillers). According to ASAPS, in 2013 there were an estimated 4.1 million cosmetic botulinum toxin procedures and 1.8 million dermal filler procedures performed in the United States and Canada, all of which were for aesthetic purposes. The likely early adopters of ATX-101 will be injectable experienced patients, however, we also plan to market to injectable-naive patients, as we believe ATX-101 provides a solution for a commonly desired aesthetic improvement. In 2013, women comprised approximately 90% of the injectable procedures market; however, our internal market research indicates that men have a significantly higher interest in an injectable solution for reducing submental fat than other facial injectable treatments.

Competition

        The aesthetic product market, and the facial aesthetic market in particular, is highly competitive and dynamic, and is characterized by rapid and substantial technological development and product innovations. Demand for ATX-101 could be limited by the treatments, products and technologies offered now or in the future. We are seeking regulatory approval of ATX-101 for the treatment of submental fullness. While we do not believe there are any other injectable treatments approved as drugs by the FDA or equivalent foreign regulatory agencies designed specifically for this indication, we anticipate that ATX-101, if approved, will face significant competition from surgical alternatives for submental fat reduction and other medical device technologies designed for the reduction of fat.

Surgical Submental Fat Reduction Market

        Liposuction and neck surgical procedures remain the primary treatment options for submental fat reduction. While we believe that most patients seeking facial aesthetics prefer non-surgical modalities, we do expect that ATX-101 may compete indirectly with liposuction for physician preference and resources.

FDA Cleared Devices for Fat Reduction

        The FDA has cleared several medical devices for fat reduction. Although at this time none of these devices have been approved for the treatment of submental fat, there is the possibility that these

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devices could develop alternative application methods to accommodate use on the submental region. In addition, we may in the future face competition from new and emerging technologies.

Aesthetic Medicine Market Competition

        Injectable botulinum toxins and dermal fillers dominate the aesthetic medicine market for facial rejuvenation. We believe ATX-101 will be a complementary procedure to these existing facial injectables.

        For a description of the risks we face related to competition, please see "Risk Factors—Risks Related to Our Business—ATX-101, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration" and "—The commercial success of ATX-101, if approved, will depend significantly on broad physician adoption and use of ATX-101."

        We believe that ATX-101 will compete largely on the basis of the following competitive factors: significant, meaningful and durable results; a ready group of target patients; favorable safety profile with limited or no downtime as compared to surgical alternatives; low barrier to physician adoption and the ability to facilitate physician practice expansion; and the effectiveness of sales and marketing programs and initiatives.

Strategic Relationships

Prior ATX-101 Collaboration with Bayer Outside of the United States and Canada

        In August 2010, we entered into a License Agreement with Bayer Consumer Care AG that provided for an exclusive license to develop, manufacture and commercialize ATX-101 outside of the United States and Canada. In connection with this license agreement, we entered into a related Services, Research, Development and Collaboration Agreement with Bayer's affiliate, Intendis GmbH, or collaboration agreement. We refer to these agreements jointly as our collaboration arrangement with Bayer, and we refer to Bayer Consumer Care AG and Intendis GmbH jointly as Bayer. In connection with the entry into the collaboration arrangement, Bayer paid us an upfront license fee of approximately $21.3 million and approximately $22.2 million for research and development to fund certain further global development activities of ATX-101. In May 2012, we received a $15.8 million payment from Bayer triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. In addition, we also received $17.4 million from Bayer to fund certain further global development activities of ATX-101 under the terms of the collaboration arrangement.

Acquisition of Rights to ATX-101 Outside of the United States and Canada

        In March 2014, we announced the acquisition of rights to develop and commercialize ATX-101 outside of the United States and Canada from Bayer Consumer Care AG ("Bayer"), our former collaborator. Pursuant to an Assignment and Novation Agreement between Bayer and KYTHERA Holdings Ltd. ("KHL"), a wholly-owned Bermuda subsidiary of KYTHERA, Bayer transferred all of its right, title, and interest in the Amended License Agreement, and assigned all of its rights and delegated all of its obligations, liabilities and duties thereunder, to KHL for $84.0 million comprised of $33.0 million in KYTHERA common stock, plus a note for $51.0 million which bears interest at 5%, payable no later than 2024. Bayer is also eligible to receive certain long-term sales milestone payments on annual sales outside of the United States and Canada.

Los Angeles Biomedical Research Institute

        In August 2005, we entered into an exclusive license agreement with Los Angeles Biomedical Research Institute at Harbor/UCLA Medical Center, or LA Biomed, pursuant to which we obtained a

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worldwide exclusive license to practice, enforce and otherwise exploit certain patent rights related to ATX-101. Our exclusive license requires us to pay LA Biomed a milestone payment of $0.5 million upon receipt of marketing approval of ATX-101, as well as non-royalty sublicense fees equal to 10% of any sublicense income, up to an aggregate of $5.0 million. In August 2010 and May 2012, we incurred non-royalty sublicense fees of $2.0 million and $1.6 million, respectively, in connection with the license fee paid by Bayer upon execution of the license agreement, and receipt of the $15.8 million contingent event- based payment triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. Upon receipt of these non- royalty sublicense fees, we initially paid a total of $0.7 million, with the remaining amount of $2.8 million satisfied subsequent to the initial public offering of which 50% was satisfied with shares of our common stock, and 50% in cash.

        Additionally, upon commercialization of a licensed product or service, we are obligated to pay low- to mid-single digit royalties on net product sales of ATX-101. We may terminate this license without penalty upon 90 days' notice to LA Biomed and LA Biomed may terminate the license in certain circumstances if we fail to perform, or violate any term of the agreement, subject to applicable cure provisions. Subject to default by us or earlier termination, the license remains in effect until the last patent or patent application in the licensed patent rights has expired or been revoked, invalidated or abandoned.

Manufacturing

        We contract with third parties for the manufacture of ATX-101 and intend to do so in the future. We do not own or operate and we do not expect to own or operate, facilities for product manufacturing, storage and distribution, or testing. Because we rely on contract manufacturers, we have personnel with extensive technical, manufacturing, analytical and quality experience and strong project management discipline to oversee contract manufacturing and testing activities, and to compile manufacturing and quality information for our regulatory submissions.

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

Drug Substance

        Our current drug substance supply chain involves contractors used for manufacturing and testing of key raw materials, regulatory starting material, and synthetic deoxycholate, which is the drug substance in ATX-101.

        We currently have an exclusive supply agreement with Pfizer, Inc. as the single-source supplier of a key raw material used in manufacture of the regulatory starting material. We are not required to purchase any minimum or specific quantities from Pfizer and Pfizer cannot sell the key raw material to any other party for the manufacturing of bile acids and bile acid derivatives. However, under current terms, any purchase of this key raw starting material must be made from Pfizer. Our agreement also contains customary commercial terms for forecasting, payment, pricing, ordering, compliance, quality and indemnification. Our agreement with Pfizer expires in December 2016.

        We currently have a non-exclusive supply agreement with Sai Life Sciences, Inc. for the supply of our regulatory starting material. We are not required to purchase any minimum or specific quantities from Sai Life Sciences, Inc. and our agreement contains customary commercial terms for forecasting, payment, pricing, ordering, compliance, quality and indemnification. Our agreement with SAI expires in June 2018.

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        We currently have a non-exclusive supply agreement with Cambridge Major Laboratories, Inc., or CML for supply of synthetic deoxycholate. The agreement with CML contains customary commercial terms for drug substance supply regarding forecasting, payment, pricing, ordering, current good manufacturing practices, compliance, quality and indemnification. The term of the agreement runs through the fifth anniversary of final FDA approval of ATX-101. Our agreement with CML expires in May 2020.

        We believe our current ATX-101 drug substance contractors have the scale, the systems and the experience to supply all clinical and commercial supply requirements. To ensure continuity in our supply chain, we plan to hold adequate inventory at each stage of manufacturing and establish supply arrangements with alternative suppliers as needed.

        The process to manufacture the drug substance is being validated at a scale we believe will be sufficient for commercial launch in all territories. Our process uses common synthetic chemistry and readily available materials. We have established an ongoing program to identify possible process changes to improve purity, yield, manufacturability, etc., and process changes will be implemented as warranted and appropriate. The drug substance has historically shown stability adequate to support commercial operations.

        Drug substance used to manufacture ATX-101 for nonclinical studies and for early clinical studies was purified from bovine bile. Drug substance used to manufacture ATX-101 for the Phase III trials in Europe, the United States and Canada was chemically synthesized and contains no ingredients of animal origin. The active ingredient in both animal-derived and synthetic drug substance is structurally identical.

Drug Product

        ATX-101 drug product is a terminally sterilized liquid parenteral formulation for injection. Drug product manufacturing uses common processes and readily available materials. Changes to the drug product over the course of development have been relatively minor and have included changes in buffer and salt concentration. The formulation used in U.S. Phase III trials is the formulation anticipated for commercial launch in the United States and Canada. In countries outside the United States and Canada and depending on the local regulations, we may choose to commercialize the formulation used for U.S. and Canadian Phase III trials, or we may choose to commercialize the formulation used in the European Phase III trials.

        The formulation used in the U.S. and Canadian Phase III trials differs slightly from the formulation used in European Phase III trials; the U.S. Phase III trials tested a single strength that contained benzyl alcohol as a preservative. The European trials tested two strengths without benzyl alcohol. Both formulations have historically shown product stability at room temperature adequate to support commercial operations and stability studies are ongoing.

        In November 2010, we entered into a long-term agreement with Hospira, Inc. as our drug product fill/finish supplier for the United States and Canada. In December 2014, the agreement was amended to expand the scope to include Europe, Switzerland, Australia, and New Zealand. Our drug product is manufactured at the Hospira facility located in McPherson, Kansas. The initial term of our agreement expires five years after the first day of the month after our first bona fide sale of ATX-101 to a non-affiliate customer, and may be extended for additional and successive two-year terms. The agreement may be terminated prior to expiration by either party upon 24 months' written notice. The agreement may also be terminated by either party upon 60 days' written notice of an uncured material breach, the bankruptcy or insolvency of the other party or upon notice if the other party is unable to perform for 180 days due to a force majeure. If ATX-101 is approved, Hospira has the right to be our sole provider of drug product for the United States and Canada for a period of three years following commercialization, and, following the completion of the third year, the right to provide no less than

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seventy-five percent of our total annual requirement of drug product for the remaining term of the contract. We believe Hospira has the scale, systems and experience to supply ATX-101 drug product for clinical needs and long-term commercial demand.

Distribution

        In January 2015, we entered into a three year distribution services agreement with Besse Medical for the distribution of ATX-101 in the United States, with consecutive automatic extensions of one year unless either party provides written notice of intent not to renew the agreement within 180 days. We expect that Besse Medical will be the exclusive reseller of the product in the United States, subject to our ability to sell directly to healthcare providers. We intend to sell ATX-101 to Besse at a fixed price, subject to certain adjustments and cost-sharing provisions.

Intellectual Property

        Our commercial success depends in part on our ability to obtain and maintain proprietary protection for our drug candidates, novel biological discoveries, and drug development technology and other know-how, to operate without infringing on the proprietary rights of others and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our proprietary position.

        As for the pharmaceutical products we develop and commercialize, as a normal course of business, we intend to pursue dosage and formulation patents, as well as method of use patents on novel indications for known compounds or for new compounds and, where possible, composition-of-matter patents. We also seek patent protection with respect to novel biological discoveries, including new targets and aesthetic applications. We have also pursued patents with respect to our proprietary manufacturing processes and drug development processes and technology. We have sought and plan to continue to seek patent protection on an ongoing basis.

        Our patent estate, on a worldwide basis, includes over 100 issued or allowed patents and over 100 pending patent applications with claims relating to our current clinical stage drug candidate, ATX-101, which contains synthetic deoxycholate. The issued patents include 14 patents issued by the U.S. Patent and Trademark Office, or U.S. PTO:

Coverage	Patent number		Expiration
Method of Use		7,622,130		12/10/2027
Method of Use		7,754,230		12/10/2027
Method of Use		8,298,556		08/03/2025
Method of Use		8,846,066		12/10/2027
Synthetic DCA		8,242,294		05/16/2028
Synthetic DCA		8,883,770		05/16/2028
Synthetic DCA (Method of Manufacturing)		7,902,387		12/21/2028
Synthetic DCA (Method of Manufacturing)		7,994,351		05/16/2028
Synthetic DCA (Method of Manufacturing)		8,362,285		05/16/2028
Synthetic DCA (Method of Manufacturing)		8,367,852		05/16/2028
Formulation		8,546,367		05/16/2028
Formulation		8,461,140		05/16/2028
Formulation		8,101,593		03/02/2030
Formulation		8,653,058		03/02/2030
Formulation		8,367,649		03/02/2030

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        European Patent Coverage

        There are two European patents that were granted by the European Patent Office, or EPO, in 2011, both of which relate to Method of Use, or MOU, (EP1758590, which expires on February 8, 2025, and EP1748780, which expires on May 19, 2025), which resulted in counterparts in the major markets of Europe. A European patent was granted by the European Patent Office, or EPO, in 2014 (EP2561876), which relates to the formulation of ATX-101, counterparts are in force throughout Europe.

        Rest of World (ROW) Patent Coverage

        We also have patents issued in a number of other jurisdictions related to the patents described above. The chart below describes patents related to the various categories (MOU, Synthetic DCA, Methods of Manufacture (MOM), and Formulation) as summarized below:

Country	Method of use		Method of manufacture		Synthetic DCA		Formulation
Armenia				X		X
Australia		X		X		X
Azerbaijan				X		X
Belarus				X		X
Canada		X		X		X
Hong Kong		X		X
Israel		X
Japan		X
Korea, Republic Of		X
Kazakhstan				X		X
Kyrgyzstan				X		X
Mexico		X
Moldova, Republic Of				X		X
New Zealand				X		X
Philippines
Russian Federation				X		X
South Africa				X		X
Tajikistan				X		X
Turkmenistan				X		X
Uzbekistan				X		X

        In the rest of the world:

•

Method of Use patents will expire in the 2025-2027 timeframe;

•

Synthetic DCA patents will expire in about 2030;

•

Methods of manufacture patents will expire in the 2028-2030 timeframe; and

•

Formulation patents will expire in 2028-2031.

        Some patents listed above may be eligible for term extension (or the equivalent) in some jurisdictions.

        Deoxycholate is a naturally occurring substance and in its natural form may not be not eligible for composition-of-matter patent protection in certain jurisdictions. While we believe that Method of Use, or MOU, manufacturing and formulation patents are more relevant to protecting our competitive position in the aesthetics market in particular, we have developed a synthetic form of deoxycholate, which we believe is eligible for composition-of-matter patent protection and we have

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composition-of-matter patent applications with respect to this synthetic form currently pending with the in major markets.

        Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are effective for 20 years from the earliest effective filing date. In addition, in certain instances, a patent term can be extended to recapture a portion of the U.S. PTO delay in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective filing date. In addition to the patents described in the preceding paragraph, our pending patent applications, if issued, will expire on dates ranging from 2025 to 2032. However, the actual protection afforded by a patent varies on a product by product basis, from country to country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.

        Furthermore, in the United States the patent positions of biotechnology and pharmaceutical products and processes like ATX-101 can be uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in such patents has emerged. The patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries can diminish our ability to protect our inventions and enforce our intellectual property rights and more generally could affect the value of intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. Our ability to maintain and solidify our proprietary position for ATX-101 and its manufacturing will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any of the patent applications that we may file or license from third parties will result in the issuance of any patents. The issued patents that we own or may receive in the future, may be challenged, invalidated or circumvented, and the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages against competitors with similar technology. Furthermore, our competitors may be able to independently develop and commercialize similar drugs or duplicate our technology, business model or strategy without infringing our patents. Because of the extensive time required for clinical development and regulatory review of a drug we may develop, it is possible that, before any of our drugs can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of any such patent.

        In addition to patents, we rely upon trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, using confidentiality agreements with our commercial partners, collaborators, employees and consultants and invention assignment agreements with our employees. We also have confidentiality agreements or invention assignment agreements with our commercial partners and selected consultants. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with a third party. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our commercial partners, collaborators,

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employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

        Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, or our drugs or processes, obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future drugs may have a material adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the U.S. PTO, to determine priority of invention.

        In addition, substantial scientific and commercial research has been conducted for many years in the areas in which we have focused our development efforts, which has resulted in third parties having a number of pending patent applications. Patent applications in the United States which are foreign filed or for which publication is requested are published after 18 months from the priority date as are any foreign applications. Certain applications in the United States which are not foreign filed and for which a request for non- publication has been made will not be published until granted. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Therefore, patent applications relating to drugs similar to ATX-101 and any future drugs, discoveries or technologies we might develop may have already been filed by others without our knowledge.

Other Research and Development Programs

KYTH-105 (Setipiprant)

        In February 2015, we entered into separate license agreements with Actelion Pharmaceuticals Ltd. ("Actelion") and the Trustees of the University of Pennsylvania ("University of Pennsylvania") for a novel approach for the treatment of hair loss. Setipiprant is a selective oral antagonist to the prostaglandin D2 (PGD₂) receptor. The elevation of PGD₂ levels in certain regions of the male scalp is associated with hair loss in those regions. In early research studies, PGD₂ inhibitors were found to extend the anagen (growth) phase of the hair cycle, thereby promoting the growth of hair.

        We plan to conduct a human proof-of-concept study to establish the efficacy of setipiprant in male subjects with androgenic alopecia (AGA).

        To date, our research and development has focused predominantly on the development of ATX-101 for the treatment of submental fullness. However, we have initiated and terminated other development programs in the aesthetic field. Currently, we are working on several additional research programs, from which additional drug candidates may be identified in the future. The most advanced program centers around therapeutic intervention for hair loss. We maintain an active research interest in hair and fat biology, pigmentation modulation and facial contouring. In addition, we expect to assess future potential treatment indications for ATX-101 with high aesthetic value.

        Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Overview—Research and Development" for the amounts spent on company-sponsored research and development for the past three fiscal years.

Government Regulation

        The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome requirements upon companies involved in the clinical development, manufacture, marketing and distribution of drugs. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality

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control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion, distribution, post-approval monitoring and reporting, sampling, and export and import of our product candidates.

        In the United States, the FDA regulates drug products under the Federal Food, Drug, and Cosmetic Act, or FFDCA, and the FDA's implementing regulations. If we fail to comply with applicable FDA or other requirements at any time during the drug development process, clinical testing, the approval process or after approval, we may become subject to administrative or judicial sanctions. These sanctions could include the FDA's refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution. Any FDA enforcement action could have a material adverse effect on us. FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the United States.

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

•

completion of extensive preclinical laboratory tests, preclinical animal studies and formulation studies all performed in accordance with the FDA's current good laboratory practice, or GLP regulations;

•

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

•

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

•

performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug candidate for each proposed indication;

•

satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current Good Manufacturing Practice, or CGMP regulations;

•

submission to the FDA of an NDA;

•

satisfactory completion of a potential review by an FDA advisory committee, if applicable; and

•

FDA review and approval of the NDA prior to any commercial marketing, sale or shipment of the drug.

        The preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all. Preclinical tests include laboratory evaluation of product chemistry, formulation, stability and toxicity, as well as animal studies to assess the characteristics and potential safety and efficacy of the product. The results of pre-clinical tests, together with manufacturing information, analytical data and a proposed clinical trial protocol and other information, are submitted as part of an IND to the FDA. Some pre-clinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions relating to one or more proposed clinical trials and places the clinical trial on a clinical hold, including concerns that human research subjects will be exposed to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, our submission of an IND may not result in FDA authorization to commence a clinical trial. A separate submission to an existing IND must also be made for each successive clinical trial conducted during product development.

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        Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be used. Each protocol must be submitted to the FDA as part of the IND. An independent institutional review board, or IRB, for each medical center proposing to conduct a clinical trial must also review and approve a plan for any clinical trial before it can begin at that center and the IRB must monitor the clinical trial until it is completed. The FDA, the IRB, or the sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive Good Clinical Practice, or GCP requirements, including the requirements for informed consent.

        All clinical research performed in the United States in support of an NDA must be authorized in advance by the FDA under the IND regulations and procedures described above. However, a sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to FDA in support of an NDA so long as the clinical trial is conducted in compliance with an international guideline for the ethical conduct of clinical research known as the Declaration of Helsinki and/or the laws and regulations of the country or countries in which the clinical trial is performed, whichever provides the greater protection to the participants in the clinical trial.

Clinical Trials

        For purposes of NDA submission and approval, clinical trials are typically conducted in three or four sequential phases, which may overlap or be combined.

•

Phase I:  Clinical trials are initially conducted in a limited population of subjects to test the drug candidate for safety, dose tolerance, absorption, metabolism, distribution and excretion in healthy humans or, on occasion, in patients with severe problems or life-threatening diseases to gain an early indication of its effectiveness.

•

Phase II:  Clinical trials are generally conducted in a limited patient population to evaluate dosage tolerance and appropriate dosage, identify possible adverse effects and safety risks, and evaluate preliminarily the efficacy of the drug for specific targeted indications in patients with the disease or condition under study.

•

Phase III:  Clinical trials are typically conducted when Phase II clinical trials demonstrate that a dose range of the product candidate is effective and has an acceptable safety profile. Phase III clinical trials are commonly referred to as "pivotal" studies, which typically denotes a study which presents the data that the FDA or other relevant regulatory agency will use to determine whether or not to approve a drug. Phase III clinical trials are generally undertaken with large numbers of patients, such as groups of several hundred to several thousand, to further evaluate dosage, to provide substantial evidence of clinical efficacy and to further test for safety in an expanded and diverse patient population at multiple, geographically-dispersed clinical trial sites.

•

Phase IV:  In some cases, FDA may condition approval of an NDA for a product candidate on the sponsor's agreement to conduct additional clinical trials after NDA approval. In other cases, a sponsor may voluntarily conduct additional clinical trials post approval to gain more information about the drug. Such post approval trials are typically referred to as Phase IV clinical trials.

        Concurrent with clinical trials, companies usually complete additional animal trials and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the drug in commercial quantities in accordance with CGMP requirements.

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The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.

New Drug Applications

        The results of preclinical studies and of the clinical trials, together with other detailed information, including extensive manufacturing information and information on the composition of the drug, are submitted to the FDA in the form of an NDA requesting approval to market the drug for one or more specified indications. The FDA reviews an NDA to determine, among other things, whether a drug is safe and effective for its intended use.

        Once an NDA has been accepted for filing, by law the FDA has 180 days to review the application and respond to the applicant. However, the review process is often significantly extended by FDA requests for additional information or clarification. Under the Prescription Drug User Fee Act, the FDA has a goal of responding to NDAs within ten months of submission for standard review, but this timeframe is also often extended. The FDA may refer the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. The FDA may deny approval of an NDA if the applicable statutory and regulatory criteria are not satisfied, or it may require additional clinical data or an additional Phase III clinical trial. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret data. Once the FDA approves an NDA, or supplement thereto, the FDA may withdraw the approval if ongoing regulatory requirements are not met or if safety problems are identified after the drug reaches the market. Where a withdrawal may not be appropriate, the FDA still may seize existing inventory of such drug or require a recall of any drug already on the market. In addition, the FDA may require testing, including Phase IV clinical trials and surveillance programs to monitor the effect of approved drugs which have been commercialized. The FDA has the authority to prevent or limit further marketing of a drug based on the results of these post-marketing programs.

        Drugs may be marketed only for the FDA approved indications and in accordance with the provisions of the approved labeling. Further, if there are any modifications to the drug, including changes in indications, labeling, or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require us to develop additional data or conduct additional preclinical studies and clinical trials.

        Before approving an application, the FDA will inspect the facility or the facilities at which the finished drug product, and sometimes the active drug ingredient, is manufactured, and will not approve the drug unless CGMP compliance is satisfactory. The FDA may also inspect the sites at which the clinical trials were conducted to assess their compliance, and will not approve the drug unless compliance with GCP requirements is satisfactory.

        The testing and approval processes require substantial time, effort and financial resources, and each may take several years to complete. The FDA may not grant approval on a timely basis, or at all. Even if we believe a clinical trial has demonstrated safety and efficacy of one of our drug candidates for the treatment of a disease, the results may not be satisfactory to the FDA. Preclinical and clinical data may be interpreted by the FDA in different ways, which could delay, limit or prevent regulatory approval. We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals which could delay or preclude us from marketing drugs. The FDA may limit the indications for use or place other conditions on any approvals that could restrict the commercial

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application of the drugs. After approval, certain changes to the approved drug, such as adding new indications, manufacturing changes, or additional labeling claims are subject to further FDA review and approval. Depending on the nature of the change proposed, an NDA supplement must be filed and approved before the change may be implemented. For many proposed post-approval changes to an NDA, the FDA has up to 180 days to review the application. As with new NDAs, the review process is often significantly extended by the FDA requests for additional information or clarification.

Other Regulatory Requirements

        Any drugs manufactured or distributed by us pursuant to FDA approvals would be subject to continuing regulation by the FDA, including recordkeeping requirements and reporting of adverse experiences associated with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including CGMPs, which impose certain procedural and documentation requirements upon us and our third party manufacturers. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing, seizure of product, injunctive action or possible civil penalties. We cannot be certain that we or our present or future third-party manufacturers or suppliers will be able to comply with the CGMP regulations and other ongoing FDA regulatory requirements. If we or our present or future third-party manufacturers or suppliers are not able to comply with these requirements, the FDA may halt our clinical trials, require us to recall a drug from distribution or withdraw approval of the NDA for that drug.

        The FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the product's labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers' communications regarding off-label use.

Other Healthcare Laws and Regulations

        In the future, we may also be subject to healthcare regulation and enforcement by the federal government and the states and foreign governments in which we conduct our business. The laws that may affect our ability to operate include:

•

the federal healthcare programs' Anti-Kickback Statute, which prohibits, among other things, persons 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, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;

•

federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;

•

federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; the federal Health Insurance

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Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; and

•

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers.

        If our operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to operate our business and impact our financial results.

International Regulation

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

        Under European Union regulatory systems, marketing authorizations may be submitted either under a centralized, decentralized or mutual recognition procedure. The centralized procedure provides for the grant of a single marking authorization that is valid for all European Union member states. The decentralized procedure includes selecting one "reference member state," or RMS, and submitting to more than one member state at the same time. The RMS National Competing Authority conducts a detailed review and prepares an assessment report, to which concerned member states provide comment. The mutual recognition procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marking authorization may submit an application to the remaining member states post-initial approval. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval.

        In addition to regulations in Europe and the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial distribution of our future drugs.

Environmental Regulation

        We are subject to numerous foreign, federal, state, and local environmental, health and safety laws and regulations relating to, among other matters, safe working conditions, product stewardship and end-of-life handling or disposition of products, and environmental protection, including those governing the generation, storage, handling, use, transportation and disposal of hazardous or potentially hazardous materials. Some of these laws and regulations require us to obtain licenses or permits to conduct our operations. Environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. Although the costs to comply with applicable laws and regulations, including requirements in the European Union relating to the restriction of use of hazardous substances in products, have not been material, we cannot predict the impact on our business of new or amended laws or regulations or any changes in the way existing and future laws and regulations are interpreted or enforced, nor can we ensure we will be able to obtain or maintain any required licenses or permits.

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Employees

        As of December 31, 2014, we had 106 full-time employees, including a total of 23 employees with M.D. or Ph.D. degrees. Within our workforce, 70 employees are engaged in research and development and 36 in marketing, business development, finance, legal, human resources, facilities, information technology and general management and administration. None of our employees are represented by labor unions or covered by collective bargaining agreements.

Additional Information

        We view our operations and measure our business as one reportable segment operating primarily in the United States. Additional information required by this item is incorporated herein by reference to Part I Item 6, "Selected Financial Data."

        We were originally incorporated in Delaware in June 2004 under the name Dermion, Inc. We commenced operations in August 2005 and later changed our name to AESTHERx, Inc. In July 2006, we changed our name to KYTHERA Biopharmaceuticals, Inc. We completed our initial public offering of our common stock in October 2012. Our mailing address and executive offices are located at 30930 Russell Ranch Road, 3^rd Floor, Westlake Village, California, 91362 and our telephone number at that address is (818) 587-4500. We maintain an Internet website at the following address: www.kytherabiopharma.com. The information on our website is not incorporated by reference in this annual report on Form 10-K or in any other filings we make with the Securities and Exchange Commission, or SEC.

        We make available on or through our website certain reports and amendments to those reports that we file with or furnish to the SEC in accordance with the Securities Exchange Act of 1934, as amended. These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make this information available on or through our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.

ITEM 1A.    Risk Factors.

Our operations and financial results are subject to various risks and uncertainties, including those described below, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. You should carefully consider the risks described below and the other information in this Annual Report on Form 10-K.

Risks Related to Our Limited Operating History, Business and Capital Requirements

We have a limited operating history and have incurred significant losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future. We have only one product candidate and no commercial sales, which, together with our limited operating history, makes it difficult to assess our future viability.

        We are a clinical-stage biopharmaceutical company with a limited operating history. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. To date, we have focused principally on developing our only product candidate, ATX-101, for which we completed our U.S. and Canadian Phase III clinical trials and submitted an NDA with the FDA in May 2014. We are not profitable and have incurred losses in each year since our inception in June 2004. We have only a limited operating history upon which one can evaluate our business and prospects. In addition, we have limited experience and have not yet demonstrated an

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ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical industry. We have not generated any revenue from product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. Our net loss for the years ended December 31, 2014 and 2013 was approximately $135.6 million and $51.9 million, respectively. As of December 31, 2014, we had an accumulated deficit of $307.8 million. We expect to continue to incur losses for the foreseeable future, as we continue our development of, and seek regulatory approvals for, ATX-101, and begin to commercialize ATX-101. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders' equity and working capital.

We are substantially dependent on the success of our only product candidate, ATX-101.

        To date, we have invested nearly all of our efforts and financial resources in the research and development of ATX-101, which is currently our only product candidate. In particular, we have completed seven Phase I, three Phase II clinical studies, two European Phase III clinical trials, and two U.S. and Canadian Phase III clinical trials and two Phase IIIb studies.

        Our near-term prospects, including our ability to finance our company and to enter into strategic collaborations and generate revenue, will depend heavily on the successful development, regulatory approval and commercialization of ATX-101 and the development of any future product candidates. The clinical and commercial success of ATX-101 will depend on a number of factors, including the following:

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our ability to demonstrate the safety and efficacy of ATX-101 to the satisfaction of the FDA and similar foreign regulatory authorities;

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our ability to obtain, and the timing of, regulatory approval of ATX-101 from the FDA and similar foreign regulatory authorities and the timely receipt of such necessary marketing approvals, where applicable;

•

any unexpected results from further analysis of clinical data of our completed clinical trials;

•

timely completion of our ongoing or upcoming clinical trials, which may be slower than we currently anticipate and will depend substantially upon the satisfactory performance of third-party contractors;

•

whether we are required by the FDA or other similar foreign regulatory agencies to conduct additional clinical trials;

•

our ability to successfully commercialize ATX-101, if approved for marketing and sale by applicable regulatory agencies, whether alone or in collaboration with others;

•

our success in educating physicians and patients about the benefits, administration and use of ATX-101;

•

the incidence, duration and severity of adverse side effects;

•

achieving and maintaining compliance with all regulatory requirements applicable to ATX-101;

•

the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments;

•

the effectiveness of our own or our potential strategic collaborators' marketing, sales and distribution strategy and operations;

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•

the ability of our third-party manufacturers to manufacture clinical trial and commercial supplies of ATX-101 or any future product candidates, to remain in good standing with regulatory agencies, and to develop, validate and maintain commercially viable manufacturing processes that are compliant with Current Good Manufacturing Practice, or CGMP regulations;

•

our ability to successfully commercialize ATX-101 in the United States and Canada, and in other international territories, if approved for marketing and sale in such countries and territories, whether alone or in collaboration with others;

•

our ability to enforce our intellectual property rights in and to ATX-101;

•

our ability to avoid third-party patent interference or patent infringement claims;

•

acceptance of ATX-101 as safe and effective by patients and the medical community; and

•

a continued acceptable safety profile of ATX-101 following approval.

        Many of these factors are beyond our control. Accordingly, we cannot assure you that we will ever be able to generate revenue through the sale of ATX-101. If we are not successful in obtaining approval of and commercializing ATX-101, or are significantly delayed in doing so, our business will be materially harmed.

We may be unable to obtain regulatory approval for ATX-101 under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization of ATX-101 and adversely impact our potential to generate revenue, our business and our results of operations.

        To gain approval to market a drug product, we must provide the FDA and foreign regulatory authorities with clinical data that adequately demonstrates the safety, efficacy and compliant manufacturing of the product for the intended indication applied for in the NDA or other respective regulatory filing. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our clinical trials. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in clinical trials and manufacturing, even after promising results in earlier preclinical or clinical studies. These setbacks have been caused by, among other things, preclinical findings made while clinical studies were underway and safety or efficacy observations made in clinical studies, including previously unreported adverse events. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of clinical trials by other parties, including Bayer, our former collaborator, may not be indicative of the results in trials we may conduct.

        In May 2014, we filed an NDA with the FDA for ATX-101 on the basis of the results from our pivotal U.S. and Canadian Phase III clinical trials, and our business currently depends entirely on its successful regulatory approval and commercialization in the United States. We submitted a New Drug Application ("NDS") with Health Canada in August 2014, a Marketing Authorization Application ("MAA") to Swissmedic in October 2014, and a drug application with Australia's Therapeutic Goods Administration ("TGA"), seeking approval for ATX -101 as an injectable treatment for the treatment of submental fullness. We currently have no drug products approved for sale, and we may never obtain regulatory approval to commercialize ATX-101. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, and such regulations differ from country to country. We are not permitted to market ATX-101 in the United States unless and until we receive approval of an NDA from the FDA, and we are not permitted to market ATX-101 in any foreign countries unless and until we receive the requisite approval from the regulatory authorities of such countries.

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        The FDA or any foreign regulatory bodies can delay, limit or deny approval of ATX-101 for many reasons, including:

•

inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory body that ATX-101 is safe and effective for the requested indication;

•

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

•

inability to demonstrate that the clinical and other benefits of ATX-101 outweigh any safety or other perceived risks;

•

the FDA's or the applicable foreign regulatory agency's requirement for additional preclinical or clinical studies;

•

the FDA's or the applicable foreign regulatory agency's non-approval of ATX-101's chemistry, manufacturing or controls or labeling;

•

the FDA's or the applicable foreign regulatory agency's failure to approve the manufacturing processes or facilities of third-party manufacturers and testing labs with whom we contract; or

•

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

        Of the large number of drugs in development, only a small percentage successfully complete the FDA or other regulatory approval processes and are commercialized. Further, we did not conduct our U.S. and Canadian Phase III clinical trials under a Special Protocol Assessment, or SPA. In the absence of an agreed SPA there can be no assurance that the FDA will agree with our Phase III clinical trial protocol. In addition, ATX-101 may not be approved by the FDA or applicable foreign regulatory agencies even though it has met its specified endpoints in our U.S. and Canadian Phase III clinical trials and, our former collaborator, Bayer's pivotal European Phase III clinical trials. The FDA and/or applicable foreign regulatory agencies may disagree with the trial design and/or the interpretation of data from clinical trials, and may ask us to conduct additional costly and time consuming clinical trials in order to obtain marketing approval or approval to enter into an advanced phase of development, or may change the requirements for approval even after it has reviewed and commented on the design for the clinical trials.

        Even if we eventually complete clinical testing and receive approval of the NDA or foreign regulatory filing for ATX-101, the FDA or the applicable foreign regulatory agency may grant approval contingent on the performance of costly additional clinical trials which may be required after approval. The FDA or the applicable foreign regulatory agency also may approve ATX-101 for a more limited indication or a narrower patient population than we originally requested, and the FDA, or applicable foreign regulatory agency, may not approve the labeling that we believe is necessary or desirable for the successful commercialization of ATX-101. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of ATX-101 and would materially adversely impact our business and prospects.

Even if ATX-101 or any future product candidates obtain regulatory approval, they may never achieve market acceptance or commercial success.

        Even if we obtain FDA or other regulatory approvals, ATX-101 or any future product candidates may not achieve market acceptance among physicians and patients, and may not be commercially

45

successful. Market acceptance of ATX-101 or any future product candidates for which we receive approval depends on a number of factors, including:

•

the safety and efficacy of the product as demonstrated in clinical trials;

•

the clinical indications for which the product is approved and whether our desired labeling is approved;

•

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

•

proper training and administration of our products by physicians;

•

the potential and perceived advantages of our product candidates over alternative treatments;

•

the cost of treatment in relation to alternative treatments and willingness to pay for our products, if approved, on the part of physicians and patients;

•

the willingness of patients to pay for ATX-101 and other aesthetic treatments in general, relative to other discretionary items;

•

relative convenience and ease of administration;

•

the incidence, duration and severity of adverse side effects;

•

the effectiveness of our sales and marketing efforts; and

•

the degree to which the approved labeling supports promotional initiatives for commercial success.

Any failure by our product candidates that obtain regulatory approval to achieve market acceptance or commercial success would adversely affect our results of operations.

We have only recently begun building an infrastructure to support a commercial organization and we do not currently have a sales organization sufficient to support a commercial launch of ATX-101, if approved. If we are unable to establish sales capabilities on our own or through third parties, we may not be able to market and sell ATX-101 or any future product candidates effectively, if approved, or generate product revenue.

        We have only recently begun building an infrastructure to support a commercial organization and we do not currently have a sales organization sufficient to support a commercial launch of ATX-101, if approved. In order to commercialize ATX-101, we must build our marketing, sales, distribution, management and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If ATX-101 receives regulatory approval, we expect to establish a sales organization with technical expertise and supporting distribution capabilities to commercialize our product candidates, which will be expensive, require substantial additional capital and be time consuming. We have no prior experience in the marketing, sale and distribution of pharmaceutical products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain, and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. We may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize ATX-101. If we are not successful in commercializing ATX-101 or any future product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we would incur significant additional losses.

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We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of their former employers or are in breach of non-competition or non-solicitation agreements.

        Many of our employees were previously employed at other pharmaceutical or medical device companies, including other companies in the aesthetic medicine space, in some cases until recently. Similarly, we may hire additional employees from these companies. In the future, we could be subject to claims that we or our current or future employees have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary information of these former employers. In addition, we may in the future be subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. If our defense to those claims fails, in addition to paying monetary damages, we may be enjoined from selling our product candidates (if approved by FDA), lose valuable intellectual property rights or personnel. Any litigation or the threat thereof may adversely affect our ability to hire employees. A loss of key personnel or their work product could hamper or prevent our ability to commercialize product candidates, which could have an adverse effect on our business, results of operations and financial condition.

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

        Since our inception, most of our resources have been dedicated to the preclinical and clinical development of ATX-101. As of December 31, 2014, we had working capital of $80.5 million and capital resources consisting of cash and cash equivalents and marketable securities of $99.7 million. We have drawn down the full $15.0 million available under our credit facility and no longer have any established future borrowing capacity under that credit facility. We believe that we will continue to expend substantial resources for the foreseeable future on preparations for a potential commercial launch of ATX-101, the completion of clinical and regulatory development of ATX-101, preparing and filing foreign regulatory filings and development of any other product candidates we may choose to pursue. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and supply as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any drug development process is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of ATX-101 or any future product candidates. We expect to seek additional financing in the future to fund our operations, to expand our commercial organization in anticipation of potential commercial launch of ATX-101, and to develop additional product candidates, by selling additional equity, issuing debt or convertible debt securities that may result in dilution to our stockholders.

        We believe our existing cash and cash equivalents will allow us to fund our operations through at least the next 12 months. However, our operating plan may change as a result of factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

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        Our future capital requirements depend on many factors, including:

•

the timing of, and costs involved in, obtaining regulatory approval for ATX-101 in the U.S. and other international territories including the cost of any studies or additional activities that the FDA or other regulatory agencies may require us to complete;

•

the timing and scope of the investment we make in building our commercial infrastructure and sales force in anticipation of the potential commercial launch of ATX-101 in the U.S.;

•

any unexpected results from further analysis of clinical data from our completed clinical trials;

•

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

•

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

•

the scope, progress, results and costs of researching and developing ATX-101 or any future product candidates, including pursuant to our license agreement with Actelion and the University of Pennsylvania, and conducting preclinical and clinical trials;

•

the cost of commercialization activities if ATX-101 or any future product candidates are approved for sale, including marketing, sales and distribution costs and preparedness of our corporate infrastructure;

•

the cost of manufacturing ATX-101 or any future product candidates and any products we successfully commercialize;

•

the timing of the payment of our debt obligations, including whether or not we determine to prepay the $51.0 million note held by Bayer;

•

our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

•

any product liability or other lawsuits related to our products or commenced against us;

•

the expenses needed to attract and retain skilled personnel;

•

the costs associated with being a public company;

•

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent or other claims, including litigation costs and the outcome of such litigation; and

•

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

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

•

delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for ATX-101 or any future product candidates;

•

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

•

delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize ATX-101 or any future product candidates.

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

        Clinical testing is expensive, and can take many years to complete, and its outcome is inherently uncertain. Furthermore, we rely on contract research organizations, or CROs, and clinical trial sites to ensure the proper and timely conduct of our clinical trials and while we have agreements governing

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their committed activities, we have limited influence over their actual performance. Failure can occur at any time during the clinical trial process. For example, we have in the past terminated early-stage development and clinical programs for other potential drug candidates due to a lack of sufficient efficacy or the potential for unacceptable adverse reactions to a particular drug candidate, as well as our desire to concentrate our efforts on the development of ATX-101. The results of preclinical and clinical studies of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks. Even if our ongoing or future clinical trials are completed, the results may not be sufficient to obtain regulatory approval for our product candidates.

        We may experience delays in our ongoing clinical trials, and we do not know whether future clinical trials, if any, will begin on time, need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all. Clinical trials can be delayed or aborted for a variety of reasons, including delay or failure to:

•

obtain regulatory approval to commence a trial;

•

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

•

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

•

recruit suitable patients to participate in a trial;

•

have patients complete a trial or return for post-treatment follow-up;

•

have clinical sites observe trial protocol or continue to participate in a trial;

•

address any patient safety concerns that arise during the course of a trial;

•

address any conflicts with new or existing laws or regulations;

•

add a sufficient number of clinical trial sites; or

•

manufacture sufficient quantities of product candidate or placebo for use in clinical trials.

        Patient enrollment is a significant factor in the timing of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of eligible patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs or treatments that may be approved for the indications we are investigating.

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

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        If we experience delays in the completion of, or terminate, any clinical trial of our future product candidates, if any, the commercial prospects of these product candidates may be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of a clinical trial may also ultimately lead to the denial of regulatory approval of a product candidate.

ATX-101, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration.

        The aesthetic product market, and the facial aesthetics market in particular, is highly competitive and dynamic, and is characterized by rapid and substantial technological development and product innovations. We are seeking regulatory approval of ATX-101 for the treatment of submental fullness. A substantial portion of our target physician market is comprised of plastic surgeons and some dermatologists who utilize liposuction and other procedures for fat reduction. Such physicians may find it more advantageous to utilize these surgical and non-surgical procedures to remove localized fat deposits rather than an injectable biopharmaceutical therapy such as ATX-101. In addition, we expect that ATX-101, if approved, will compete with new and existing therapies for the treatment of localized fat, including, liposuction and other procedures, as well as other technologies aimed at fat reduction, including laser energy-based and ultrasound energy-based products. We believe that some of these products have been or may be marketed and used for the reduction of submental fat even though they have not been approved for that purpose.

        If approved, ATX-101 may also compete with unregulated, unapproved and off-label fat reduction treatments. For example, we are aware that there are entities such as compounding pharmacies and device manufacturers that have manufactured quantities of deoxycholic acid-based formulations, which have been sold as fat reduction treatments without drug approval from the FDA or other foreign governmental regulatory body equivalents. In order to compete successfully in the aesthetics market, we will have to demonstrate that the treatment of submental fullness with ATX-101 is a worthwhile aesthetic treatment and is a superior alternative to existing therapies for the reduction of submental fat. There may be other drug or device products currently under development or being considered for development for the treatment of submental or other fat of which we are not currently aware, but which upon approval could compete directly with ATX-101. As an example, we are aware that Neothetics, Inc. (formerly known as Lithera, Inc.), has announced Phase 2b study results for LIPO-202, which is reported to be a physician administered injectable pharmaceutical product being developed for reduction of central abdominal bulging in non-obese patients through the non-ablative, non-surgical fat tissue reduction in specific locations.

        In addition, a substantial portion of our target physician market is comprised of plastic surgeons who utilize surgical methods for fat reduction. Such physicians may find it more advantageous to utilize surgical techniques to remove localized fat deposits rather than an injectable biopharmaceutical therapy such as ATX-101. Additionally, multiple non-invasive technologies for the reduction of fat or "body-contouring" have received marketing clearance from the FDA. For example, Zeltiq Aesthetics, Inc. has a body-contouring system, CoolSculpting, which utilizes controlled cooling to reduce the temperature of fat cells in the treated area for the selective reduction of fat around the flanks and abdomen. Zeltiq has announced an intention to pursue FDA clearance in the submentum. Zerona, a laser energy-based product marketed by Erchonia Corporation, and Liposonix, an ultrasound energy-based product marketed by Solta Medical, Inc., have also received FDA marketing clearance. These products may be considered as alternative treatments or therapies.

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        Due to less stringent regulatory requirements for devices outside of the United States, there are many more aesthetic products and procedures available for use in international markets than are approved for use in the United States. There are also fewer limitations on the claims that competitors in international markets can make about the effectiveness of their products and the manner in which they can market them. For example, Aqualyx has been issued a CE mark in Italy as a medical device that appears to be comprised of an injectable pharmacologic agent combined with ultrasound activity for the non-surgical treatment of localized adiposity. As a result, ATX-101 will face more competition in these markets than in the United States.

        Many of these potential competitors are large, experienced companies that have substantially greater resources and brand recognition than we do. Competing in the aesthetic market could result in price-cutting, reduced profit margins, and limited market share, any of which would harm our business, financial condition, and results of operations.

The commercial success of ATX-101, if approved, will depend significantly on broad physician adoption and use of ATX-101.

        The commercial success of ATX-101, if approved, will depend significantly on the broad adoption and use of ATX-101 by physicians for the treatment of submental fullness. Physician adoption of ATX-101 for the treatment of submental fullness, if approved, will depend on a number of factors, including:

•

the safety and effectiveness of ATX-101 for the treatment of submental fullness as compared to alternative treatments or procedures;

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physician willingness to adopt a new therapy to treat submental fullness;

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patient compliance with the treatment regimen;

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overcoming any biases plastic surgeons may have toward surgical procedures for submental fat reduction;

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patient satisfaction with the results and administration of ATX-101;

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patient demand for treatment of submental fullness;

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the revenue and profitability that ATX-101 will offer a physician as compared to alternative treatments or procedures; and

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the difficulty of administering ATX-101 and any potential side effects of the administration and/or use of ATX-101.

        If ATX-101 is approved for use and physicians do not broadly adopt it for the treatment of submental fullness, our financial performance will be adversely affected.

We rely completely on third-party suppliers to manufacture and distribute our clinical drug supplies for ATX-101, we intend to rely on third parties for commercial manufacturing and distribution of ATX-101 and we expect to rely on third parties for manufacturing and distribution of preclinical, clinical and commercial supplies of any future product candidates.

        We do not currently have, nor do we plan to acquire, the infrastructure or capability to manufacture or distribute preclinical, clinical or commercial quantities of drug substance or drug product, including ATX-101. Facilities used by our contract manufacturers to manufacture drug substance and drug product for commercial sale must be approved by the FDA or other relevant foreign regulatory agencies pursuant to inspections that will be conducted in connection with the review of our NDA or relevant foreign regulatory submission to the applicable regulatory agency.

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        We do not have direct control over the ability of our contract manufacturers to maintain adequate manufacturing capacity and capabilities to serve our needs, including quality control, quality assurance and qualified personnel. We are dependent on our contract manufacturers for compliance with all national, state and local regulatory requirements, including Current Good Manufacturing Practices, or CGMPs, for manufacture of both active drug substances and finished drug products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and/or the strict regulatory requirements of the FDA or foreign regulatory agencies, or are in violation of other regulations governing their business, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. Furthermore, these contract manufacturers are engaged with other companies to supply and/or manufacture materials or products for such companies, which also exposes our manufacturers to regulatory risks for the production of such materials and products. As a result, failure to meet the regulatory requirements for the production of those materials and products may also affect the regulatory clearance of a contract manufacturers' facility. If the FDA or a comparable foreign regulatory agency does not approve these facilities for the manufacture of our product candidates, or if it withdraws its approval in the future, we may need to find alternative manufacturing facilities, which would negatively impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.

        We and our contract manufacturers continue to characterize and improve manufacturing processes, certain aspects of which are complex and unique, and we may encounter difficulties with new or existing processes. For example, as we transitioned to our commercial scale fill/finish supplier, we encountered an issue with respect to the compatibility of ATX-101 with certain types of glass vials, which required identification of compatible vials, manufacturing processes, and storage conditions for ATX-101. Depending on the extent of any difficulties encountered, a similar problem in the future could lead to an interruption in clinical or commercial supply.

        Our failure to be able to manufacture adequate drug substance or drug product could have an adverse effect on supply of clinical and/or finished drug in our commercial territories, and, as a result, on our operating results.

        We expect to continue to depend on third-party contract manufacturers for the foreseeable future. We have entered into an exclusive agreement with Pfizer, Inc., or Pfizer, for the supply of a key raw material to manufacture synthetic deoxycholate. We currently obtain our supply of synthetic deoxycholate from Albany Molecular Research, Inc., or AMRI, and Cambridge Major Laboratories, Inc., or CML. We currently have a long-term agreement with Hospira, Inc., or Hospira, our fill/finish supplier; we have plans to qualify an additional fill/finish supplier, but failure by Hospira to supply drug product will have an adverse effect on market supply and operating results. Our supply agreements, if any, cannot however guarantee that a contract manufacturer or supplier will provide services adequate for our needs. For example, a supplier or manufacturer may go bankrupt or be acquired, and consequently be unable or unwilling to provide us with manufacturing or supply. In February 2015 Pfizer announced that it would acquire Hospira. If a contract manufacturer/supplier becomes financially distressed or insolvent, is acquired or merged, or discontinues manufacturing supply for us beyond the term of the existing agreement, if any, or for any other reason, this could result in substantial management time and expense to identify and qualify alternative manufacturers or suppliers, and could lead to an interruption in clinical or commercial supply.

        In addition, we expect to depend on third-party distributors for the marketing and selling of any future products. For example, we have entered into a distribution agreement with Besse Medical, or Besse, for the distribution of ATX-101. We may depend on distributors' efforts to market our products, yet we are unable to control their efforts completely. Distributors typically sell a variety of other, non-competing products that may limit the resources they dedicate to selling our future products, if any. In addition, we may be unable to ensure that our distributors comply with all applicable laws regarding the sale of our future products. If our distributors fail to effectively market and sell our

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products, in full compliance with applicable laws, our operating results and business may suffer. Recruiting and retaining qualified third-party distributors and training them in any future product offering requires significant time and resources. Further, if our relationship with a successful distributor terminates, we may be unable to replace that distributor without disruption to our business. If we fail to maintain positive relationships with our distributors, fail to develop new relationships with other distributors, including in new markets, fail to manage, train or incentivize existing distributors effectively, or fail to provide distributors with competitive products on attractive terms, or if these distributors are not successful in their sales efforts, our revenue may decrease and our operating results, reputation and business may be harmed.

        Our reliance on contract manufacturers and distributors further exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may misappropriate our trade secrets or other proprietary information.

We currently rely on a few contract manufacturers and testing labs. Failure of these vendors to supply or otherwise perform adequately can materially and adversely affect our business.

        There are a limited number of providers for manufacture, testing and distribution of ATX-101, and we do not have direct control over our contract manufacturers and testing labs. Nor do we have direct control over the processes or timing for the acquisition of the raw materials necessary to manufacture, test or distribute our product candidates. If these raw materials are not available at the volumes and quantity levels required, it could have a material and adverse impact on the supply of drug substance, drug product, and finished drug product. We work closely with our contract manufacturers and testing labs to enable timely delivery of required drug substance and drug product, but these efforts may be insufficient and we may experience delays or our contract manufacturers and testing labs may be unable to provide adequate drug substance or drug product. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete the study, a delay in providing the drug supply required could delay completion of a clinical trial and could result in delays to the clinical program, regulatory approval, and the generation of revenue.

        We rely on third parties such as Pfizer, the supplier of a key raw material for manufacture of the regulatory starting material, Sai Life Science, Inc. the supplier of our regulatory starting material, AMRI and CML, the suppliers of the drug substance, synthetic deoxycholate, and Hospira, the supplier of drug product, at key stages in our ATX-101 supply chain. To manufacture, test and distribute ATX-101 in the quantities that we believe will be required to meet anticipated market demand, our third-party manufacturers may need to increase capacity, which could involve significant challenges and will require additional regulatory approvals. In addition, the development of commercial-scale manufacturing capabilities may require us and our third-party manufacturers to invest substantial additional funds and hire and retain the technical personnel who have the necessary manufacturing experience. Neither we nor our third-party manufacturers may successfully complete any required increase to existing manufacturing capacity in a timely manner, or at all.

        If there is a disruption to our or our third-party manufacturers' or suppliers' relevant operations, we will have no other means of producing ATX-101 until the affected facilities are restored or we or they procure and qualify alternative facilities. Additionally, any damage to or destruction of our or our third-party manufacturers' or suppliers' facilities or equipment may significantly impair our ability to manufacture ATX-101 on a timely basis.

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Manufacturing and supply of drug substance, drug product and finished drug product is a complex and technically challenging undertaking, and there is potential for failure at many points in the manufacturing, testing, quality assurance and distribution supply chain, as well as the potential for latent defects after product has been manufactured and distributed.

        Manufacturing and supply of drug substance, drug product and finished drug product is technically challenging. Changes that may be made outside the purview of our direct control can have an impact on the success of our processes, on quality, and successful delivery of product to physicians. Mistakes and mishandling are not uncommon and can affect successful production and supply. Some of these risks include:

•

failure of our manufacturers to follow CGMP requirements or mishandling of our product while in production or in preparation for transit;

•

transportation and import/export risk, particularly given the global nature of our supply chain;

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delays in analytical results or failure of analytical techniques that we depend on for quality control and release of product;

•

natural disasters, labor disputes, financial distress, lack of raw material supply, issues with facilities and equipment or other forms of disruption to business operations at our contract manufacturers/suppliers; and

•

latent defects that may become apparent after product has been released and which may result in recall and destruction of drug.

We rely on third parties to conduct all our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize ATX-101 or any future product candidates.

        We do not have the ability to independently conduct preclinical studies or clinical trials. We rely on medical institutions, clinical investigators, contract laboratories, collaborative partners and other third parties, such as CROs, to conduct clinical trials on our drug candidates. The third parties with whom we contract for execution of our clinical trials play a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, these third parties are not our employees, and except for contractual duties and obligations, we have limited ability to control the amount, quality or timing of resources that they devote to our programs. For example, following the completion of a Phase I pharmacokinetic study of ATX-101, we discovered that the CRO utilized an incorrect isomer in a testing assay, which resulted in erroneous initial trial results. As a result, we were required to complete a new Phase I pharmacokinetic study of ATX-101. Although we rely on these third parties to conduct our preclinical studies and clinical trials, we remain responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with its investigational plan and protocol. Moreover, the FDA and foreign regulatory authorities require us to comply with regulations and standards, referred to as Good Clinical Practice, or GCP, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial subjects are adequately informed of the potential risks of participating in clinical trials.

        In addition, the execution of preclinical studies and clinical trials, and the subsequent compilation and analysis of the data produced, requires coordination among various parties. In order for these functions to be carried out effectively and efficiently, it is imperative that these parties communicate and coordinate with one another. Moreover, these third parties may also have relationships with other commercial entities, some of which may compete with us. These third parties may terminate their agreements with us upon as little as 30 days prior written notice of a material breach by us that is not cured within 30 days. Many of these agreements may also be terminated by such third parties under

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certain other circumstances, including our insolvency or our failure to comply with applicable laws. In general, these agreements require such third parties to reasonably cooperate with us at our expense for an orderly winding down of services of such third parties under the agreements. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, become insolvent or undergo restructuring, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties, which could be difficult, costly, time consuming, or impossible, and our clinical trials may be extended, delayed or terminated or may need to be repeated. If any of the foregoing were to occur, we may not be able to obtain regulatory approval for or commercialize the product candidate being tested in such trials.

Our ability to market ATX-101, if approved, will be limited to use for treatment of submental fullness, and if we want to expand the indications for which we may market ATX-101, we will need to obtain additional regulatory approvals, which may not be granted.

        We are currently seeking regulatory approval for ATX-101 in the United States, Canada and other international territories for the treatment of submental fullness. If ATX-101 is approved, the applicable regulatory agency will restrict our ability to market or advertise ATX-101 for other specific body areas, which could limit physician and patient adoption. We may attempt to develop, seek regulatory approval for, promote and commercialize new treatment indications and protocols for ATX-101 in the future, but we cannot predict when or if we will receive the clearances required to do so. In addition, we would be required to conduct additional clinical trials or studies to support our applications, which would be time-consuming and expensive, and may produce results that do not result in regulatory approvals. If we do not obtain additional regulatory approvals, our ability to expand our business in the United States, Canada and other international territories will be limited.

Even if ATX-101 is approved for commercialization, if there is not sufficient patient demand for ATX-101 procedures, our financial results and future prospects will be harmed.

        Treatment of submental fullness with ATX-101 is an elective procedure, the cost of which must be borne by the patient, and we do not expect it to be reimbursable through government or private health insurance. The decision by a patient to elect to undergo treatment with ATX-101 may be influenced by a number of factors, such as:

•

the success of any sales and marketing programs that we, or any third parties we engage, undertake, and as to which we have limited experience;

•

the extent to which physicians recommend ATX-101 to their patients;

•

the extent to which ATX-101 satisfies patient expectations;

•

our ability to properly train physicians in the use of ATX-101 such that their patients do not experience excessive discomfort during treatment or adverse side effects;

•

the cost, safety, and effectiveness of ATX-101;

•

consumer sentiment about the benefits and risks of aesthetic procedures generally and ATX-101 in particular;

•

the success of any direct-to-consumer marketing efforts we may initiate; and

•

general consumer confidence, which may be impacted by economic and political conditions.

        Our financial performance will be materially harmed if we cannot generate significant patient demand for ATX-101.

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

        As of December 31, 2014, we had 106 full-time employees. We will need to continue to expand our managerial, operational, finance and other resources in order to manage our operations and clinical trials, continue our development activities and commercialize ATX-101 in the U.S., Canada and other territories acquired in the March 2014 transaction with Bayer, or any future product candidates. Our management and personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively execute our growth strategy requires that we:

•

manage our clinical trials effectively;

•

identify, recruit, retain, incentivize and integrate additional employees;

•

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

•

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

Successfully transitioning the ATX-101 program we acquired from Bayer in March 2014 could require significant management attention and disrupt our business, and if we are unable to successfully transition this program the anticipated benefits of the program's acquisition may not be fully realized.

        In March 2014, we announced the acquisition of rights to develop and commercialize ATX-101 outside of the United States and Canada from Bayer. We believe that the acquisition of these rights to ATX-101 will allow us to maximize the global long-term value of ATX-101. However, our ability to realize the anticipated additional benefits depends on successfully transitioning and expanding our existing ATX-101 development program into a global development program. The development of this program by us is subject to numerous risks, including operating in international markets, which will require significant resources and management attention and will subject us to regulatory, economic and political risks that are different from those in the United States. We may also encounter unexpected and more restrictive laws and regulations, including those laws governing the enforcement and ownership of intellectual property and other activities important to our business.

        In addition, Bayer has been leading the clinical and regulatory development of ATX-101 in Europe and we will now be transitioning the existing clinical and regulatory data into our organization and assuming the responsibility for future development and commercialization. As a company, we do not have any prior experience securing regulatory approval of a drug product in the European Union, and we may encounter unexpected delays in the process. If we are not able to successfully transition and integrate the acquired ATX-101 program into our organization, or successfully secure regulatory approval and subsequently successfully commercialize ATX-101 outside the U.S. and Canada, the anticipated benefits of the acquisition of these rights may not be realized fully, or at all, or may take longer to realize than expected.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of ATX-101 or any future product candidates.

        We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties, among others. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of

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our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

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decreased demand for ATX-101 or any future product candidates;

•

injury to our reputation;

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withdrawal of clinical trial participants;

•

costs to defend the related litigation;

•

a diversion of management's time and our resources;

•

substantial monetary awards to trial participants or patients;

•

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

•

loss of revenue; and

•

the inability to commercialize ATX-101 or any future product candidates.

        Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could prevent or inhibit the commercialization of ATX-101 or any future products we develop. We currently carry product liability insurance covering our clinical trials in the amount of $10.0 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If and when we obtain approval for marketing ATX-101, we intend to expand our insurance coverage to include the sale of ATX-101; however, we may be unable to obtain this liability insurance on commercially reasonable terms.

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop ATX-101 or any future product candidates, conduct our clinical trials and commercialize ATX-101 or any future product candidates.

        Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We are highly dependent upon our senior management, particularly our President and Chief Executive Officer, as well as our senior scientists and other members of our senior management team. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of ATX-101 or any future product candidates. Although we have entered into employment agreements with our senior management team, these agreements do not provide for a fixed term of service.

        Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense due to the limited number of individuals who possess the skills and experience required by our industry. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all. In addition, to the extent we

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hire personnel from other pharmaceutical or medical device companies, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output.

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

        Although a substantial amount of our effort will focus on the continued clinical testing and potential approval of ATX-101, a key element of our strategy is to discover, develop and commercialize a portfolio of products to serve the aesthetic market. We are seeking to do so through our internal research programs and may explore strategic collaborations for the development or acquisition of new products. For example, in February 2015 we announced the acquisition of setipiprant, a potentially novel treatment for hair loss. Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including the following:

•

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

•

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

•

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

•

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

•

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

•

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

•

FDA or other regulatory authorities may not approve or agree with the intended use of a new product candidate.

        If we fail to develop and successfully commercialize other product candidates, our business and future prospects may be harmed and our business will be more vulnerable to any problems that we encounter in developing and commercializing ATX-101.

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

        We have incurred and will continue to incur significant legal, accounting and other expenses as a public company, including costs resulting from public company reporting obligations under the Securities Exchange Act of 1934, as amended, and regulations regarding corporate governance practices. The listing requirements of The NASDAQ Global Select Market require that we satisfy certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and

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regulations have increased our legal and financial compliance costs and have made some activities more time-consuming and costly. Any changes made to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors' and officers' insurance, on acceptable terms.

        Section 404 of The Sarbanes-Oxley Act of 2002, or Section 404, and the related rules of the Securities and Exchange Commission, or SEC, require our management and independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company as defined in the JOBS Act, we intend to continue to take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, as well as reduced reporting disclosure on executive compensation and no requirement for non-binding advisory votes on executive compensation. Once we are no longer an emerging growth company or, if prior to such date, we opt to no longer take advantage of the applicable exemption, we will be required to include an opinion from our independent registered public accounting firm on the effectiveness of our internal controls over financial reporting. We will remain an emerging growth company until the earlier of (1) December 31, 2017 (the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.0 billion, (3) the last day of the fiscal year in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

        In addition, we are required to file accurate and timely quarterly and annual reports with the SEC under the Securities Exchange Act of 1934, as amended. In order to report our results of operations and consolidated financial statements on an accurate and timely basis, we depend on CROs to provide timely and accurate notice of their costs to us.

If we fail to maintain proper and effective internal controls over financial reporting, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors' views of us and have a materially adverse effect on our stock price.

        During the course of our review and testing of our internal controls, we may identify deficiencies and be unable to remediate them before we must provide the required reports. Furthermore, if we have a material weakness in our internal controls over financial reporting, we may not detect errors on a timely basis and our consolidated financial statements may be materially misstated. We or our independent registered public accounting firm, when required, may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, which could harm our operating results, cause investors to lose confidence in our reported financial information and cause the trading price of our stock to fall.

        We cannot provide assurance that a material weakness will not occur in the future, or that we will be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 and the related rules and regulations of the SEC when required. A material weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim consolidated financial statements will not be prevented or detected on a timely basis by the company's internal controls. If we cannot in the future

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favorably assess, or our independent registered public accounting firm, when required, is unable to provide an unqualified attestation report on, the effectiveness of our internal controls over financial reporting, investor confidence in the reliability of our financial reports may be adversely affected, which could have a material adverse effect on our stock price. In addition, any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from The NASDAQ Global Select Market or other adverse consequences that would materially harm our business.

Under the related agreements for the acquisition of the rights to develop and commercialize ATX-101 outside of the United States and Canada, Bayer has the right to seek indemnification from us for certain damages it suffers as a result of a material breach of the representations and warranties we made or if we fail to perform any of our other contractual obligations under these agreements, as well as for certain damages arising out of the ATX-101 program, which amounts could be significant.

        We have agreed to indemnify Bayer and its affiliates against losses it suffers as a result of our material breach of representations and warranties and our other obligations in the agreements related to the acquisition of rights from Bayer to ATX-101 outside of the United States and Canada. If one or more of our representations and warranties were not true at the time we made them to Bayer, or if we fail to perform any of our other contractual obligations under these agreements, we would be in breach of the applicable agreement. In the event of a breach or failure by us to perform, Bayer has the right to seek indemnification from us for damages suffered by them as a result of such breach or failure to perform. In addition, we have agreed, subject to certain exceptions, to indemnify Bayer and its affiliates for damages it suffers as a result of our development and commercialization of ATX-101, including as a result of a personal injury or death caused by a manufacturing defect in the product produced by us or our suppliers, or a violation of any regulatory authorization related to the marketing and sale of ATX-101. The amounts for which we could become liable may be significant.

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

        Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Furthermore, the market for aesthetic medical procedures may be particularly vulnerable to unfavorable economic conditions. In particular, we do not expect ATX-101 to be reimbursed by any government or third-party payor and, as a result, demand for this product will be tied to discretionary spending levels of our targeted patient population. A severe or prolonged economic downturn, such as the most recent global financial crisis, could result in a variety of risks to our business, including, weakened demand for ATX-101, if approved, and our ability to raise additional capital when needed on acceptable terms, if at all. This is particularly true in Europe, which is undergoing a continued severe economic crisis. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

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

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

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

        Furthermore, integral parties in our supply chain are geographically concentrated and operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our business.

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

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

Risks Related to Intellectual Property

We may become subject to third parties' claims alleging infringement of patents and proprietary rights or seeking to invalidate our patents or proprietary rights, which would be costly, time consuming and, if successfully asserted against us, delay or prevent the development and commercialization of ATX-101 or any future product candidates.

        There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. We cannot assure that ATX-101 or any future product candidates will not infringe existing or future patents. Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be applications now pending of which we are unaware and which may later result in issued patents that we may infringe by commercializing ATX-101 or any future product candidates. Moreover, we may face claims from non-practicing entities, which have no relevant product revenue and against whom our own patent portfolio may thus have no deterrent effect.

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        We may be subject to third-party claims that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages, including treble damages and attorney's fees if we are found to be willfully infringing a third party's patents. We have agreed to indemnify our former collaborator Bayer against such claims brought against it, and may undertake similar obligations on behalf of other future collaborators in the future. If a patent infringement suit were brought against us or our future collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. As a result of patent infringement claims, or in order to avoid potential claims, we or our future collaborators may choose to seek, or be required to seek, a license from the third-party and would most likely be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our future collaborators were able to obtain a license, the rights may be nonexclusive, which would give our competitors access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or forced to redesign it, or to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we or our future collaborators are unable to enter into licenses on acceptable terms. Even if we are successful in defending such claims, infringement and other intellectual property litigation can be expensive and time-consuming to litigate and would divert management's attention from our core business. Any of these events could harm our business significantly.

        In addition to infringement claims against us, if third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in proceedings in the United States Patent and Trademark Office, or the U.S. PTO, to determine the rights to invention. We may also become involved in similar opposition proceedings in the European Patent Office or similar offices in other jurisdictions regarding our intellectual property rights with respect to our products and technology.

If our efforts to protect the proprietary nature of the intellectual property related to ATX-101 or any future product candidates are not adequate, we may not be able to compete effectively in our market.

        We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to ATX-101 and our research and development programs. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

        The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or license may fail to result in issued patents in the United States or in foreign countries. Even if the patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. For example, patents granted by the European Patent Office may be opposed by any person within nine months from the publication of the grant. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. For example, although ATX-101 contains synthetic deoxycholate, the most common form of deoxycholate is a naturally occurring substance (as are certain other aesthetic pharmaceuticals, including botulinum toxin), and is therefore not eligible for composition-of-matter patent protection in certain jurisdictions, including the United States. To the extent that naturally-occurring deoxycholate products (or other synthetic deoxycholate products) do not infringe claims in our method-of-use, formulation or other patents and patent applications, competitors may be able to offer and sell such products and compete with ATX-101. If the breadth or strength of protection provided by the patents and patent applications we hold or pursue with respect to ATX-101 or any future product candidates is challenged, then it

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could threaten our ability to commercialize ATX-101 or any future product candidates. Further, if we encounter delays in our clinical trials, the period of time during which we could market ATX-101 or any future product candidates under patent protection would be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to our product candidates. Furthermore, an interference proceeding can be provoked by a third-party, or instituted by the U.S. PTO, to determine who was first to invent any of the subject matter covered by the patent claims of our applications.

        Even where laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and the outcome of such litigation would be uncertain. Moreover, any actions we may bring to enforce our intellectual property against our competitors could provoke them to bring counterclaims against us, and some of our competitors have substantially greater intellectual property portfolios than we have.

        We also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that may not be patentable, processes for which patents may be difficult to obtain and/or enforce and any other elements of our product development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and endeavor to execute confidentiality agreements with all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology, we cannot be certain that we have executed such agreements with all parties who may have helped to develop our intellectual property or who had access to our proprietary information, nor can we be certain that our agreements will not be breached. We cannot guarantee that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

Our issued patents could be found invalid or unenforceable if challenged in court.

        If we or one of our future collaborators were to initiate legal proceedings against a third party to enforce a patent covering ATX-101, or one of our future products, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the U.S. PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before the U.S. PTO, even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on ATX-101 or a future product. Such a loss of patent protection would have a material adverse impact on our business.

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If we fail to comply with our obligations under our intellectual property licenses we could lose license rights that are important to our business.

        We are a party to a license agreement with Los Angeles Biomedical Research Institute, or LA Biomed, pursuant to which we license key intellectual property relating to the active ingredient in ATX-101. This existing license imposes various diligence, royalty, insurance and other obligations on us. If we fail to comply with these obligations, LA Biomed may have the right to terminate the license, in which event we would not be able to develop or market ATX-101. If we lose such license rights, our business, results of operations, financial condition and prospects would be materially adversely affected. In addition, we have entered into a license agreement with Actelion and the University of Pennsylvania pursuant to which we license intellectual property relating to the use of prostaglandin D₂ receptor for the treatment of hair loss. If we fail to comply with obligations under these agreements, we may not be able to develop our potential hair loss treatment product.

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

        As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, the United States has enacted and is currently implementing wide- ranging patent reform legislation. The United States Supreme Court has ruled on several patent cases relatively recently, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. PTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

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

        The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.

We do not yet have registered trademarks for commercial trade names for ATX-101 and failure to secure such registrations could adversely affect our business.

        We do not yet have registered trademarks for commercial trade names for ATX-101. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the U.S. PTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. Moreover, any name we propose to use with our product candidates in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA objects to any of our proposed

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proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

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

        Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

        Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Risks Related to Government Regulation

The regulatory approval process is highly uncertain and we may not obtain regulatory approval for the commercialization of ATX-101 or any future product candidates.

        The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country. We are not permitted to market ATX-101 or any future product candidate in the United States and other countries until we receive approval of an NDA from the FDA or foreign equivalents. We have not obtained marketing approval for ATX-101 anywhere in the world. Obtaining regulatory approval of an NDA or foreign equivalent can be a lengthy, expensive and uncertain process. In addition, failure to comply with FDA and other applicable United States and foreign regulatory requirements may subject us to administrative or judicially imposed sanctions or other actions, including:

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warning letters;

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civil and criminal penalties;

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injunctions;

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withdrawal of approved products;

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product seizure or detention;

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product recalls;

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total or partial suspension of production; and

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refusal to approve pending NDAs or supplements to approved NDAs.

        Prior to obtaining approval to commercialize a drug candidate in the United States or abroad, we must demonstrate with substantial evidence from well controlled clinical trials, and to the satisfaction of the FDA or other foreign regulatory agencies, that such drug candidates are safe and effective for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we believe the preclinical or clinical data for our drug candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. Administering drug candidates to humans may produce undesirable side effects, which could interrupt, delay or halt clinical trials and result in the FDA or other regulatory authorities denying approval of a drug candidate for any or all targeted indications.

        Regulatory approval of an NDA or NDA supplement, or foreign equivalents, is not guaranteed, and the approval process is expensive and may take several years. The FDA and other foreign regulatory authorities also have substantial discretion in the approval process. Despite the time and expense exerted, failure can occur at any stage, and we or our future collaborators could encounter problems that cause us to abandon or repeat clinical trials, or perform additional preclinical studies and clinical trials. The number of preclinical studies and clinical trials that will be required for approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address, and the regulations applicable to any particular drug candidate. The FDA and other foreign regulatory authorities can delay, limit or deny approval of a drug candidate for many reasons, including, but not limited to, the following:

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a drug candidate may not be deemed safe or effective;

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they may not find the data from preclinical studies and clinical trials sufficient;

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they might not approve our third party manufacturers' processes or facilities; or

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they may change their approval policies or adopt new regulations.

        If ATX-101 or any future product candidate fails to demonstrate safety and efficacy in clinical trials or does not gain regulatory approval, our business and results of operations will be materially and adversely harmed.

Even if we receive regulatory approval for ATX-101 or any future product candidates, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, any product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

        Any regulatory approvals that we receive for ATX-101 or any future product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the applicable regulatory agency approves ATX-101 or any future product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, and continued compliance with CGMP and GCP,

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for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with ATX-101 or any future product candidates, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

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

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fines, warning letters or holds on clinical trials;

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refusal by the FDA or other regulatory agencies to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;

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

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injunctions or the imposition of civil or criminal penalties.

        Regulatory agency policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business.

Our failure to obtain regulatory approvals in foreign jurisdictions for ATX-101 would prevent us from marketing ATX-101 internationally.

        In order to market any product in the EEA (which is composed of the 28 Member States of the European Union plus Norway, Iceland and Liechtenstein) and many other foreign jurisdictions, separate regulatory approvals are required. In the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. Before granting the MA, the EMA or the competent authorities of the Member States of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy.

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

If approved, ATX-101 or any future products may cause or contribute to adverse medical events that we are required to report to regulatory agencies and if we fail to do so, we could be subject to sanctions that would materially harm our business.

        Some participants in our clinical studies have reported adverse effects after being treated with ATX-101. If we are successful in commercializing ATX-101 or any other products, FDA and foreign regulatory agency regulations require that we report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of

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the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, the FDA or a foreign regulatory agency could take action including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval or clearance of future products.

We may in the future be subject to various federal, state and foreign laws pertaining to health care fraud and abuse, including anti-kickback, self-referral, false claims and fraud laws, and any violations by us of such laws could result in fines or other penalties.

        While we do not expect that ATX-101, if approved, will be covered for patients in whole or in part by Medicare, Medicaid or other federal and foreign healthcare programs, we may still be subject to the various U.S. federal, state and foreign laws intended to prevent health care fraud and abuse. The federal anti-kickback statute prohibits the offer, receipt, or payment of remuneration in exchange for or to induce the referral of patients or the use of products or services that would be paid for in whole or in part by Medicare, Medicaid or other federal health care programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced price items and services. Many states have similar laws that apply to their state health care programs as well as private payors. Violations of the anti-kickback laws can result in exclusion from federal health care programs and substantial civil and criminal penalties.

The federal False Claims Act, or FCA, imposes liability on persons who, among other things, present or cause to be presented false or fraudulent claims for payment by a federal health care program. The FCA has been used to prosecute persons submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. The FCA includes a whistleblower provision that allows individuals to bring actions on behalf of the federal government and share a portion of the recovery of successful claims. If our marketing or other arrangements were determined to violate anti-kickback or related laws, including the FCA, then our revenues could be adversely affected, which would likely harm our business, financial condition, and results of operations.

        State and federal authorities have aggressively targeted pharmaceutical and medical technology companies for alleged violations of these anti-fraud statutes, based on improper research or consulting contracts with doctors, certain marketing arrangements that rely on volume-based pricing, off-label marketing schemes, and other improper promotional practices. Companies targeted in such prosecutions have paid substantial fines in the hundreds of millions of dollars or more, have been forced to implement extensive corrective action plans, and have often become subject to consent decrees severely restricting the manner in which they conduct their business. If we become the target of such an investigation or prosecution based on our contractual relationships with providers or institutions, or our marketing and promotional practices, we could face similar sanctions, which would materially harm our business.

        Also, the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We cannot assure you that our internal control policies and procedures will protect us from reckless or negligent acts committed by our employees, contractors, future distributors, partners, future or former collaborators or agents. Violations of these laws, or allegations of such violations, could result in fines, penalties, or prosecution and have a negative impact on our business, results of operations and reputation.

        We will also be subject to similar laws in foreign countries where we may conduct business. For example, within the EU, the control of unlawful marketing and promotional activities is a matter of

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national law in each of the member states. The member states of the EEA closely monitor perceived unlawful marketing and promotional activities by companies. We could face civil, criminal and administrative sanctions if any member state determines that we have breached our obligations under its national laws. Industry associations also closely monitor the activities of member companies. If these organizations or authorities name us as having breached our obligations under their regulations, rules or standards, our reputation would suffer and our business and financial condition could be adversely affected.

Legislative or regulatory healthcare reforms in the United States may make it more difficult and costly for us to obtain regulatory clearance or approval of ATX-101 or any future product candidates and to produce, market, and distribute our products after clearance or approval is obtained.

        From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory clearance or approval, manufacture, and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of ATX-101 or any future product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:

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changes to manufacturing, testing or distribution methods;

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recall, replacement, or discontinuance of one or more of our products; and

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additional record keeping.

        Each of these would likely entail substantial time and cost and could materially harm our business and our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products would harm our business, financial condition, and results of operations.

Risks Related to Our Common Stock

Our stock price may be volatile and investors in our common stock could incur substantial losses.

        From October 11, 2012, the first day of trading of our common stock, to December 31, 2014, our stock has had low and high closing sales prices in the range of $19.05 to $55.98 per share. The trading price of our common stock is highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include those discussed in this "Risk Factors" section of this Annual Report on Form 10-K and others such as:

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announcements of regulatory approval or disapproval of ATX-101 or any future product candidates;

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delays in the commercialization of ATX-101 or any future product candidates;

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negative perceptions with regard to the acquisition of rights to ATX-101 from Bayer;

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results from, and any delays in, our trials for ATX-101, or any other future clinical development programs;

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changes in revenue and earnings estimates or recommendations by securities analysts;

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

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

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announcements relating to future licensing, collaboration or development agreements;

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acquisitions and sales of new products, technologies or businesses;

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

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

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

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developments with respect to intellectual property rights;

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our commencement of, or involvement in, litigation;

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any major changes in our board of directors or management;

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new legislation in the United States or other foreign territories relating to the sale or pricing of pharmaceuticals;

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

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

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

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general economic conditions in the United States and abroad.

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

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

        We are an "emerging growth company," as defined in the JOBS Act, and we are taking advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we are relying on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) December 31, 2017 (the last day of the fiscal year following the fifth anniversary of our initial public offering), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.0 billion, (3) the last day of the fiscal year in which we are deemed

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to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (4) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

If we sell or issue shares of our common stock in future financings or transactions, stockholders may experience immediate dilution and, as a result, our stock price may decline.

        We may from time to time issue additional shares of common stock at a discount from the current trading price of our common stock. As a result, our stockholders would experience immediate dilution upon the purchase or issuance of any shares of our common stock sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. If we issue common stock or securities convertible into common stock, our common stockholders would experience additional dilution and, as a result, our stock price may decline.

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

        As of February 23, 2015, our executive officers, directors, and their respective affiliates beneficially owned approximately 9.5% of our outstanding voting stock. These stockholders have the ability to influence us through this ownership position and may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that existing stockholders may feel are in their best interest.

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

        If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. As of February 23, 2015, we have a total of approximately 22.8 million shares of common stock outstanding. In addition, as of February 23, 2015, approximately 5.7 million shares of common stock were either subject to outstanding stock awards or reserved for future issuance under our equity incentive plans are eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

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

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

•

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

•

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

•

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

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•

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

•

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

•

the required approval of at least 66²/3% of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors;

•

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

•

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

•

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

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

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

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

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

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

•

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

•

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

•

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

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•

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

•

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

•

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

Our employment agreements with our executive officers may require us to pay severance benefits to any of those persons who are terminated in connection with a change in control of us, which could harm our financial condition or results.

        Certain of our executive officers are parties to employment agreements that contain change in control and severance provisions providing for cash payments for severance and other benefits and acceleration of vesting of stock options in the event of a termination of employment in connection with a change in control. The accelerated vesting of options could result in dilution to our existing stockholders and harm the market price of our common stock. The payment of these severance benefits could harm our financial condition and results. In addition, these potential severance payments may discourage or prevent third parties from seeking a business combination with us.

We do not currently intend to pay dividends on our common stock, and, consequently, our stockholders ability to achieve a return on their investment will depend on appreciation in the price of our common stock.

        We do not currently intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Additionally, the terms of our credit facility restrict our ability to pay dividends. Therefore, our stockholders are not likely to receive any dividends on our common stock for the foreseeable future. Since we do not intend to pay dividends, our stockholders ability to receive a return on their investment will depend on any future appreciation in the market value of our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it.

ITEM 1B.    Unresolved Staff Comments.

        Not applicable.

ITEM 2.    Properties.

        Our corporate headquarters are located in Westlake Village, California, where we lease and occupy 33,198 square feet of office space. The current terms of our lease expire July 31, 2017, with an option to renew for an additional 36 months.

ITEM 3.    Legal Proceedings.

        We may from time to time be involved in various legal proceedings of a character normally incident to the ordinary course of our business. We are not currently a party to any material litigation or other material legal proceedings.

ITEM 4.    Mine Safety Disclosures.

        Not applicable.

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PART II

ITEM 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

        Our common stock has been publicly traded on The NASDAQ Global Select Market under the symbol "KYTH" since our initial public offering on October 11, 2012. Prior to that time, there was no public market for our common stock. The following table sets forth on a per share basis, for the periods indicated, the low and high sale intraday prices of our common stock as reported by The NASDAQ Global Select Market.

	High		Low
Year ended December 31, 2013
First Quarter	$	31.49	$	14.07
Second Quarter	$	27.33	$	18.56
Third Quarter	$	47.50	$	23.03
Fourth Quarter	$	47.85	$	35.25
Year ended December 31, 2014
First Quarter	$	56.36	$	33.67
Second Quarter	$	40.22	$	29.50
Third Quarter	$	40.98	$	31.39
Fourth Quarter	$	39.78	$	29.86

Holders

        As of February 23, 2015, there were approximately 36 holders of record of our common stock. This number does not include beneficial owners whose shares are held by nominees in street name.

Dividend Policy

        We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. In addition, unless waived, the terms of our credit facility with Lighthouse Capital Partners VI, L.P. prohibit us from paying any cash dividends. Any future determination related to dividend policy will be made at the discretion of our board of directors.

Performance Graph

        This graph is not "soliciting material," is not deemed "filed" with the SEC and is not to be incorporated by reference into any filing of KYTHERA Biopharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

        The following graph shows the total stockholder return of an investment of $100 in cash on October 11, 2012 (the first day of trading of our common stock), through December 31, 2014 for (i) our common stock, (ii) the NASDAQ Composite Index (U.S.) and (iii) the NASDAQ Biotechnology Index. Pursuant to applicable Securities and Exchange Commission rules, all values assume reinvestment of the full amount of all dividends, however no dividends have been declared on our common stock to date. The stockholder return shown on the graph below is not necessarily indicative

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of future performance, and we do not make or endorse any predictions as to future stockholder returns.

Comparison of Cumulative Total Return*
Among Kythera Biopharmaceuticals, Inc., the NASDAQ Composite
Index, and the NASDAQ Biotechnology Index

*

Assume $100 invested in stock or index on October 11, 2012 including reinvestment of dividends

Recent Sales of Unregistered Securities

        From January 1, 2014 through December 31, 2014, we did not issue any securities in a transaction not registered under the Securities Act that was not been previously disclosed in a Quarterly Report on Form 10-Q or Current Report on Form 8-K.

Use of Proceeds

        On October 10, 2012, the Securities and Exchange Commission declared effective our registration statement on Form S-1 (File No. 333-181476), as amended, filed in connection with the initial public offering of our common stock. As of December 31, 2014, all of the proceeds from our initial public offering have been applied.

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Issuer Purchases of Equity Securities

        We did not repurchase any of our equity securities during the fourth quarter of the year ended December 31, 2014.

ITEM 6.    Selected Financial Data.

        You should read the following selected financial data together with our audited consolidated financial statements, the related notes, the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information included in this Annual Report on Form 10-K. The selected financial data included in this section are not intended to replace our audited consolidated financial statements and the related notes included elsewhere in this annual report.

        We derived the selected statement of operations data for the years ended December 31, 2014, 2013 and 2012 and the balance sheet data as of December 31, 2014 and 2013 from our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. The selected statement of operations data for the years ended December 31, 2011 and 2010 and the balance sheet data as of December 31, 2012, 2011 and 2010 are derived from our audited financial statements not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected in the future.

	Year Ended December 31,
	2014			2013			2012			2011			2010
	(in thousands, except for per shares data)
Statement of Operations Data:
License income	$	—		$	—		$	19,687		$	12,985		$	4,488
Sublicense expense		—			—			1,936			1,188			411
Gross margin		—			—			17,751			11,797			4,077
Operating expenses:
In-process research and development		52,757			—			—			—			—
Research and development		47,840			33,974			43,184			15,766			14,842
General and administrative		31,055			16,092			10,505			6,879			6,785
Total operating expenses:		131,652			50,066			53,689			22,645			21,627
Loss from operations		(131,652	)		(50,066	)		(35,938	)		(10,848	)		(17,550	)
Interest income		260			135			—			—			19
Interest expense		(4,157	)		(1,980	)		(441	)		(75	)		—
Warrant and other (expense) income, net		(72	)		—			(420	)		(229	)		570
Other income		—			—			—			—			930
Net loss	$	(135,621	)	$	(51,911	)	$	(36,799	)	$	(11,152	)	$	(16,031	)
Per share information:
Net loss per share of common stock, basic and diluted	$	(6.04	)	$	(2.71	)	$	(7.47	)	$	(7.98	)	$	(11.64	)
Weighted-average number of shares used in computing net loss per share of common stock, basic and diluted		22,466,000			19,150,000			4,924,000			1,398,000			1,377,000

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	As of December 31,
	2014			2013			2012			2011			2010
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and marketable securities(1)	$	99,661		$	167,058		$	79,311		$	34,577		$	21,676
Working capital(1)		80,530			155,695			71,367			29,524			3,890
Total assets		103,426			173,407			96,222			45,079			45,509
Notes payable (current and noncurrent)(2)		28,145			11,505			3,924			—			—
Redeemable convertible preferred stock warrant liability		—			—			—			2,145			1,031
Redeemable convertible preferred stock		—			—			—			107,587			71,300
Accumulated deficit		(307,838	)		(172,217	)		(120,306	)		(83,507	)		(72,355	)
Total stockholders' equity (deficit)(1)		59,438			149,839			68,906			(81,024	)		(70,747	)

(1)

Increase in cash, cash equivalents and marketable securities, working capital and stockholders' equity is due to public offerings for net proceeds of $125.0 million and $72.5 million during 2013 and 2012, respectively.

(2)

In connection with the acquisition of the rights to acquire ATX-101 outside the United States and Canada in March 2014, we issued an unsecured promissory note to Bayer with a fair value of $21.6 million.

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ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of financial condition and results of operations together with the section entitled "Selected Financial Data" and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the "Risk Factors" section in Part I Item IA.

Overview

        We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market. Our objective is to develop first-in-class, prescription products using an approach that relies on the scientific rigor of biotechnology to address unmet needs in the rapidly-growing market for aesthetic medicine. Our initial focus is on the facial aesthetics market, which comprises the majority of the aesthetic medicine market. Our product candidate, ATX-101, is a potential first-in-class, injectable drug in late-stage development for the treatment of submental fullness, which commonly presents as an undesirable "double chin." Based on clinical trials conducted to date, ATX-101 has exhibited significant, meaningful and long-lasting results in the reduction of submental fat. These results correspond with patient satisfaction measures demonstrating meaningful improvement in perceived chin appearance. If approved by applicable regulatory authorities, we believe ATX-101 will be an attractive solution for the treatment of submental fullness, representing a new product category within the rapidly growing facial aesthetics market. ATX-101 is our only product candidate and we are substantially dependent on its regulatory approval and successful commercialization.

        Since commencing operations in August 2005, we have devoted substantially all our efforts to identify and develop products for the aesthetics market, recruiting personnel and raising capital. We have devoted predominantly all of our resources to the preclinical and clinical development of ATX-101 and we have not generated any revenue from product sales. On May 12, 2014, we submitted our New Drug Application ("NDA") with the U.S. Food and Drug Administration ("FDA"), which was accepted for filing by the FDA on July 10, 2014. The Company was notified by the Dermatology and Ophthalmic Advisory Committee of the FDA that it is scheduled to review the NDA in a half-day meeting on the morning of March 9, 2015. The NDA will be subject to a standard review with a Prescription Drug User Fee Act (PDUFA) action date of May 13, 2015. The PDUFA date is the goal date for the FDA to complete its review of the NDA. We submitted a New Drug Submission ("NDS") with Health Canada in August 2014, a Marketing Authorization Application ("MAA") to Swissmedic in October 2014 and a drug application with Australia's Therapeutic Goods Administration ("TGA") in February 2015, seeking approval for ATX-101 as an injectable treatment of submental fullness. Historically we have funded substantially all of our operations through the sale and issuance of our common and preferred stock, convertible debt, amounts received from U.S. Government grants and pursuant to our collaboration arrangement with Bayer and borrowings under our existing credit facility.

        In March 2014, we entered into an agreement whereby we acquired the rights to develop and commercialize ATX-101 outside of the United States and Canada from Bayer in exchange for 698,103 shares of KYTHERA common stock with a fair value of $31.4 million and a $51.0 million unsecured promissory note with a fair value of $21.6 million. The promissory note, which is subordinated to amounts owed under our existing credit facility, bears interest at 5% per annum and is payable no later than 2024. Additionally, Bayer is eligible to receive up to $123.8 million upon the achievement of certain long-term sales milestone payments on annual sales of ATX-101 outside of the United States and Canada. The transaction was accounted for as an asset acquisition and, as a result, a one-time

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charge to in-process research and development of $52.8 million was recognized during the first quarter of 2014.

        We believe the acquisition of these rights is a transformative opportunity for KYTHERA and that we have the right leadership and operational team to shape the future path of ATX-101. We continue to evaluate on a territory-by-territory basis where and how to best maximize the value of ATX-101. As a result of acquiring the rights to develop and commercialize ATX-101 outside of the United States and Canada, we experienced modest increases in our operating expense and cash usage for regulatory costs outside the United States since the acquisition.

        In February 2015, we entered into licensing arrangements with Actelion and University of Pennsylvania pursuant to which we obtained exclusive worldwide rights to setipiprant, a clinical-stage selective and potent oral antagonist to the prostaglandin D₂ (PGD₂) receptor and exclusive worldwide rights to certain patent rights owned by the University of Pennsylvania covering the use of PGD₂ receptor antagonists for the treatment of hair loss. For additional discussion, refer to Note 13, "Subsequent Events (unaudited)".

        We have never been profitable and, as of December 31, 2014, we had an accumulated deficit of $307.8 million. We incurred net losses of $135.6 million, $51.9 million and $36.8 million for the years ended December 31, 2014, 2013 and 2012, respectively. We may continue to incur net operating losses for at least the next several years as we advance ATX-101 through clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization, and develop other clinical assets, if any. We have no manufacturing and distribution facilities and all of our manufacturing and distribution activities are contracted out to third parties. Additionally, we currently utilize third-party clinical research organizations, or CROs, to carry out our clinical development and we do not yet have a sales organization. We expect to seek additional funding to support our operating activities, especially as we approach anticipated regulatory approval in the United States and Canada and possibly internationally, and begin to establish our sales capabilities. Adequate funding may not be available to us on acceptable terms, or at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition.

Financial Overview

Revenue

        We have not generated any revenue from product sales. In the future, if ATX-101 is approved for commercial sale, we may generate revenue from product sales.

        To date, all of our revenue has been derived from license fees we received pursuant to our collaboration arrangement with Bayer. In May 2012, we recorded $15.8 million in revenue for a payment received from Bayer triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. As of March 2014, we acquired rights to ATX-101 outside of the United States and Canada from Bayer and, as a result, no longer expect future revenues from this license agreement.

        Even if ATX-101 is approved for commercial sale, we do not expect to generate revenue from product sales until at least the latter part of 2015, if at all. If ATX-101 is approved by the FDA, we expect to access the market through a focused, specialized sales force in the United States. If approved for sale, we intend to focus our initial marketing of ATX-101 on those core dermatologists, plastic surgeons and facial plastic surgeons we identify as having substantial experience in performing facial injectable procedures. If we fail to complete the development of ATX-101, or other product candidates, in a timely manner or to obtain regulatory approval, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

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In-Process Research and Development

        In March 2014, we incurred a one-time charge to in-process research and development of $52.8 million related to obtaining the rights to ATX-101 outside of the United States and Canada from Bayer. See Note 8 to the Consolidated Financial Statements, "Commitments, Collaborations and Contingencies" for a more detailed discussion of this acquisition.

Research and Development Expenses

        We expense all research and development costs in the periods in which they are incurred. Major components of our research and development costs are personnel costs, including cash and stock-based compensation expense, pre-clinical studies, clinical trials and related manufacturing, materials and supplies, regulatory affairs activities, medical affairs and fees paid to consultants and other entities that conduct certain research and development activities on our behalf. To date, our research and development expenses have related predominately to the development of ATX- 101. In the years ended December 31, 2014, 2013 and 2012 we incurred $47.8 million, $34.0 million and $43.2 million, respectively, in research and development expenses, excluding the charge for in-process research and development in 2014. Since inception through December 31, 2014, we have incurred approximately $174.6 million in research and development expenses related to the development of ATX-101, excluding cash and stock- based compensation expenses but including the charge for in-process research and development. We do not allocate cash and stock-based compensation expense to individual product candidates, as we are organized and record expense by functional department and our employees may allocate time to more than one development project. We do not utilize a formal time allocation system to capture expenses on a project-by-project basis.

        Conducting significant research and development is central to our business and strategy. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and greater duration of late stage clinical trials as compared to earlier clinical and preclinical development. However, if ATX-101 is approved, elements of manufacturing costs attributed to the future production of ATX-101 will be capitalized as inventory and expensed as cost of goods when sold. We expect our research and development expenses, excluding the charge for in-process research and development, will be similar to 2014 as we complete our Advisory Committee and NDA approval process, continue to develop our medical affairs capability, establish commercial manufacturing and supply chain prior to approval, continue with regulatory submissions outside the United States and Canada, complete Phase IIIb trials started in 2014, and incur costs related to our planned hair loss prevention program based on the intellectual property acquired from Actelion and the University of Pennsylvania in 2015.

General and Administrative Expenses

        Our general and administrative costs primarily consist of personnel costs, including cash compensation and stock-based compensation expense, associated with our executive, accounting and finance, legal, marketing and human resources departments. Other general and administrative expenses include costs in connection with patent filing, prosecution and defense, facility costs and professional fees for legal, consulting, marketing, audit and tax services. For the years ended December 31, 2014, 2013 and 2012, our general and administrative expenses totaled approximately $31.1 million, $16.1 million and $10.5 million, respectively. We expect our general and administrative costs will rise in 2015 as we increase our headcount and expand our support staffing, realize the full year's effect of occupying larger facility space leased in 2014, hire sales leadership, and, if approved, field based sales representatives, establish and complete commercial infrastructure including information technology systems and personnel support for the commercial organization, and other activities to support our company growth as we prepare for a potential commercial launch of ATX-101, both in the United States and internationally.

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Interest Expense

        Interest expense relates to the interest on the outstanding balances of the notes payable. Interest expense increased significantly as compared to 2013 due to the additional interest expense on the note payable to Bayer issued in March 2014. Interest expense in 2015 should be similar to 2014.

Former Collaboration Arrangement with Bayer

        In August 2010, we entered into a license agreement with Bayer Consumer Care AG and a related collaboration agreement with Bayer's affiliate, Intendis GmbH. We refer to these agreements jointly as our collaboration arrangement with Bayer, and we refer to Bayer Consumer Care AG and Intendis GmbH jointly as Bayer. Pursuant to our collaboration arrangement, we licensed to Bayer all of the development and commercial rights to ATX-101 outside the United States and Canada. In connection with establishing the collaboration arrangement, we received upfront payments of $43.6 million in 2010 comprised of license fees and amounts to fund certain further global development activities of ATX-101. In May 2012, we received a $15.8 million payment from Bayer triggered by Bayer's decision to pursue continued development and regulatory approval for ATX-101 after receipt of positive results from the European Phase III clinical trials for ATX-101. In addition, in May 2012, we also received $17.4 million from Bayer to fund certain further Bayer global development activities of ATX-101 under the terms of the collaboration arrangement.

        In March 2014, we acquired the rights to develop and commercialize ATX-101 outside of the United States and Canada from Bayer. As a result of this agreement, Bayer was issued 698,103 shares of our common stock with a fair value of $31.4 million and we issued a note payable for $51.0 million, but accounted for it at its fair market value of $21.6 million. The promissory note, which is subordinated to amounts owed under our existing credit facility, bears interest at 5% per annum and is payable no later than 2024. Additionally, Bayer is eligible to receive up to $123.8 million upon the achievement of certain long-term sales milestone payments on annual sales of ATX-101 outside of the United States and Canada. We accounted for this transaction as an asset acquisition. Since the acquired rights represent acquired in-process research and development with no alternative future uses, we recorded a one-time charge to in-process research and development of $52.8 million as a result of expensing the resulting value assigned to such rights.

License Fees

        License fees received in 2010 of approximately $21.3 million were deferred and recognized on a straight-line basis over the expected period of substantial involvement in the collaboration activities that were required to be conducted relative to the upfront license fee and development funds received from Bayer and completion of which was a condition to Bayer's decision to pursue continued development and regulatory approval for ATX-101. These activities were completed as of May 31, 2012, and pursuant to the acquisition of rights from Bayer to ATX-101 outside the U.S. and Canada we will not receive future license fees from Bayer.

Collaboration Development Funds

        Additionally, we received approximately $39.6 million to fund certain further global development activities of ATX-101, which were recorded as restricted cash and deferred development funds and were an offset to research and development expenses as the restricted cash was utilized to fund development activities. Amounts recognized as offsets to research and development expenses were $3.6 million, $11.7 million, and $10.1 million for the years ended December 31, 2014, 2013 and 2012, respectively.

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Los Angeles Biomedical Research Institute

        We entered into a license agreement with the Los Angeles Biomedical Research Institute, or LA Biomed, in August 2005, which granted us exclusive worldwide rights to key intellectual property for the active ingredient in ATX-101. As part of this license agreement, we incur sublicense fees equal to 10% of any non-royalty sublicense income, up to a total of an aggregate of $5.0 million. We are obligated to pay LA Biomed low- to mid-single digit royalties on net product sales of ATX-101. Additionally, we will incur a milestone payment of $0.5 million upon initial receipt of marketing approval.

        In August 2010, due to the receipt of the license fee income from Bayer, we incurred non-royalty sublicense fees of $2.0 million, which was deferred and recorded as sublicense expense on a straight-line basis over the same period as the license income was recorded. During 2010, we made payments to LA Biomed in cash and stock totaling $0.4 million related to the non-royalty sublicense fee incurred and the remaining $1.6 million was paid upon our IPO in 50% cash and 50% stock. Due to the receipt of the $15.8 million contingent event-based payment from Bayer in May 2012, we incurred an additional non-royalty sublicense fee of $1.6 million due to LA Biomed which was paid in 50% cash and 50% stock.

Critical Accounting Policies and Significant Judgments and Estimates

        The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements as well as the reported revenues and expenses during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ materially from these estimates.

        While our significant accounting policies are described in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Revenue Recognition

        To date, we have only recognized revenue derived from license fees pursuant to our license agreement with Bayer executed in August 2010. In the future, we may receive revenue from the sale of our products, if approved. We recognize revenue when all of the following four criteria are present: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured. For arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets, the elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has "standalone value" to the collaborator and whether there is objective and reliable evidence of the fair value of the undelivered obligation(s). The estimated selling price of each deliverable is determined using the following hierarchy of values: (i) vendor-specific objective evidence of fair value, (ii) third-party evidence of selling price (TPE) and (iii) best estimate of selling price (BESP). The BESP reflects our best estimate of what the selling price would be if the deliverable was regularly sold by us on a standalone basis. In most cases we expect to use TPE or BESP for allocating consideration to each deliverable. The consideration received is allocated among the separate units either on the basis of each unit's fair value or using the residual method and the applicable revenue recognition criteria is applied to each of the separate units. Analyzing the arrangement to identify deliverables

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requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation.

        The non-refundable upfront license payment we received upon execution of our license agreement with Bayer had continuing performance obligations under the terms of our collaboration arrangement with Bayer, including development and clinical manufacturing supply obligations. Due to these ongoing performance obligations, we determined that the license did not have standalone value. We also did not have objective and reliable evidence of the fair value of these undelivered obligations. Accordingly, amounts received upfront under the license agreement were recorded as deferred revenue and revenue was recognized on a straight-line basis over the expected period of substantial involvement in the collaboration activities. The period over which these activities were to be performed was based upon management's estimate of the period to complete the development activities required to be conducted relative to the upfront license fee and development funds received from Bayer, and all revenue was recognized as of May 31, 2012.

        We recognize revenue from milestone payments when earned; provided that (i) the milestone event is substantive in that it can only be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance and its achievability was not reasonably assured at the inception of the agreement, (ii) we do not have ongoing performance obligations related to the achievement of the milestone and (iii) it would result in the receipt of additional payments. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment is non-refundable; achievement of the milestone was not reasonably assured at the inception of the arrangement; substantive effort is involved to achieve the milestone; and the amount of the milestone payments appears reasonable in relation to the effort expended, the other milestones in the arrangement and the related risk associated with the achievement of the milestone. Any amounts received under the agreements in advance of performance, if deemed substantive, are recorded as deferred revenue and recognized as revenue as we complete our performance obligations.

        See related discussion below in Recent Accounting Pronouncements regarding newly issued accounting standard on revenue recognition.

Clinical Trial Accruals

        As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses. Our clinical trial accrual process seeks to account for expenses resulting from our obligations under contract with vendors, consultants and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. Our objective is to reflect the appropriate trial expense in our consolidated financial statements by matching the appropriate expenses with the period in which services and efforts are expended. We account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. We determine accrual estimates through financial models that take into account discussion with applicable personnel and outside services providers as to the progress or state of completion of trials, or the services completed. During the course of a clinical trial, we adjust our rate of clinical expense recognition if actual results differ from our estimates. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on the facts and circumstances known to us at that time. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low for any particular period. Through December 31, 2014, there have been no material adjustments to our prior period estimates of accrued expenses for clinical trials. Our clinical trial accrual is dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party vendors.

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Stock-Based Compensation

        We account for all stock-based compensation awards issued to employees and directors based on the estimated fair value of the awards on the date of grant, net of forfeitures.

        We estimate the fair value of our stock options issued to employees and directors using the Black-Scholes option pricing model. The Black-Scholes model requires the input of various assumptions, including (a) the expected stock price volatility, (b) the calculation of the expected term of the award, (c) the risk free interest rate and (d) expected dividends. Due to our limited operating history and a lack of company specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies, which are publicly-traded. When selecting these public companies on which we have based our expected stock price volatility, we selected companies with comparable characteristics to us, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of our stock-based awards. The historical volatility data was computed using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of our stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available. We have estimated the expected life of our employee stock options using the "simplified" method, whereby, the expected life equals the arithmetic average of the vesting term and the original contractual term of the option. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period the options were granted. We have never paid, and do not expect to pay dividends in the foreseeable future. These inputs, which are complex and subjective, can significantly impact the estimated grant date fair value for our stock-based awards and the resulting compensation expense recognized.

        We are also required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from our estimates, the difference is recorded as a cumulative adjustment in the period the estimates were revised. For the years ended December 31, 2014, 2013 and 2012 we applied a forfeiture rate, which was determined based on historical forfeitures. No forfeiture rate was applied for any period prior to January 1, 2011 as forfeitures prior to such date had been insignificant.

        Total compensation cost recorded in the consolidated statements of operations and comprehensive loss, includes stock-based compensation expense related to stock options and restricted stock units issued to employees and directors, and the value of stock options issued to non-employees for services is as follows for the years ended December 31, 2014, 2013 and 2012, respectively: $12.4 million, $6.5 million and $1.9 million.

        As of December 31, 2014, there was $28.6 million of unrecognized compensation expense related to unvested employee stock award agreements expected to vest, which is expected to be recognized over a weighted-average period of approximately 2.74 years.

Net Operating Loss Carryforwards

        We recorded net deferred tax assets of approximately $94.7 million as of December 31, 2014, which have been fully offset by a valuation allowance due to uncertainties surrounding our ability to generate future taxable income to realize these assets. The deferred tax assets are primarily composed of federal and state tax net operating losses, or NOL carryforwards, R&D credit carryforwards, stock compensation and start-up expenditures. As of December 31, 2014, we have federal and California NOL carryforwards of approximately $219.8 million and $215.2 million, which will begin to expire in 2025 and 2015, respectively. In general, if we experience a greater than 50 percentage point aggregate change in ownership of certain significant stockholders over a three-year period (a "Section 382

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ownership change"), utilization of our pre-change NOL carryforwards are subject to an annual limitation under Section 382 of the Internal Revenue Code (and similar state laws). Such limitations may result in expiration of a portion of the NOL carryforwards before utilization and may be substantial. We have determined that we have experienced ownership changes in the past. If we experience a Section 382 ownership change as a result of future changes in our stock ownership, some of which changes are outside our control, the tax benefits related to the NOL carryforwards may be further limited or lost.

JOBS Act

        In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other companies.

Results of Operations

Comparison of Years Ended December 31, 2014 and 2013

	Year Ended December 31,						Change
	2014			2013			$			%
	(in thousands, except percentages)
Operating expenses:
In-process research and development	$	52,757		$	—		$	52,757			*	%
Research and development		47,840			33,974			13,866			41
General and administrative		31,055			16,092			14,963			93
Total operating expenses		131,652			50,066			81,586			163
Loss from operations		(131,652	)		(50,066	)		(81,586	)		163
Interest income		260			135			125			93
Interest expense		(4,157	)		(1,980	)		(2,177	)		110
Other income (expense), net		(72	)		—			(72	)		*
Net loss	$	(135,621	)	$	(51,911	)	$	(83,710	)		161	%

*

Percentage not meaningful

        In-process research and development.    In-process research and development of $52.8 million for the year ended December 31, 2014 represents the one-time charge for acquiring the rights to ATX-101 outside of the United States and Canada from Bayer in March 2014.

        Research and development expenses.    Research and development expenses increased $13.9 million, or 41%, for the year ended December 31, 2014. The increase is primarily attributable to higher costs from an increase in headcount and related personnel costs of $6.1 million, including increased stock compensation expense of $2.5 million resulting from an increase in stock option grants as well as increase in share price and the issuance of restricted stock units, an increase in manufacturing costs of $1.7 million due to establishing commercial manufacturing and supply chain capabilities in preparation for commercial launch as we prepare for the potential approval of ATX-101 as well as drug product manufacturing in support of international regulatory filings, an increase in external costs associated with our regulatory filings and preparation for our expected FDA Advisory Committee meeting of

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$4.8 million, and an increase in external costs of $3.0 million for the development and execution of our medical affairs program. The increase was partially offset by a decrease in clinical trial costs of approximately $2.8 million due to the completion of the U.S. and Canadian Phase III pivotal trials offset by the costs of previously announced additional trials initiated during the year.

        General and administrative expenses.    General and administrative expenses increased by $15.0 million, or 93%, for the year ended December 31, 2014. The increase is primarily due to increased personnel costs associated with an increase in headcount in support of the growing organization of approximately $6.1 million, including increased stock compensation expense of $3.5 million resulting from an increase in stock option grants, an increase in share price, and the issuance of restricted stock units, increased external costs of $3.3 million associated with marketing activities in preparation of commercial launch as we prepare for the potential approval of ATX-101, increased external costs of $2.8 million for the expansion of our information technology infrastructure to support our potential commercial launch of ATX-101, and increased corporate development, accounting, legal, director fees and insurance costs of $1.4 million as a result of supporting a growing public company.

        Interest income.    Interest income represents interest earned on marketable securities held during 2014 offset by the amortization of premiums paid on the purchased securities.

        Interest expense.    Interest expense increased by $2.2 million from $2.0 million for the year ended December 31, 2013 to $4.2 million for the year ended December 31, 2014. The increase is primarily due to the interest expense incurred on the note payable to Bayer issued in March 2014. The Bayer note bears interest at a rate of 5%, but was recorded at its fair value assuming a borrowing rate of 15%. Included in interest expense is the amortization of the discount on the note being recognized utilizing the effective interest method.

Comparison of Years Ended December 31, 2013 and 2012

	Year Ended December 31,						Change
	2013			2012			$			%
	(in thousands, except percentages)
License income	$	—		$	19,687		$	(19,687	)		(100	)%
Sublicense expense		—			1,936			(1,936	)		(100	)
Gross margin		—			17,751			(17,751	)		(100	)
Operating expenses:
Research and development		33,974			43,184			(9,210	)		(21	)
General and administrative		16,092			10,505			5,587			53
Total operating expenses		50,066			53,689			(3,623	)		(6	)
Loss from operations		(50,066	)		(35,938	)		(14,128	)		39
Interest income		135			—			135			*
Interest expense		(1,980	)		(441	)		(1,539	)		349
Warrant and other income (expense), net		—			(420	)		420			(100	)
Net loss	$	(51,911	)	$	(36,799	)	$	(15,112	)		41	%

*

Percentage not meaningful

        License income.    License income in the year ended December 31, 2012 represents the amortization of upfront license fees received in 2010 from our license agreement with Bayer, which was entered into in August 2010, and was fully amortized by May 31, 2012.

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        Sublicense expense.    Sublicense expense in the year ended December 31, 2012 represents the amortization of our $2.0 million non-royalty sublicense fee payable to LA Biomed as a result of our receipt of license fee income pursuant to our license agreement with Bayer, and was recognized on a straight-line basis over the same period that the license income was recorded and was fully amortized by May 31, 2012.

        Research and development expenses.    Research and development expenses decreased $9.2 million, or 21%, from $43.2 million for the year ended December 31, 2012 to $34.0 million for the year ended December 31, 2013. The decrease is primarily attributable to a decrease in the U.S. and Canadian Phase III clinical trial costs of approximately $14.6 million as we transitioned from the enrollment and initiation of patient treatment during the first half of 2012 to completion in late 2013 and a related decrease of approximately $2.0 million in manufacturing expense due to the timing of manufacturing clinical supply for the U.S. and Canadian Phase III clinical trials in 2012, partially offset by higher costs from increases in headcount and related personnel costs of $6.0 million, including increased stock compensation expense of $3.0 million, and increased consulting and other costs of approximately $1.9 million, net for NDA filing preparations.

        General and administrative expenses.    General and administrative expenses increased by $5.6 million, or 53%, from $10.5 million for the year ended December 31, 2012 to $16.1 million for the year ended December 31, 2013. The increase is primarily due to increased personnel costs associated with an increase in headcount in support of the growing organization of approximately $2.5 million, including increased stock compensation expense of $1.6 million, increased accounting, legal, director fees and insurance costs of $1.8 million as a result of being a public company and increased marketing costs of $1.6 million in connection with ATX-101 brand development and market research.

        Interest income.    Interest income for the year ended December 31, 2013 represents interest earned on marketable securities purchased during 2013 offset by the amortization of premiums paid on the purchased securities.

        Interest expense.    Interest expense increased by $1.5 million from $0.4 million for the year ended December 31, 2012 to $2.0 million for the year ended December 31, 2013. The increase is primarily due to the interest expense incurred on the amount of outstanding balances of the notes payable related to the credit facility.

        Warrant and other income (expense), net.    Warrant and other income (expense), net, of $0.4 million for the year ended December 31, 2012 relates to the fair value of the warrants due to revaluation. All warrants were exercised on a cashless basis in December 2012 and no warrants were outstanding as of December 31, 2013.

Liquidity and Capital Resources

        Since our inception, we have incurred net losses and negative cash flows from our operations. We incurred net losses of $135.6 million, $51.9 million and $36.8 million for years ended December 31, 2014, 2013 and 2012, respectively. At December 31, 2014, we had an accumulated deficit of $307.8 million.

        As of December 31, 2014, we had working capital of $80.5 million. Historically, we have principally financed our operations through our public offerings, private placements of redeemable convertible preferred stock and convertible debt, and amounts received pursuant to our collaboration arrangement with Bayer for the development of our product candidate, ATX-101. We received net proceeds of $72.5 million from our initial public offering in 2012. In the fourth quarter 2013, we completed a public offering of shares of common stock at an offering price of $45.75 per share and we received aggregate net proceeds of approximately $125.0 million, after deducting the underwriting discount and offering related transaction costs.

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        Additionally, we have drawn $15.0 million under our credit facility and have no further borrowing capacity under our existing credit facility. In connection with our acquisition of the rights to develop and commercialize ATX-101 outside of the United States and Canada from Bayer in March 2014, we issued a $51.0 million unsecured promissory note, recorded at its fair market value of $21.6 million. The promissory note, which is subordinated to amounts owed under our existing credit facility, bears interest at 5% and is payable no later than 2024. The discount on the note payable was calculated assuming a borrowing rate of 15%. Bayer is also eligible to receive certain long-term sales milestone payments on annual sales outside of the United States and Canada. We have the right to repay the outstanding obligation including accrued interest before its due date in 2024. The terms provide for the option to defer up to 80% of the accrued interest, adding any unpaid interest to the principal amount annually.

        At December 31, 2014, we had capital resources consisting of cash and cash equivalents and marketable securities of $99.7 million. Our funds are currently invested in money market funds, U.S. government agency securities, corporate debt securities and demand deposit accounts.

Summary Statement of Cash Flows

        The following table shows a summary of our cash flows for each of the three years ended December 31, 2014, 2013 and 2012.

	Year Ended December 31,
	2014			2013			2012
	(in thousands)
Net cash (used in) provided by
Operating activities	$	(59,529	)	$	(44,869	)	$	(32,688	)
Investing activities		(18,296	)		(56,502	)		(190	)
Financing activities		(4,467	)		133,578			77,612
Net (decrease) increase in cash and cash equivalents	$	(82,292	)	$	32,207		$	44,734

        Net cash used in operating activities.    Net cash used in operating activities was $59.5 million for the year ended December 31, 2014 and consisted primarily of net loss of $135.6 million offset by non-cash in-progress research and development costs of $53.0 million and stock based compensation of $12.4 million. The significant items in the change in operating assets and liabilities include a decrease in restricted cash of $5.1 million and an increase in accounts payable and other accrued liabilities of $4.6 million, offset by a decrease in deferred development funds of $2.1 million. The increase in accounts payable and other accrued liabilities is primarily due to an increase in accrued interest of $2.5 million related to the interest accruing on the Bayer note issued in March 2014 as well as an increase in accrued personnel costs of $1.6 million related to the increase in headcount and related personnel costs. The decrease in the deferred development funds and restricted cash is due to the termination of our obligations under our collaboration agreement with Bayer.

        Net cash used in operating activities was $44.9 million for the year ended December 31, 2013 and consisted primarily of a net loss of $51.9 million offset by stock based compensation of $6.5 million. The significant items in the change in operating assets and liabilities include a decrease in deferred development funds of $12.0 million offset by a decrease in restricted cash of $10.9 million. The decrease in the deferred development funds and restricted cash is due to the continuing performance of obligations under our collaboration agreement with Bayer.

        Net cash used in operating activities was $32.7 million for the year ended December 31, 2012 and consisted primarily of a net loss of $36.8 million offset by stock based compensation and payment for services in stock of $3.4 million. The significant items in the change in operating assets and liabilities

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include an increase in restricted cash of $8.6 million, a decrease in deferred revenue of $3.8 million and a decrease in payable to a licensor of $1.6 million, offset by an increase in deferred development funds of $9.2 million and an increase in accounts payable and other accrued liabilities of $3.2 million. The decrease in deferred revenue is due to the recognition of the remaining unamortized portion of the upfront license payment received as part of our license agreement with Bayer. The increase in the deferred development funds and restricted cash is due to the receipt of $17.4 million under the collaboration agreement with Bayer, offset by funds utilized for the continuing performance of obligations under the collaboration agreement with Bayer.

        Net cash used in investing activities.    Net cash used in investing activities for the year ended December 31, 2014 was $18.3 million and consisted primarily of purchases of marketable securities of $63.5 million offset by proceeds from the sales of marketable securities of $47.3 million. Net cash used in investing activities for the year ended December 31, 2013 was $56.5 million and was comprised mainly of purchases of marketable securities. Net cash used in investing activities for the year ended December 31, 2012 was $0.2 million and consisted of purchases of fixed assets.

        Net cash (used in) provided by financing activities.    Net cash used in financing activities was $4.5 million for the year ended December 31, 2014, which was primarily due to repayment of notes payables related to the credit facility. Net cash provided by financing activities was $133.6 million for the year ended December 31, 2013, which was primarily due to proceeds from the public offering of $125.0 million and borrowing of $10.0 million from our credit facility, offset by repayments on the notes of $2.8 million. Net cash provided by financing activities was $77.6 million for the year ended December 31, 2012, which was primarily due to proceeds from our initial public offering and borrowings of $5.0 million from our credit facility.

Operating and Capital Expenditure Requirements

        We believe that our existing capital resources will be sufficient to fund our operations for at least the next 12 months. We believe that we will continue to expend substantial resources for the foreseeable future on the preparations for potential commercial launch of ATX-101, completion of clinical and regulatory development of ATX-101, preparing and filing foreign regulatory applications, and development of any other product candidates we may choose to pursue. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and supply as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise.

        We expect to seek additional financing in the future to fund our operations, to expand our commercial organization in anticipation of potential commercial launch of ATX-101, or develop additional product candidates, by selling additional equity or issuing debt or convertible debt securities that may result in dilution to our stockholders. If we raise additional funds through the issuance of convertible debt securities, these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations, and financial condition.

        Our future capital requirements depend on many factors, including:

•

the timing of, and the costs involved in, obtaining regulatory approvals for ATX-101 in the U.S., and other international territories, including the cost of any studies or additional activities that the FDA or other regulatory agencies may require us to complete;

•

the timing and scope of the investment we make in building our commercial infrastructure and sales force in anticipation of the potential commercial launch of ATX-101 in the U.S.;

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•

any unexpected results from further analysis of clinical data from our completed clinical trials;

•

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

•

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

•

the scope, progress, results and costs of researching and developing ATX-101 or any future product candidates, including pursuant to our license agreements with Actelion and the University of Pennsylvania, and conducting preclinical and clinical trials;

•

the cost of commercialization activities if ATX-101 or any future product candidates are approved for sale, including marketing, sales and distribution cost and preparedness of our corporate infrastructure;

•

the cost of manufacturing ATX-101 or any future product candidates and any products we successfully commercialize;

•

the timing of the payment of our debt obligations, including whether or not we determine to prepay the $51.0 million note held by Bayer;

•

our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

•

any product liability or other lawsuits related to our products or commenced against us;

•

the expenses needed to attract and retain skilled personnel;

•

the costs associated with being a public company;

•

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent or other claims, including litigation costs and the outcome of such litigation; and

•

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

Please see "Risk Factors" for additional risks associated with our substantial capital requirements.

Contractual Obligations and Commitments

        The following is a summary of our long-term contractual cash obligations as of December 31, 2014.

	Payments Due by Period
Contractual Obligations	Total		Less than One Year		1 - 3 Years		3 - 5 Years		More than 5 Years
	(in thousands)
Operating lease obligations(1)	$	2,650	$	962	$	1,688	$	—	$	—
Note payable to Bayer(2)(3)		81,616		510		1,082		1,791		78,233
Notes payable related to credit facility(2)		7,534		6,381		1,153		—		—
Total contractual obligations	$	91,800	$	7,853	$	3,923	$	1,791	$	78,233

(1)

We lease our facilities under operating leases

(2)

Notes payable payments include both principal and interest

(3)

Payments on the note payable to Bayer assume that we will pay 20% of the accrued interest, with the remainder increasing the principal balance on an annual basis. For additional discussion, refer to Note 5, "Notes Payable".

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Purchase Commitments

        We have no material non-cancelable purchase commitments with contract manufacturers or service providers as we have generally contracted on a cancelable purchase order basis.

Other Milestone-Based Commitments

        We have obligations to make future payments to third parties that become due and payable on the achievement of certain development, regulatory and commercial milestones. Because the achievement and timing of these milestones are not fixed and determinable, such commitments have not been included on our balance sheet or in the Contractual Obligations and Commitments table above. The total aggregate amount of such commitments is approximately $1.9 million. Due to the acquisition of rights to ATX-101, Bayer is eligible to receive up to $123.8 million upon the achievement of certain long-term sales milestone payments on annual sales of ATX-101 outside of the United States and Canada. Additionally, Actelion is eligible to receive up to $25.5 million and University of Pennsylvania is eligible to receive up to $4.1 million in milestone payments if setipiprant is successfully commercialized for the treatment of hair loss.

Notes Payable

Note Payable to Bayer

        In March 2014, as part of the agreement to acquire the rights to develop and commercialize ATX-101 outside of the United States and Canada, we entered into a $51.0 million unsecured promissory note with Bayer. The promissory note is subordinated to amounts owed under our existing credit facility. Interest is accrued at 5% per annum and is payable on the anniversary date of the note. We have the option of deferring up to 80% of the accrued interest, adding any unpaid interest to the principal amount. The note is due on the ten year anniversary from issuance, with the option to prepay at any point in time without penalty. As the note payable to Bayer includes a favorable interest rate, which was below the borrowing rate available to us at issuance, it was recorded at its fair value of $21.6 million, which is the present value of the future cash flows assuming a borrowing rate of 15%, which approximates the market rate for debt with similar terms and consideration of default and credit risk. The discount on the note is being amortized to interest expense utilizing the effective interest method.

Notes Payable Related to Credit Facility

        On March 21, 2011, we entered into a credit facility with Lighthouse Capital Partners VI, L.P., or Lighthouse, which we refer to as our credit facility, providing access to borrow up to $15.0 million of senior loan financing through January 1, 2012. In December 2011, July 2012 and November 2012, we amended the credit facility to provide for an extension of our drawdown period. As of December 31, 2014 and 2013, we had drawn $15.0 million and no longer have any further borrowing capacity under the credit facility. The credit facility includes various covenants, and we were in compliance with all covenants at December 31, 2014 and 2013.

        For each drawdown, we will make six months of interest only payments at a fixed rate of 11.5% followed by 30 months of interest and principal payments at a fixed rate of 8.5%, and a final payment of 6% of the amount drawn. The debt is secured by all of our assets, except for intellectual property, which is subject to a negative pledge agreement. In accordance with the terms of the credit facility, we issued to Lighthouse warrants to purchase 33,700 shares of our Series C redeemable convertible preferred stock at a price per share of $13.3530 and 86,306 shares of our Series D redeemable convertible preferred stock at a price per share of $13.9040. The estimated fair value of the warrants at issuance of approximately $1.4 million was recorded as a deferred financing cost offsetting the notes payable liability and is being amortized to interest expense over the term of the loan.

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        All of the warrants issued to Lighthouse converted to warrants to purchase 120,006 shares of common stock in connection with our initial public offering and were subsequently net exercised on a cashless basis for 49,435 shares of common stock in December 2012.

Indemnification

        In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future, but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.

        In accordance with our certificate of incorporation and bylaws, we have indemnification obligations to our officers and directors for specified events or occurrences, subject to some limits, while they are serving at our request in such capacities. There have been no claims to date, and we have director and officer insurance that may enable us to recover a portion of any amounts paid for future potential claims.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements (as defined by applicable SEC regulations) that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses results of operations, liquidity, capital expenditures or capital resources, except stock options.

Recent Accounting Pronouncements

        In May 2014, a new standard was issued related to revenue recognition, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new standard will replace most of the existing revenue recognition standards in U.S. GAAP when it becomes effective on January 1, 2017. Early adoption is not permitted. The new standard allows for either "full retrospective" adoption, whereby the new standard is applied to each prior reporting period presented or "modified retrospective" adoption, whereby the new standard is only applied to the most current period presented with the cumulative effect of the change recognized at the date of the initial application. We are assessing the potential impact of the new standard on our consolidated statements of financial position and results of operations and comprehensive income (loss) and have not yet selected a method of adoption.

        In August 2014, a new standard was issued which will require management to evaluate if there is substantial doubt about the entity's ability to continue as a going concern and, if so, disclose it in both annual and interim reporting periods. The new standard will become effective for the Company's annual filing for the period ending December 31, 2016 and interim periods thereafter, with early adoption permitted. We do not believe the adoption of this accounting standard will have a material impact on our consolidated financial statements and related disclosures.

ITEM 7A.    Quantitative and Qualitative Disclosures About Market Risk.

        We are exposed to market risks in the ordinary course of our business. These market risks are principally limited to interest rate fluctuations and foreign currency exchange rates fluctuations. Due to the fixed interest rate of our credit facility, we do not currently have any exposure to changes in our interest expense as a result of changes in interest rates.

92

Cash and Cash Equivalents. Marketable Securities and Restricted Cash

        As of December 31, 2014, we had cash and cash equivalents and marketable securities of $99.7 million. The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes. At December 31, 2014, our cash and cash equivalents and marketable securities were comprised of funds in cash, money market accounts, U.S. government agency securities and highly rated, highly liquid corporate debt securities. Due to the short-term nature of our investment portfolio, we do not believe an immediate 10% increase or decrease in interest rates would have a material effect on the fair market value of our portfolio. Additionally, we do not expect our operating results or cash flows to be materially affected to any degree by a sudden change in market interest rates.

Notes Payable

        Our notes payable related to the credit facility are at an effective interest rate which approximates the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk. Our note payable to Bayer is at a rate that is less than market, but the note was recorded at fair value based on an interest rate which approximates the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk. As the interest rates on our notes payable are fixed for specified periods, changes in interest rates do not affect our operating results or cash flows.

Foreign Currency Exchange Rate Fluctuations

        With the recent acquisition of rights to ATX-101 outside of the United States and Canada from Bayer, in the future, we may be subject to fluctuations in foreign currency exchange rate risk. We are not currently exposed to any material foreign currency exchange rate risk and, as a result, we do not currently hedge any foreign currency exposure.

ITEM 8.    Consolidated Financial Statements and Supplementary Data.

        Our consolidated financial statements, together with the independent registered public accounting firm report thereon, are incorporated by reference from the applicable information set forth in Part IV Item 15, "Exhibits, Financial Statement Schedules" of this Annual Report on Form 10-K.

ITEM 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

        None.

ITEM 9A.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

        Our management, with the participation of our chief executive and financial officers, evaluated the effectiveness of our disclosures controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2014. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal

93

executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2014, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

Management's Annual Report on Internal Control Over Financial Reporting

        Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our CEO and CFO, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•

Pertain to the maintenance of records that accurately and fairly reflect in reasonable detail the transactions and dispositions of the assets of our company;

•

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•

Provide reasonable assurances regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material adverse effect on our consolidated financial statements.

        Our management assessed our internal control over financial reporting as of December 31, 2014, the end of our fiscal year. Management based its assessment on criteria established in "Internal Control—Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management's assessment of our internal control over financial reporting, management concluded that, as of December 31, 2014, our internal control over financial reporting was effective.

        Internal control over financial reporting has inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Attestation Report on Internal Control over Financial Reporting

        This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to the deferral allowed under the JOBS Act for emerging growth companies.

Changes in Internal Control over Financial Reporting

        There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2014 identified in connection with the evaluation required by Rule 13a-15(d) and

94

15d-15(d) of the Exchange Act that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.    Other Information.

        None.

PART III

ITEM 10.    Directors, Executive Officers and Corporate Governance.

        The information required by this item is incorporated by reference from the applicable information set forth in "Executive Officers," "Election of Directors," "Information about the Board of Directors and its Committees," and "Security Ownership of Directors and Executive Officers—Section 16(a) Beneficial Ownership Reporting Requirements" which will be included in our definitive Proxy Statement for our 2015 Annual Meeting of Stockholders to be filed with the SEC.

ITEM 11.    Executive Compensation.

        The information required by this item is incorporated by reference from the applicable information set forth in "Executive Officers," "Compensation of Executive Officers" and "Compensation of Directors" which will be included in our definitive Proxy Statement for our 2015 Annual Meeting of Stockholders to be filed with the SEC.

ITEM 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

        The information required by this item is incorporated by reference from the applicable information set forth in "Executive Officers," "Security Ownership of Principal Stockholders and Management" and "Equity Compensation Plan Information" which will be included in our definitive Proxy Statement for our 2015 Annual Meeting of Stockholders to be filed with the SEC.

ITEM 13.    Certain Relationships and Related Transactions, and Director Independence.

        The information required by this item is incorporated by reference from the applicable information set forth in "Other Information—Related Person Transactions" and "Information about the Board of Directors and its Committees" which will be included in our definitive Proxy Statement for our 2015 Annual Meeting of Stockholders to be filed with the SEC.

ITEM 14.    Principal Accounting Fees and Services.

        The information required by this item is incorporated by reference from the applicable information set forth in "Ratification of Selection of Independent Registered Accounting Firm" which will be included in our definitive Proxy Statement for our 2015 Annual Meeting of Stockholders to be filed with the SEC.

95

PART IV

ITEM 15.    Exhibits, Consolidated Financial Statement Schedules.

        (a)   Documents filed as part of this report

1.

Financial Statements

        The following consolidated financial statements are included herein:

	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets at December 31, 2014 and 2013		F-3
Consolidated Statements of Operations and Comprehensive Loss for each of the three years in the period ended December 31, 2014		F-4
Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years in the period ended December 31, 2014		F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2014		F-6
Notes to Consolidated Financial Statements		F-7

2.

Consolidated Financial Statement Schedules

        None, as all required disclosures have been made in the Consolidated Financial Statements and notes thereto or are not applicable.

        (b)   Exhibits: The exhibits listed on the accompanying Exhibit Index are filed as part of, or hereby incorporated by reference into, this Annual Report on Form 10-K.

96

SIGNATURES

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

	KYTHERA Biopharmaceuticals, Inc.
March 2, 2015	By:	/s/ JOHN W. SMITHER John W. Smither Chief Financial Officer (Principal Financial and Accounting Officer)

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Keith R. Leonard, Jr. and John W. Smither his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

        IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated opposite his/her name.

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

Signature	Title	Date
/s/ KEITH R. LEONARD, JR. Keith R. Leonard, Jr.	Director, President and Chief Executive Officer (Principal Executive Officer)	March 2, 2015
/s/ JOHN W. SMITHER John W. Smither	Chief Financial Officer (Principal Financial and Accounting Officer)	March 2, 2015
/s/ F. MICHAEL BALL F. Michael Ball	Director	March 2, 2015
/s/ NATHANIEL DAVID Nathaniel David, Ph.D.	Director	March 2, 2015

97

Signature	Title	Date
/s/ DENNIS FENTON Dennis Fenton, Ph.D.	Director	March 2, 2015
/s/ FRANÇOIS KRESS François Kress	Director	March 2, 2015
/s/ CAMILLE SAMUELS Camille Samuels	Director	March 2, 2015
/s/ HOLLINGS C. RENTON Hollings C. Renton	Director	March 2, 2015
/s/ JOSEPH L. TURNER Joseph L. Turner	Director	March 2, 2015

98

EXHIBIT INDEX

				Incorporated by Reference
Exhibit Number										Filed Herewith
			Exhibit Description	Form		Date		Number
	3.1		Seventh Amended and Restated Certificate of Incorporation of KYTHERA Biopharmaceuticals, Inc.		8-K		10/16/2012		3.1
	3.2		Amended and Restated Bylaws of KYTHERA Biopharmaceuticals, Inc.		8-K		10/16/2012		3.2
	4.1		Reference is made to exhibits 3.1 and 3.2.
	4.2		Specimen Common Stock Certificate.		S-1/A		08/31/2012		4.2
	4.3		Form of Indenture		S-3		09/02/2014		4.3
	10.1(a	)	Third Amended and Restated Investor Rights Agreement, dated August 30, 2011, between KYTHERA Biopharmaceuticals, Inc. and certain of its stockholders.		S-1/A		05/17/2012		10.1(a)
	10.1(b	)	Amendment, dated January 27, 2012, to Third Amended and Restated Investor Rights Agreement, dated August 30, 2011, between KYTHERA Biopharmaceuticals, Inc. and certain of its stockholders.		S-1/A		05/17/2012		10.1(b)
	10.2	#	Form of Indemnity Agreement for directors and officers.		S-1/A		05/17/2012		10.2
	10.3(a	)	Loan and Security Agreement No. 1991, dated as of March 21, 2011, by and between Lighthouse Capital Partners VI, L.P. and KYTHERA Biopharmaceuticals, Inc.		S-1/A		05/17/2012		10.3(a)
	10.3(b	)	Amendment No. 1, dated December 30, 2011, to that certain Loan and Security Agreement No. 1991, dated as of March 21, 2011, by and between Lighthouse Capital Partners VI, L.P. and KYTHERA Biopharmaceuticals, Inc.		S-1/A		05/17/2012		10.3(b)
	10.3(c	)	Amendment No. 2, dated July 23, 2012, to that certain Loan and Security Agreement No. 1991, dated as of March 21, 2011, by and between Lighthouse Capital Partners VI, L.P. and KYTHERA Biopharmaceuticals, Inc.		S-1/A		08/31/2012		10.3(c)
	10.3(d	)	Amendment No. 3, dated November 30, 2012, to that certain Loan and Security Agreement No. 1991, dated as of March 21, 2011, as amended, by and between Lighthouse Capital Partners VI, L.P. and KYTHERA Biopharmaceuticals, Inc.		8-K		12/05/2012		10.1
	10.4		Office Lease, dated March 12, 2014, by and between Russell Ranch Road, LLC and KYTHERA Biopharmaceuticals, Inc.		10-K		03/17/2014		10.20
	10.5(a)	†	License Agreement, dated August 26, 2010, by and between Bayer Consumer Care AG and KYTHERA Biopharmaceuticals, Inc.		S-1/A		05/17/2012		10.5(a)
	10.5(b)	†	First Amendment, dated March 21, 2011, to that certain License Agreement, dated August 26, 2010, by and between Bayer Consumer Care AG and KYTHERA Biopharmaceuticals, Inc.		S-1/A		05/17/2012		10.5(b)

99

				Incorporated by Reference
Exhibit Number										Filed Herewith
			Exhibit Description	Form		Date		Number
	10.5(c)	†	Second Amendment, dated April 2, 2012, to that certain License Agreement, dated August 26, 2010, by and between Bayer Consumer Care AG and KYTHERA Biopharmaceuticals, Inc.		S-1/A		05/17/2012		10.5(c)
	10.6(a)	†	Services, Research, Development and Collaboration Agreement, dated August 26, 2010, by and between Intendis GmbH and KYTHERA Biopharmaceuticals, Inc.		S-1/A		05/17/2012		10.6(a)
	10.6(b)	†	First Amendment, dated November 17, 2010, to that certain Services, Research, Development and Collaboration Agreement, dated August 26, 2010, by and between Intendis GmbH and KYTHERA Biopharmaceuticals,  Inc.		S-1/A		05/17/2012		10.6(b)
	10.6(c)	†	Second Amendment, dated April 2, 2012, to that certain Services, Research, Development and Collaboration Agreement, dated August 26, 2010, by and between Intendis GmbH and KYTHERA Biopharmaceuticals,  Inc.		S-1/A		05/17/2012		10.6(c)
	10.7(a)	†	License Agreement, dated August 29, 2005, by and between KYTHERA Biopharmaceuticals and Los Angeles Biomedical Research Institute at Harbor/UCLA Medical Center.		S-1/A		05/17/2012		10.7(a)
	10.7(b	)	Amendment, dated January 5, 2010, to that certain License Agreement, dated August 29, 2005, by and between KYTHERA Biopharmaceuticals and Los Angeles Biomedical Research Institute at Harbor/UCLA Medical Center.		S-1/A		05/17/2012		10.7(b)
	10.7(c	)	Amendment, dated August 18, 2010, to that certain License Agreement, dated August 29, 2005, by and between KYTHERA Biopharmaceuticals and Los Angeles Biomedical Research Institute at Harbor/UCLA Medical Center.		S-1/A		05/17/2012		10.7(c)
	10.8(a)	†	Manufacturing and Supply Agreement, dated July 7, 2009, by and between Pfizer, Inc. and KYTHERA Biopharmaceuticals, Inc.		S-1/A		06/11/2012		10.8(a)
	10.8(b)	†	First Amendment, dated May 21, 2012, to Manufacturing and Supply Agreement, dated July 7, 2009 by and between Pfizer, Inc. and KYTHERA Biopharmaceuticals, Inc.		S-1/A		06/11/2012		10.8(b)
	10.8(c	)	Second Amendment, dated October 17, 2014, to Manufacturing and Supply Agreement, dated July 7, 2009, as amended, by and between Pfizer, Inc. and KYTHERA Biopharmaceuticals, Inc.								X
	10.9	†	Development and Supply Agreement, dated November 29, 2010, by and between Hospira Worldwide, Inc. and KYTHERA Biopharmaceuticals, Inc.		S-1/A		05/17/2012		10.9
	10.10(a)	#	KYTHERA Biopharmaceuticals, Inc. 2004 Stock Plan, as amended.		S-1/A		05/17/2012		10.10(a)
	10.10(b)	#	Form of Stock Option Grant Notice and Stock Option Agreement under the 2004 Stock Plan, as amended.		S-1/A		05/17/2012		10.10(b)

100

				Incorporated by Reference
Exhibit Number										Filed Herewith
			Exhibit Description	Form		Date		Number
	10.11(a)	#	KYTHERA Biopharmaceuticals, Inc. 2012 Equity Incentive Award Plan.		10-Q		11/13/2012		10.3(a)
	10.11(b)	#	Form of Stock Option Grant Notice and Stock Option Agreement under the 2012 Equity Incentive Award Plan.		S-1/A		05/17/2012		10.11(b)
	10.11(c)	#	Form of Restricted Stock Award Agreement and Restricted Stock Unit Award Grant Notice under the 2012 Equity Incentive Award Plan.		S-1/A		05/17/2012		10.11(c)
	10.12	#	Amended and Restated Employment Agreement, dated April 2, 2012, by and between Keith R. Leonard, Jr. and KYTHERA Biopharmaceuticals, Inc.		S-1/A		05/17/2012		10.12
	10.13	#	Amended and Restated Employment Agreement, dated April 2, 2012, by and between John W. Smither and KYTHERA Biopharmaceuticals, Inc.		S-1/A		05/17/2012		10.13
	10.14	#	Amended and Restated Employment Agreement, dated April 2, 2012, by and between Patricia S. Walker, M.D., Ph.D., and KYTHERA Biopharmaceuticals, Inc.		S-1/A		05/17/2012		10.14
	10.14(b)	#	Separation Agreement and Release, dated March 27, 2013, by and between Patricia S. Walker, M.D., Ph.D., and KYTHERA Biopharmaceuticals, Inc.		8-K		04/02/2013		10.1
	10.14(c)	#	Senior Advisor to the Board Agreement, effective March 28, 2013, by and between Patricia S. Walker, M.D., Ph.D., and KYTHERA Biopharmaceuticals, Inc.		8-K		04/02/2013		10.2
	10.15	#	Amended and Restated Employment Agreement, dated April 2, 2012, by and between Keith L. Klein, J.D. and KYTHERA Biopharmaceuticals, Inc.		S-1/A		05/17/2012		10.15
	10.16	#	Amended and Restated Employment Agreement, dated April 2, 2012, by and between Jeffrey D. Webster and KYTHERA Biopharmaceuticals, Inc.		S-1/A		05/17/2012		10.16
	10.17(a)	#	Non-employee Director Compensation Program.		S-1/A		05/17/2012		10.17
	10.7(b)	#	Amendment to Non-Employee Director Compensation Program		8-K		09/19/2013		*
	10.18	#	Employment agreement, dated March 23, 2013, by and between Frederick Beddingfield, III, M.D., Ph.D., and KYTHERA Biopharmaceuticals, Inc.		10-K		03/26/2013		10.18
	10.19	†	Commercial Development and Supply Agreement by and between KYTHERA Biopharmaceuticals, Inc., and Cambridge Major Laboratories, Inc.		10-Q		05/13/2013		10.4
	10.20	†	License Agreement, dated February 11, 2015, by and between KYTHERA Holdings, Ltd., and Actelion Pharmaceuticals, Ltd.								X
	10.21	†	License Agreement, dated February 11, 2015 by and between KYTHERA Holdings, Ltd., and University of Pennsylvania								X
	10.22	†	Distribution Services Agreement, dated January 16, 2015 by and between KYTHERA Biopharmaceuticals, Inc., and Besse Medical.								X

101

				Incorporated by Reference
Exhibit Number										Filed Herewith
			Exhibit Description	Form		Date		Number
	10.23		Securities Purchase Agreement, dated March 7, 2014, by and among KYTHERA Biopharmaceuticals, Inc., KYTHERA Holdings Ltd. and Bayer Consumer Care AG.		8-K		03/10/2014		10.1
	10.24		Restructuring Agreement, dated March 7, 2014 by and between Bayer Consumer Care AG and KYTHERA Biopharmaceuticals, Inc.		10-Q		05/08/2014		10.2
	10.25		Assignment and Novation Agreement, dated March 7, 2014, by and between Bayer Consumer Care AG and KYTHERA Holdings Ltd.		10-Q		05/08/2014		10.3
	10.26		Note Agreement, dated March 7, 2014, by and between KYTHERA Biopharmaceuticals, Inc. and KYTHERA Holdings Ltd.		8-K		03/10/14		4.1
	10.27(a	)	Registration Rights Agreement, dated March 7, 2014, by and between KYTHERA Biopharmaceuticals, Inc. and Bayer Consumer Care AG.		8-K		03/10/14		4.2
	10.27(b	)	Termination and Waiver Agreement, dated November 5, 2014, by and among KYTHERA Biopharmaceuticals, Inc., KYTHERA Holdings Ltd., and Bayer Consumer Care AG.		8-K		11/05/14		10.1
	10.28(a)	#	KYTHERA Biopharmaceuticals, Inc. 2014 Employment Commencement Incentive Plan.		S-8		09/02/14		99.1
	10.28(b)	#	Form of Stock Option Grant Notice and Stock Option Agreement under the 2014 Employment Commencement Incentive Plan.		S-8		09/02/14		99.2
	10.28(c)	#	Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under the 2014 Employment Commencement Incentive Plan.		S-8		09/02/14		99.3
	10.29	#	KYTHERA Biopharmaceuticals, Inc. 2015 Employee Stock Purchase Plan.		S-8		02/13/15		99.1
	21.1		List of Subsidiaries								X
	23.1		Consent of Independent Registered Public Accounting Firm.								X
	24.1		Power of Attorney (included on signature page to this Annual Report on Form 10-K).								X
	31.1		Certification of Chief Executive Officer of KYTHERA Biopharmaceuticals, Inc., as required by Rule 13a- 14(a) or Rule 15d-14(a).								X
	31.2		Certification of Chief Financial Officer of KYTHERA Biopharmaceuticals, Inc., as required by Rule 13a- 14(a) or Rule 15d-14(a).								X
	32.1	**	Certification by the Chief Executive Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 36 of Title 18 of the United States Code (18 U.S.C. §1350).								X
	32.1	**	Certification by the Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 36 of Title 18 of the United States Code (18 U.S.C. §1350).								X

102

			Incorporated by Reference
Exhibit Number						Filed Herewith
		Exhibit Description	Form	Date	Number
	101.INS	XBRL Instance Document					X
	101.SCH	XBRL Taxonomy Extension Schema Document					X
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
	101.LAB	XBRL Taxonomy Extension Labels Linkbase Document					X
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

†

Confidential treatment has been granted for certain information contained in this exhibit. Such information has been omitted and filed separately with the Securities and Exchange Commission.

#

Indicates management contract or compensatory plan.

*

Reference is made to the text of the Current Report on Form 8-K under Item 5.02.

**

The certifications attached as Exhibits 32.1 that accompany this Annual Report on Form 10-K is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of KYTHERA Biopharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing.

103

KYTHERA BIOPHARMACEUTICALS, INC.

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations and Comprehensive Loss		F-4
Consolidated Statements of Stockholders' Equity (Deficit)		F-5
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-7

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
of KYTHERA Biopharmaceuticals, Inc.

        We have audited the accompanying consolidated balance sheets of KYTHERA Biopharmaceuticals, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of KYTHERA Biopharmaceuticals, Inc. at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Los Angeles, California
March 2, 2015

F-2

KYTHERA BIOPHARMACEUTICALS, INC.

Consolidated Balance Sheets

	December 31,
	2014			2013
Assets
Current assets:
Cash and cash equivalents	$	29,226,000		$	111,518,000
Restricted cash, current portion		—			5,062,000
Marketable securities		70,435,000			55,540,000
Prepaid expenses and other current assets		1,498,000			1,156,000
Total current assets		101,159,000			173,276,000
Property and equipment, net		1,847,000			94,000
Other assets		420,000			37,000
Total assets	$	103,426,000		$	173,407,000
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	4,690,000		$	3,228,000
Accrued personnel costs		4,858,000			3,114,000
Accrued costs for services		2,103,000			3,191,000
Accrued interest		2,857,000			375,000
Notes payable, current portion		5,484,000			5,526,000
Deferred development funds		—			2,147,000
Other current liabilities		637,000			—
Total current liabilities		20,629,000			17,581,000
Notes payable—net of current portion		22,661,000			5,979,000
Other liabilities		698,000			8,000
Total liabilities		43,988,000			23,568,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.00001 par value, 5,000,000 shares authorized and none issued and outstanding		—			—
Common stock, $0.00001 par value, 300,000,000 shares authorized, 22,691,000 and 21,745,000 shares issued and outstanding at December 31, 2014 and 2013, respectively		—			—
Additional paid in capital		367,329,000			322,052,000
Accumulated other comprehensive (loss) income		(53,000	)		4,000
Accumulated deficit		(307,838,000	)		(172,217,000	)
Total stockholders' equity		59,438,000			149,839,000
Total liabilities and stockholders' equity	$	103,426,000		$	173,407,000

See accompanying notes.

F-3

KYTHERA BIOPHARMACEUTICALS, INC.

Consolidated Statements of Operations and Comprehensive Loss

	Year Ended December 31,
	2014			2013			2012
License income	$	—		$	—		$	19,687,000
Sublicense expense		—			—			1,936,000
Gross margin		—			—			17,751,000
Operating expenses:
In-process research and development		52,757,000			—			—
Research and development		47,840,000			33,974,000			43,184,000
General and administrative		31,055,000			16,092,000			10,505,000
Total operating expenses		131,652,000			50,066,000			53,689,000
Loss from operations		(131,652,000	)		(50,066,000	)		(35,938,000	)
Interest income		260,000			135,000			—
Interest expense		(4,157,000	)		(1,980,000	)		(441,000	)
Warrant and other expense, net		(72,000	)		—			(420,000	)
Net loss	$	(135,621,000	)	$	(51,911,000	)	$	(36,799,000	)
Other comprehensive (loss) income:
Unrealized net (loss) gain on marketable securities		(57,000	)		4,000			—
Comprehensive loss	$	(135,678,000	)	$	(51,907,000	)	$	(36,799,000	)
Per share information:
Net loss, basic and diluted	$	(6.04	)	$	(2.71	)	$	(7.47	)
Basic and diluted weighted average shares outstanding		22,466,000			19,150,000			4,924,000

See accompanying notes.

F-4

KYTHERA BIOPHARMACEUTICALS, INC.

Consolidated Statements of Stockholders' Equity (Deficit)

	Redeemable Convertible Preferred Stock																								Stockholders' Equity (Deficit)
	Series A Redeemable Convertible Preferred Stock						Series B Redeemable Convertible Preferred Stock						Series C Redeemable Convertible Preferred Stock						Series D Redeemable Convertible Preferred Stock						Common Stock
																															Accumulated Other Comprehensive Income (loss)
																											Par Value		Additional Paid in Capital					Accumulated Deficit
	Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount			Shares												Total
Balance at December 31, 2011		1,806,000		$	902,000			3,981,000		$	30,193,000			3,023,000		$	40,205,000			2,692,000		$	36,287,000			1,399,000		—	$	2,483,000	$	—		$	(83,507,000	)	$	(81,024,000	)
Issuance of common stock in connection with exercise of stock options		—			—			—			—			—			—			—			—			51,000		—		123,000		—			—			123,000
Issuance of common stock in January 2012 at $8.22 per share for services		—			—			—			—			—			—			—			—			5,000		—		43,000		—			—			43,000
Issuance of Series D convertible preferred stock in July 2012 at $13.9040 per share for services		—			—			—			—			—			—			11,000			158,000			—		—		—		—			—			—
Issuance of common stock in October 2012 at $22.50 per share for services		—			—			—			—			—			—			—			—			63,000		—		1,414,000		—			—			1,414,000
Compensation expense related to stock options		—			—			—			—			—			—			—			—			—		—		1,816,000		—			—			1,816,000
Issuance of shares of common stock at $16.00 per share, net of issuance cost of $8,481,000		—			—			—			—			—			—			—			—			5,060,000		—		72,479,000		—			—			72,479,000
Conversion of convertible preferred stock into common stock		(1,806,000	)		(902,000	)		(3,981,000	)		(30,193,000	)		(3,023,000	)		(40,205,000	)		(2,703,000	)		(36,445,000	)		11,545,000		—		107,743,000		—			—			107,743,000
Reclassification of Preferred Stock Warrant Liability to additional paid in capital		—			—			—			—			—			—			—			—			—		—		3,101,000		—			—			3,101,000
Issuance of common stock due to net exercise of warrants		—			—			—			—			—			—			—			—			201,000		—		—		—			—			—
Issuance of common stock due to warrants exercised for cash		—			—			—			—			—			—			—			—			1,000		—		10,000		—			—			10,000
Net loss		—			—			—			—			—			—			—			—			—		—		—		—			(36,799,000	)		(36,799,000	)
Balance at December 31, 2012		—		$	—			—		$	—			—		$	—			—		$	—			18,325,000		—	$	189,212,000	$	—		$	(120,306,000	)	$	68,906,000
Issuance of common stock in connection with exercise of stock options		—			—			—			—			—			—			—			—			495,000		—		1,338,000		—			—			1,338,000
Issuance of common stock in April 2013 at $20.14 per share for services		—			—			—			—			—			—			—			—			5,000		—		101,000		—			—			101,000
Compensation expense related to stock options		—			—			—			—			—			—			—			—			—		—		6,402,000		—			—			6,402,000
Issuance of shares of common stock at $45.75 per share, net of issuance cost of $8,591,000		—			—			—			—			—			—			—			—			2,920,000		—		124,999,000		—			—			124,999,000
Other comprehensive income		—			—			—			—			—			—			—			—			—		—		—		4,000			—			4,000
Net loss		—			—			—			—			—			—			—			—			—		—		—		—			(51,911,000	)		(51,911,000	)
Balance at December 31, 2013		—		$	—			—		$	—			—		$	—			—		$	—			21,745,000		—	$	322,052,000	$	4,000		$	(172,217,000	)	$	149,839,000
Issuance of common stock in connection with exercise of stock options		—			—			—			—			—			—			—			—			231,000		—		1,399,000		—			—			1,399,000
Issuance of common stock in connection with vesting of restricted stock units		—			—			—			—			—			—			—			—			17,000		—		—		—			—			—
Compensation expense related to stock awards		—			—			—			—			—			—			—			—			—		—		12,449,000		—			—			12,449,000
Issuance of shares of common stock in March 2014 at $45.02 per share in connection with asset acquisition		—			—			—			—			—			—			—			—			698,000		—		31,429,000		—			—			31,429,000
Other comprehensive loss		—			—			—			—			—			—			—			—			—		—		—		(57,000	)		—			(57,000	)
Net loss		—			—			—			—			—			—			—			—			—		—		—		—			(135,621,000	)		(135,621,000	)
Balance at December 31, 2014		—		$	—			—		$	—			—		$	—			—		$	—			22,691,000		—	$	367,329,000	$	(53,000	)	$	(307,838,000	)	$	59,438,000

See accompanying notes.

F-5

KYTHERA BIOPHARMACEUTICALS, INC.

Consolidated Statements of Cash Flows

	Year Ended December 31,
	2014			2013			2012
Operating activities
Net loss	$	(135,621,000	)	$	(51,911,000	)	$	(36,799,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of premium on marketable securities		1,052,000			572,000			—
Amortization of debt discount and issuance cost		906,000			340,000			272,000
Depreciation		303,000			223,000			635,000
Non-cash in-process research and development		53,029,000			—			—
Revaluation of redeemable convertible preferred stock warrants		—			—			422,000
Stock-based compensation		12,449,000			6,503,000			1,857,000
Issuance of stock for licensor payment		—			—			1,572,000
Changes in assets and liabilities:
Prepaid expenses and other current assets		(106,000	)		(183,000	)		561,000
Restricted cash		5,062,000			10,916,000			(8,575,000	)
Deferred licensor payment		—			—			352,000
Other assets		(383,000	)		—			(6,000	)
Accounts payable and other accrued liabilities		4,600,000			699,000			3,203,000
Deferred revenue		—			—			(3,847,000	)
Deferred development funds		(2,147,000	)		(12,027,000	)		9,223,000
Payable to licensor		—			—			(1,560,000	)
Other liabilities		1,327,000			(1,000	)		2,000
Net cash used in operating activities		(59,529,000	)		(44,869,000	)		(32,688,000	)
Investing activities
Purchases of marketable securities		(63,512,000	)		(63,832,000	)		—
Proceeds from sales of marketable securities		2,028,000			246,000			—
Proceeds from maturities of marketable securities		45,244,000			7,126,000			—
Investment in property and equipment		(2,056,000	)		(42,000	)		(190,000	)
Net cash used in investing activities		(18,296,000	)		(56,502,000	)		(190,000	)
Financing activities
Borrowings on credit facility		—			10,000,000			5,000,000
Repayment of notes payable related to credit facility		(5,866,000	)		(2,759,000	)		—
Proceeds from public offerings, net of issuance costs		—			124,999,000			72,479,000
Proceeds from common stock option and warrant exercises		1,399,000			1,338,000			133,000
Net cash (used in) provided by financing activities		(4,467,000	)		133,578,000			77,612,000
Net (decrease) increase in cash and cash equivalents		(82,292,000	)		32,207,000			44,734,000
Cash and cash equivalents at beginning of period		111,518,000			79,311,000			34,577,000
Cash and cash equivalents at end of period	$	29,226,000		$	111,518,000		$	79,311,000
Supplemental disclosures
Issuance of redeemable convertible preferred stock warrants for senior loan facility commitment	$	—		$	—		$	534,000
Reclassification of warrants to purchase common stock	$	—		$	—		$	3,101,000
Conversion of convertible preferred stock to common stock	$	—		$	—		$	107,743,000
Issuance of redeemable convertible preferred stock for licensor payment	$	—		$	—		$	158,000
Issuance of common stock for licensor payment	$	—		$	—		$	1,414,000
Issuance of common stock to Bayer	$	31,429,000		$	—		$	—
Note payable issued to Bayer at fair value	$	21,600,000		$	—		$	—
Issuance of common stock for services rendered	$	—		$	101,000		$	43,000
Interest expense paid in cash	$	768,000		$	1,288,000		$	147,000

See accompanying notes.

F-6

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements

1. Organization and Basis of Presentation

        KYTHERA Biopharmaceuticals, Inc. ("KYTHERA" or the "Company") is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market. The Company's objective is to develop first-in-class, prescription aesthetic products using an approach that relies on the scientific rigor of biotechnology to address unmet needs in the rapidly-growing market for aesthetic medicine. The Company's initial focus is on the facial aesthetics market, which comprises the majority of the aesthetics medicine market. The Company's product candidate, ATX-101, is a potential first-in-class, injectable drug in late stage development for the treatment of submental fullness, which commonly presents as an undesirable "double chin."

        KYTHERA was originally incorporated in Delaware in June 2004 under the name Dermion, Inc. It commenced operations in August 2005 and its name was changed to AESTHERx, Inc. In July 2006, the Company changed its name to KYTHERA Biopharmaceuticals, Inc.

        Since commencement of operations in August 2005, the Company has devoted substantially all its efforts to the development of ATX-101, recruiting personnel and raising capital. In 2010, the Company entered into a License Agreement with Bayer Consumer Care AG and a Services, Research, Development and Collaboration Agreement with Bayer's Affiliate, Intendis GmbH, collectively referred to as the collaboration arrangement with Bayer. Bayer Consumer Care AG and Intendis GmbH are referred to jointly as Bayer. On March 7, 2014, the Company entered into an agreement whereby it acquired the rights to develop and commercialize ATX-101 outside of the United States and Canada from Bayer. In connection with this acquisition, the Company recorded a $52,757,000 charge for acquired in-process research and development during the quarter ended March 31, 2014. See Note 8, "Commitments, Collaborations and Contingencies" for a more detailed discussion of this acquisition.

        The accompanying consolidated financial statements for the years ended December 31, 2014, 2013, and 2012 have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future. Since inception in 2004, the Company has not been profitable and has incurred operating losses in each year. The Company has a limited operating history upon which you can evaluate its business and prospects. The Company has not generated any revenue from product sales to date and will continue to incur significant research and development and other expenses related to its ongoing operations. The Company has recorded net losses of $135,621,000, $51,911,000 and $36,799,000 for the years ended December 31, 2014, 2013 and 2012, respectively, and had an accumulated deficit of $307,838,000 and $172,217,000 as of December 31, 2014 and 2013, respectively. The Company has funded its operations primarily through the sale and issuance of common and preferred stock, convertible debt, and amounts received pursuant to the collaboration arrangement with Bayer and borrowings under its credit facility. Net working capital at December 31, 2014 and 2013, was $80,530,000 and $155,695,000, respectively. The Company may continue to incur losses for the next several years. At December 31, 2014, the Company had capital resources consisting of cash and cash equivalents and marketable securities of $99,661,000. At December 31, 2014, the Company had no further borrowing capacity under its existing credit facility.

        The Company currently estimates that it has sufficient capital resources to meet its anticipated cash needs to fund its operations through at least the next twelve months. The Company expects to seek additional financing in the future to fund its operations, to expand its commercial organization in anticipation of potential commercial launch of ATX-101, and to develop additional product candidates, by selling additional equity, issuing debt or convertible debt securities. Additional funds may not be

F-7

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

1. Organization and Basis of Presentation (Continued)

available when the Company needs them, on terms that are acceptable to the Company, or at all. If adequate funds are not available to the Company on a timely basis, it could have a negative impact on its current business plans, including timing of launch of ATX-101.

        On September 11, 2012, the Board of Directors approved a 1-for-2.6443 reverse stock split of the Company's capital stock. All share and per share information included in the accompanying consolidated financial statements has been adjusted to reflect this reverse stock split.

        On October 16, 2012, the Company completed its initial public offering ("IPO") of 5,060,000 shares of common stock, which includes the exercise in full by the underwriters of their option to purchase up to 660,000 additional shares of common stock, at an offering price of $16.00 per share. The Company received net proceeds of $72,479,000, after deducting underwriting discounts, commissions and offering related transaction costs. In connection with the IPO, the Company's outstanding shares of redeemable convertible preferred stock were automatically converted into 11,545,000 shares of common stock and warrants exercisable for redeemable convertible preferred stock were automatically converted into warrants exercisable for 365,000 shares of common stock, resulting in the reclassification of the related redeemable convertible preferred stock warrant liability of $3,101,000 to additional paid-in capital.

        In connection with the completion of its IPO, on October 16, 2012, the Company filed an amended and restated certificate of incorporation and bylaws, which, among other things, changed the number of authorized shares of common stock to 300,000,000 shares and preferred stock to 5,000,000 shares.

        On October 15, 2013, the Company completed its secondary offering of 2,623,000 shares of common stock at an offering price of $45.75 per share. On November 12, 2013, the underwriters purchased an additional 297,000 shares of common stock pursuant to their option to purchase additional shares. The Company received aggregate net proceeds of $124,999,000, after deducting the underwriting discounts, commissions and offering related transaction costs.

2. Summary of Significant Accounting Policies

Basis of Presentation

        The consolidated financial statements include the consolidated accounts of the Company and its wholly-owned subsidiary, KYTHERA Holdings Ltd. ("KHL"), a Bermuda corporation. Intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.

Reclassifications

        Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

        The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements.

F-8

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements.

Segment Reporting

        To date, the Company has viewed its operations and manages its business as one segment operating primarily in the United States.

Cash and Cash Equivalents and Marketable Securities

        All highly liquid securities with maturities of 90 days or less from the date of purchase are considered to be cash equivalents. As of December 31, 2014 and 2013, cash and cash equivalents are comprised of funds invested in cash and money market accounts. The Company maintains cash balances in excess of amounts insured by the Federal Deposit Insurance Corporation, or FDIC. The accounts are monitored by management to mitigate the risk.

        Investments with maturities of more than 90 days from the date of purchase are classified as marketable securities. Marketable securities are stated at fair value. The Company has classified its entire marketable securities portfolio as available-for-sale securities. Accordingly, any unrealized gain or loss on the investments is reported as a component of accumulated other comprehensive income (loss). The amortized cost of these securities is adjusted for amortization of premiums and accretion of discounts to maturity, as applicable. Such amortizations and accretions are included as a component of interest income. The entire marketable securities portfolio is considered available for use in current operations and, accordingly, all such investments are considered current assets although the stated maturity of individual investments may be one year or more beyond the balance sheet date.

        Realized gains and losses on sales of marketable securities are determined on a specific identification basis and declines in value, if any, judged to be other-than-temporary on available-for-sale securities are reported in interest income. When securities are sold, any associated unrealized gain or loss previously reported in accumulated other comprehensive income (loss) is reclassified out of stockholders' equity and recorded in the statement of operations and comprehensive loss for the period. Accrued interest and dividends are included in interest income.

        On a quarterly basis, the Company reviews its available-for-sale securities for other-than temporary declines in fair value below the amortized cost basis. This evaluation is based on a number of factors including the length of time and extent to which the fair value has been below the cost basis and any adverse conditions related specifically to the security, including any changes to the credit rating of the security. If the Company concludes that an other-than-temporary impairment exists, it recognizes an impairment charge to reduce the investment to fair value and records the related charge as a reduction of interest income. No impairment charges were recognized during the years ended December 31, 2014, 2013 and 2012.

        Realized gains or losses from the sale of marketable securities for the years ended December 31, 2014 and 2013 were immaterial and there were no realized gains or losses from sales for the year

F-9

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

ended December 31, 2012. As of December 31, 2012 the Company did not have any marketable securities.

Restricted Cash

        There was no restricted cash at December 31, 2014. Restricted cash of $5,062,000 at December 31, 2013 represents restricted cash received through the collaboration arrangement with Bayer that will be used to fund certain further global development activities of ATX-101. See Note 8, "Commitments, Collaborations and Contingencies."

        Payments the Company received to fund collaboration efforts under the terms of the collaboration agreement with Bayer were recorded as restricted cash and deferred development funds, and were recognized as an offset to development expenses as the restricted cash was utilized to fund such development activities.

Property and Equipment

        Property and equipment are recorded at historical cost and consisted of the following:

	December 31,
	2014			2013
Cameras	$	923,000		$	923,000
Computer hardware and electronics		420,000			182,000
Leasehold improvements		1,465,000			126,000
Furniture & fixtures		345,000			108,000
Software		9,000			21,000
		3,162,000			1,360,000
Less accumulated depreciation		(1,315,000	)		(1,266,000	)
	$	1,847,000		$	94,000

        With the exception of leasehold improvements, discussed below, depreciation is recorded using the straight-line method over the estimated useful lives of the assets (one to five years). The Company reviews its property and equipment assets for impairment in value whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairments recognized during the years ended December 31, 2014, 2013 and 2012. During the year ended December 31, 2014, the Company disposed of certain assets totaling $254,000, consisting primarily of leasehold improvements and furniture and fixtures from the Company's previously leased facilities. These assets were fully depreciated at the date of disposal. The Company had no asset disposals during the years ended December 31, 2013 and 2012.

        The $1,465,000 in leasehold improvements as of December 31, 2014 relates to the leasehold improvements constructed at the Company's newly leased facility. These leasehold improvements were placed into service in August 2014 when the Company began to occupy the newly leased facility and are being depreciated on a straight-line basis over the three year lease term, which is the shorter of the improvements expected useful lives and the lease term.

        Cameras were used in the Company's clinical trials, are fully depreciated as of December 31, 2014 and are being held for disposal.

F-10

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Concentration of Credit Risk

        Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents and marketable securities. The primary objectives for the Company's investment portfolio are the preservation of capital and the maintenance of liquidity. The Company does not enter into any investment transactions for trading or speculative purposes.

        The Company's investment policy limits investments to certain types of instruments such as certificates of deposit, money market instruments, obligations issued by U.S. government and U.S. government agencies and corporate debt securities and places restrictions on maturities and concentration by type and issuer. The Company maintains cash balances in excess of amounts insured by the FDIC. The accounts are monitored by management to mitigate the risk.

Stock-Based Compensation

        The Company accounts for stock options issued to employees and directors using an option pricing model for estimating fair value at the date of grant. The Company accounts for restricted stock units issued to employees at fair value based on the market price of the Company's stock on the date of grant. Compensation expense is recognized for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to the Company generally using the straight-line single option method.

        In accordance with authoritative guidance, the fair value of non-employee stock based awards is remeasured as the awards vest, and the resulting increase in fair value, if any, is recognized as expense in the period the related services are rendered.

Redeemable Convertible Preferred Stock Warrants

        Prior to the Company's IPO, freestanding warrants that related to the purchase of redeemable convertible preferred stock were classified as liabilities and recorded at fair value each reporting period regardless of the timing of the redemption feature or the redemption price or the likelihood of redemption. The warrants were subject to remeasurement at each balance sheet date and any change in fair value was recognized as a component of warrant and other income (expense), net. Pursuant to the terms of these warrants, upon the conversion of the class of preferred stock underlying the warrant, the warrants automatically became exercisable for shares of the Company's common stock based upon the conversion ratio of the underlying class of preferred stock. The consummation of the Company's IPO resulted in the conversion of all classes of the Company's preferred stock into common stock. Upon such conversion of the underlying classes of preferred stock, the warrants were reclassified as a component of equity and were no longer subject to remeasurement.

Fair Value of Financial Instruments

        The carrying amounts reported in the accompanying consolidated financial statements for accounts payable and accrued liabilities approximate their fair value because of the short-term nature of these accounts. The fair value of cash equivalents, marketable securities and the notes payable are discussed in Note 9, "Fair Value Measurements."

F-11

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Revenue Recognition

        The Company recognizes revenue when all of the following four criteria are present: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured.

        For arrangements that involve the delivery of more than one element, each product, service and/or right to use assets is evaluated to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has "stand-alone value" to the customer. The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price of each deliverable. The estimated selling price of each deliverable is determined using the following hierarchy of values: (i) vendor-specific objective evidence of fair value, (ii) third-party evidence of selling price (TPE) and (iii) best estimate of selling price (BESP). The BESP reflects the Company's best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis. In most cases the Company expects to use TPE or BESP for allocating consideration to each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation.

        The Company's revenue earned during the year ended December 31, 2012 is related to the license agreement with Bayer executed in 2010. This agreement provided for various types of payments, including non-refundable upfront license fees, milestone payments, and future royalties on Bayer's net product sales of ATX-101.

        The Company received a non-refundable upfront license payment of approximately $21,319,000 from Bayer upon execution of the license agreement. The terms of the collaboration arrangement with Bayer included continuing performance obligations and development and clinical manufacturing supply obligations that were conditions to Bayer's decision to pursue continued development and regulatory approval for ATX-101. Due to these ongoing performance obligations, the Company determined that the license did not have stand-alone value. The Company also did not have objective and reliable evidence of the fair value of these undelivered obligations. Accordingly, amounts received upfront under the license agreement were recorded as deferred revenue and were recognized on a straight-line basis over the expected period of substantial involvement in these collaboration activities, which were completed as of May 31, 2012. The period over which these activities were to be performed was based upon management's estimate of the period to complete the development activities required to be conducted relative to the upfront license fee and development funds received from Bayer.

        The Company recognizes revenue from milestone payments when earned, provided that (i) the milestone event is substantive in that it can only be achieved based in whole or in part on either the entity's performance or on the occurrence of a specific outcome resulting from the entity's performance and its achievability was not reasonably assured at the inception of the collaboration arrangement and (ii) the Company does not have ongoing performance obligations related to the achievement of the milestone earned and (iii) it would result in additional payments being due to the Company. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment is non-refundable; achievement of the milestone was not reasonably assured at the inception of the arrangement; substantive effort is involved to achieve the milestone; and the amount of the milestone appears reasonable in relation to the effort expended, the other milestones in the arrangement and the

F-12

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

related risk associated with the achievement of the milestone. Any amounts received under the collaboration arrangement in advance of performance, if deemed substantive, are recorded as deferred revenue and recognized as revenue as the Company completes its performance obligations.

Research and Development Costs

        Major components of research and development (R&D) costs include cash compensation, stock-based compensation, pre-clinical studies, clinical trials and related clinical manufacturing, materials and supplies, and fees paid to consultants and other entities that conduct certain research and development activities on the Company's behalf. R&D costs, including upfront fees and milestones paid to collaborators, are expensed as goods are received or services rendered. Costs to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use are also expensed as incurred. Costs incurred in connection with clinical trial activities for which the underlying nature of the activities themselves do not directly relate to active research and development, such as costs incurred for market research and focus groups linked to clinical strategy as well as costs to build the Company's brand, are not included in R&D costs but are reflected as general and administrative expenses.

        The Company enters into agreements with various research institutions, contract laboratories, contract manufacturers and consultants. These agreements are generally on a fee-for-service basis and are cancelable.

Clinical Trial Accruals

        As part of the process of preparing its consolidated financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. The Company's objective is to reflect the appropriate trial expenses in its consolidated financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. The Company determines accrual estimates through financial models taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, the Company adjusts its rate of clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date in its consolidated financial statements based on the facts and circumstances known to us at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low for any particular period. Through December 31, 2014, there have been no material adjustments to the Company's prior period estimates of accrued expenses for clinical trials. The Company's clinical trial accrual is dependent in part upon the timely and accurate reporting of contract research organizations and other third-party vendors.

F-13

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Basic and Diluted Net Loss Per Common Share

        Basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period, excluding the effects of converting redeemable preferred stock, warrants to purchase redeemable convertible preferred stock or common stock and stock options and restricted stock units outstanding. Diluted net loss per common share is computed by dividing the net loss by the sum of the weighted average number of common shares outstanding during the period plus the potential dilutive effects of redeemable convertible preferred stock, warrants to purchase redeemable convertible preferred stock or common stock and stock options and restricted stock units outstanding during the period calculated in accordance with the treasury stock method. Because the impact of these items is anti-dilutive during periods of net loss, there was no difference between the weighted average number of shares used to calculate basic and diluted net loss per common share for the years ended December 31, 2014, 2013 and 2012. The calculation of weighted average diluted shares outstanding excludes the dilutive effect of redeemable convertible preferred stock, warrants to purchase redeemable convertible preferred stock or common stock and stock options and restricted stock units, as the impact of such items are anti-dilutive during periods of net loss. Shares excluded from the calculation, prior to the use of the treasury stock method, unweighted, were 3,113,000, 2,335,000 and 1,956,000 at December 31, 2014, 2013 and 2012, respectively.

Income Taxes

        The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax bases of the Company's assets and liabilities and their financial statement reported amounts. A valuation allowance is recorded when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Management has considered estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.

        Additionally, the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefit recognized in the consolidated financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized upon settlement. Accordingly, the Company establishes reserves for uncertain tax positions.

Comprehensive Income (Loss)

        Comprehensive income (loss) is comprised of net loss and other comprehensive income (loss). For the years ended December 31, 2014 and 2013, the only component of other comprehensive income (loss) relates to net unrealized gains and losses on marketable securities. The Company had no other comprehensive income (loss) for the year ended December 31, 2012.

        There were no material reclassifications out of accumulated other comprehensive income during the years ended December 31, 2014 and 2013.

F-14

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Collaboration Arrangements

        From time to time, the Company enters into certain collaboration arrangements with third parties regarding the research and development, manufacture and/or commercialization of products and product candidates. These collaborations generally provide for non-refundable, upfront license fees, research and development and commercial performance milestone payments, cost sharing and royalty payments. The collaboration agreements with third parties are performed on a "best efforts" basis with no guarantee of either technological or commercial success. The Company evaluates whether an arrangement is a collaboration arrangement at its inception based on the facts and circumstances specific to the arrangement. The Company reevaluates whether an arrangement qualifies or continues to qualify as a collaboration arrangement whenever there is a change in the anticipated or actual ultimate commercial success of the endeavor. See Note 8, "Commitments, Collaborations and Contingencies."

Recent Accounting Pronouncements

        In May 2014, a new standard was issued related to revenue recognition, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new standard will replace most of the existing revenue recognition standards in U.S. GAAP when it becomes effective on January 1, 2017. Early adoption is not permitted. The new standard allows for either "full retrospective" adoption, whereby the new standard is applied to each prior reporting period presented or "modified retrospective" adoption, whereby the new standard is only applied to the most current period presented with the cumulative effect of the change recognized at the date of the initial application. The Company is assessing the potential impact, including method of adoption, of the new standard on its consolidated statements of financial position and results of operations and, comprehensive income (loss) and has not yet selected a method of adoption.

        In August 2014, a new standard was issued which will require management to evaluate if there is substantial doubt about the entity's ability to continue as a going concern and, if so, disclose it in both annual and interim reporting periods. The new standard will become effective for the Company's annual filing for the period ending December 31, 2016 and interim periods thereafter, with early adoption permitted. The Company does not believe that the eventual adoption of this accounting standard will have a material impact on the Company's consolidated financial statements and related disclosures.

F-15

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

3. Marketable Securities

        The Company's marketable securities held as of December 31, 2014 and 2013 are summarized below:

Type of security as of December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government agency securities	$	2,000,000	$	1,000	$	—		$	2,001,000
Corporate debt securities:
Financial		28,067,000		—		(19,000	)		28,048,000
Industrial		20,625,000		1,000		(14,000	)		20,612,000
Other		19,796,000		—		(22,000	)		19,774,000
Total available-for-sale securities	$	70,488,000	$	2,000	$	(55,000	)	$	70,435,000

Type of security as of December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. government agency securities	$	2,000,000	$	3,000	$	—		$	2,003,000
Corporate debt securities:
Financial		33,192,000		13,000		(5,000	)		33,200,000
Industrial		11,081,000		2,000		(3,000	)		11,080,000
Other		9,263,000		—		(6,000	)		9,257,000
Total available-for-sale securities	$	55,536,000	$	18,000	$	(14,000	)	$	55,540,000

        The realized gains or losses from the sale of marketable securities for the year ended December 31, 2014 and December 31, 2013 were immaterial. All of the Company's available-for-sale investments that were in an unrealized loss position have been in a continuous unrealized loss position for less than 12 months and had an aggregate fair value of $54,894,000 and $20,277,000 as of December 31, 2014 and 2013, respectively. The unrealized losses related to corporate debt securities, which the Company plans to hold until maturity, and it is more likely than not that the Company will not be required to sell prior to maturity. Due to the limited duration and severity of the loss, as well as the nature of corporate debt securities, the Company does not consider the investments to be other-than-temporarily impaired at December 31, 2014 and 2013.

        At December 31, 2014 and 2013, the Company believes that the cost basis of our available-for-sale securities were recoverable in all material respects.

        The maturities of the Company's marketable securities are as follows:

	December 31, 2014				December 31, 2013
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Mature in one year or less	$	66,863,000	$	66,816,000	$	33,279,000	$	33,293,000
Mature after one year through two years		3,625,000		3,619,000		22,257,000		22,247,000
	$	70,488,000	$	70,435,000	$	55,536,000	$	55,540,000

F-16

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

4. Bridge Financing

        In January 2006, the Company entered into bridge financing transactions by issuing convertible promissory notes and warrants, for aggregate proceeds of $8,051,000 from certain existing and new investors. The convertible notes bore interest at 8% and were automatically convertible into shares of the Company's preferred stock upon the occurrence of a qualified preferred stock financing as described in the convertible promissory note agreement. The estimated fair value of the warrants, totaling approximately $440,000, was treated as a deduction from the note proceeds (debt discount) and amortized as interest expense over the period the notes were outstanding.

        The increase in the fair value of the warrants from issuance through IPO in October of 2012, totaled $1,205,000 and has been recorded in warrant and other income (expense), net, and included $349,000 of interest expense in the statements of operations and comprehensive loss for the year ended December 31, 2012. Effective immediately prior to the closing of the Company's IPO in October of 2012, the warrants for convertible preferred stock became warrants for common stock and were reclassified to equity. All but 178 warrants were exercised during 2012, with the remaining warrants being exercised in January 2013, resulting in the net issuance of 153,000 shares of common stock.

5. Notes Payable

        Notes payable consisted of the following:

	December 31, 2014			December 31, 2013
Note payable to Bayer	$	22,166,000		$	—
Notes payable related to credit facility		5,979,000			11,505,000
		28,145,000			11,505,000
Less current portion		(5,484,000	)		(5,526,000	)
Notes payable-net of current portion	$	22,661,000		$	5,979,000

        Future maturities of the Notes payable as of December 31, 2014 are as follows:

2015	$	5,823,000
2016		552,000
2024		51,000,000
		57,375,000
Unamortized debt issuance cost		(29,230,000	)
		28,145,000
Current portion		(5,484,000	)
Notes payable—net of current portion	$	22,661,000

Note Payable to Bayer

        In March 2014, as part of the agreement to acquire the rights to develop and commercialize ATX-101 outside of the United States and Canada, the Company issued a $51,000,000 unsecured promissory note to Bayer. The promissory note is subordinated to amounts owed under the Company's existing credit facility. Interest is accrued at 5% per annum and is payable on the anniversary date of

F-17

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

5. Notes Payable (Continued)

the note. The Company has the option of deferring up to 80% of the accrued interest, adding any unpaid interest to the principal amount. The note is due on the ten year anniversary from issuance, with the option to prepay at any point in time without penalty.

        As the note payable to Bayer bears interest at 5%, which was below the borrowing rate available to the Company at issuance, it was recorded at its fair value of $21,600,000, which is the present value of the future cash flows assuming a borrowing rate of 15%. The difference between face value and fair value of the note was recorded as a discount and is being amortized over the life of the note utilizing the effective interest method. The balance of the note payable at December 31, 2014 is as follows:

	December 31, 2014
Face value of note payable to Bayer	$	51,000,000
Debt discount at date of issuance		(29,400,000	)
Amortization of debt discount		566,000
Note payable to Bayer	$	22,166,000

        Included in interest expense for the year ended December 31, 2014 was amortization of the debt discount of $566,000 and interest expense of $2,089,000 related to the note payable to Bayer. The balance of accrued interest expense at December, 2014 was $2,089,000 and the balance of the remaining unamortized discount was $28,834,000 at December, 2014.

Notes Payable Related to Credit Facility

        On March 21, 2011, the Company executed a debt financing agreement whereby the Company had access to borrow up to $15,000,000 of senior loan financing through January 1, 2012. Subsequently, the credit facility was amended to provide for an extension of the drawdown period through December 1, 2012, provided that it had drawn down at least $5,000,000 as of August 1, 2012. On July 23, 2012, the Company obtained an additional 60 day extension to the initial drawdown date from August 1, 2012 to October 1, 2012. For each draw, the Company shall make six months of interest only payments at a fixed rate of 11.5% followed by 30 months of interest and principal payments at a fixed rate of 8.5% and a final payment of 6% of the amount drawn due with the last principal payment. The debt is secured by all the Company's assets, except for the Company's intellectual property, which is subject to a negative pledge agreement.

        On October 1, 2012 the Company drew $5,000,000 and in November 2012, obtained an extension allowing for the draw of the remaining $10,000,000 in $5,000,000 increments by January 31, 2013 and February 28, 2013. On January 31, 2013 the Company drew down an additional $5,000,000 of available funds under its credit facility and on February 28, 2013, the Company drew the remaining $5,000,000. As of December 31, 2014 and December 31, 2013, there was no further borrowing capacity under this facility.

        Upon entry into the agreement, the Company issued warrants to purchase 34,000 shares of Series C redeemable convertible preferred stock ("Series C Preferred") at an exercise price of $13.3530. The estimated fair value of the warrants at issuance of approximately $345,000 was recorded as a deferred financing cost offsetting the notes payable liability and is being amortized to interest expense over the expected term of the loan.

F-18

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

5. Notes Payable (Continued)

        Upon extension of the credit facility in December 2011, the Company issued a warrant to purchase up to an additional 86,000 shares of its Series D redeemable convertible preferred stock ("Series D Preferred") at an exercise price of $13.9040. The estimated fair value of the warrant at issuance of approximately $1,074,000 was recorded as a deferred financing cost offsetting the notes payable liability and is being amortized to interest expense over the expected term of the loan.

        The increase in the fair value of the Series C Preferred warrants from issuance in March 2011 through the IPO in October of 2012, totaled $55,000 and was recorded in warrant and other income (expense), net, in the statement of operations and comprehensive loss, and included expense of $91,000 for the year ended December 31, 2012. The decrease in value of the Series D Preferred warrants from issuance in December 2011 through the IPO in October of 2012 totaled $18,000 and was recorded in warrant and other income (expense), net, in the statement of operations and comprehensive loss for the year ended December 31, 2012. There was no change in the fair value of the Series D Preferred warrants during the year ended December 31, 2011 due to the timing of issuance.

        All warrants were exercised on a cashless basis in December of 2012 resulting in the net issuance of 49,000 shares of common stock and there were no warrants outstanding as of December 31, 2012.

        Included in interest expense for the years ended December 31, 2014, 2013 and 2012 was amortization of debt issuance costs of $340,000, $340,000 and $272,000 and interest expense of $1,162,000, $1,640,000 and $169,000 related to the notes payable, respectively. The balance of accrued interest expense at December 31, 2014 and 2013 was $768,000 and $375,000, respectively. The remaining unamortized debt issuance cost at December 31, 2014 and 2013 was $396,000 and $736,000, respectively.

        The credit facility includes various covenants. As of December 31, 2014 and 2013, the Company was in compliance with all covenants associated with the credit facility.

6. Redeemable Convertible Preferred Stock

        Upon the Company's IPO in October of 2012, all shares of convertible preferred stock converted into 11,545,000 shares of common stock. The Series A Preferred, Series C Preferred and Series D Preferred were converted into common stock on a 1-for-1 basis. The Series B Preferred was converted into shares of common stock on a 1-for-1.00785 basis.

Dividends

        The holders of the Preferred Stock were entitled to receive dividends, when and if declared by the board of directors. No dividends had been declared through the date of conversion.

F-19

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

7. Stockholders' Equity

Shares Reserved for Future Issuance

        Shares of the Company's common stock reserved for future issuance are as follows:

	December 31,
	2014		2013
Common stock awards outstanding		3,113,000		2,335,000
Common stock awards available for grant		1,040,000		295,000
Total common shares reserved for future issuance		4,153,000		2,630,000

Stock Awards

        In September 2012, the Company's board of directors approved the 2012 Equity Incentive Award Plan ("the 2012 Plan"), which became effective upon completion of the Company's IPO. The 2012 Plan provides for the granting of incentive and nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, deferred stock, dividend equivalents, performance awards, stock payments and other stock-based and cash-based awards to its employees, directors, and consultants at the discretion of the compensation committee of the board of directors. The 2012 Plan is the successor to the Amended and Restated 2004 Stock Plan. Any remaining shares available for future issuance under the 2004 Stock Plan are available for issuance under the 2012 Plan. In addition, the plan reserve will automatically increase annually from January 1, 2013 through January 1, 2022 by an amount equal to the smaller of: (a) 1,512,687 shares, (b) four percent of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (c) an amount determined by the Company's board of directors. As of December 31, 2014, 2013 and 2012, a total of 4,094,000, 3,224,000 and 2,491,000 shares, respectively, were authorized for grant under the 2012 Plan.

        In September 2014, the Company's board of directors approved the 2014 Employment Commencement Incentive Plan ("the 2014 Plan"), under which up to 900,000 shares are available for grant. The 2014 Plan provides for the granting of nonstatutory stock options, restricted stock, restricted stock units, performance awards, dividend equivalents, stock payments, stock appreciation rights or other incentive awards or performance share awards to new employees as inducement to enter employment.

        Stock options may be granted with exercise prices not less than the estimated fair market value of the Company's common stock. Under the 2012 Plan, incentive stock options granted to individuals owning more than 10% of the total combined voting power of all classes of stock ("a 10% stockholder") are exercisable up to five years from the date of grant. The 2012 Plan provides that the exercise price of any incentive stock option granted to a 10% stockholder cannot be less than 110% of the estimated fair value of the common stock on the date of grant. Except as set forth above, options granted under the Company's plans expire no later than ten years from the date of grant. Options granted to employees under the Company's plans vest over periods determined by the board of directors, which generally vest over four years. Additionally, the Company has granted certain performance-based stock option awards and restricted stock units that vest based on the achievement of certain predetermined milestones. Prior to the Company's IPO, the board of directors determined the estimated fair value of its common stock based on assistance from an independent third-party valuation expert. Since the Company's IPO, the fair value of the Company's common stock is the closing share

F-20

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

7. Stockholders' Equity (Continued)

price as reported on The NASDAQ Global Select Market on the date of grant. The fair value of the Company's common stock was determined to be $34.68, $37.35 and $30.34 at December 31, 2014, 2013 and 2012, respectively.

        The Company estimates the fair value of its share-based awards to employees and directors using the Black-Scholes option pricing model. The Black-Scholes model requires the input of complex and subjective assumptions, including (a) the expected stock price volatility, (b) the expected term of the award, (c) the risk free interest rate and (d) expected dividends. Due to the Company's limited operating history and a lack of company specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. When selecting these public companies on which it has based its expected stock price volatility, the Company selected companies with comparable characteristics to it, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. The historical volatility data was computed using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of the stock-based awards. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. The Company has estimated the expected life of its employee stock options using the "simplified" method, whereby, the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to its lack of sufficient historical data. The risk-free interest rates for periods within the expected life of the option are based on the U.S. Treasury yield curve in effect during the period the options were granted. The Company has never paid, and does not expect to pay dividends in the foreseeable future. The Company also grants restricted stock units and the grant date fair value per share of those awards is equal to the closing stock price on the date of grant.

        The weighted-average assumptions used to estimate the fair value of stock options using the Black-Scholes option pricing model were as follows:

	Year Ended December 31,
	2014			2013			2012
Weighted-average exercise price of options granted	$	39.32		$	25.90		$	10.19
Expected volatility		70	%		67	%		75	%
Expected term (in years)		6.1			5.9			6.1
Weighted-average risk free interest rate		1.89	%		1.28	%		1.05	%
Expected dividends		0	%		0	%		0	%
Weight-average grant date fair value		24.99			17.85			7.09

        The Company is also required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from its estimates. The Company uses historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from the Company's estimates, the difference is recorded as a cumulative adjustment in the period the estimates were revised. For the years ended December 31, 2014, 2013 and 2012, the Company applied a forfeiture rate based on the Company's historical forfeitures. No forfeiture rate was applied prior to January 1, 2011 as forfeitures prior to such date had been insignificant.

F-21

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

7. Stockholders' Equity (Continued)

        A summary of stock option activity for the years ended December 31, 2014 is as follows:

	Number of Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)		Weighted-Average Intrinsic Value
Outstanding at December 31, 2011		1,435,000		$	3.78		6.76
Granted		652,000			10.19		9.28
Exercised		(51,000	)		2.40			$	7.56
Forfeited		(80,000	)		6.31
Outstanding at December 31, 2012		1,956,000		$	5.86		6.87
Granted		916,000			25.90		9.26
Exercised		(496,000	)		2.75			$	26.10
Forfeited		(103,000	)		16.35
Outstanding at December 31, 2013		2,273,000		$	14.85		7.49
Granted		1,021,000			39.32
Exercised		(231,000	)		6.07			$	33.80
Forfeited		(88,000	)		26.29
Outstanding at December 31, 2014		2,975,000		$	23.59		7.58
Vested or expected to vest at December 31, 2014		2,896,000		$	23.31		7.55
Exercisable at December 31, 2014		1,278,000		$	12.03		6.00

        At December 31, 2014, the aggregate intrinsic value of options outstanding, exercisable, and vested or expected to vest was $38,998,000, $29,278,000 and $38,669,000 respectively.

        The Company account for stock options issued to nonemployees using a fair value approach. The compensation costs of these arrangements are subject to remeasurement at each reporting period over the vesting terms as earned.

        No options were granted to nonemployees during the year ended December 31, 2014. During the years ended December 31, 2013 and 2012, the Company granted nonemployees options to purchase approximately 24,000 and 16,000 shares of its common stock, respectively, at exercise prices ranging from $43.69 to $8.22 per share. Compensation expense related to nonemployee option grants of $85,000, $867,000 and $250,000 were recorded for the years ended December 31, 2014, 2013 and 2012, respectively.

        The fair value of nonemployee options in the years ended December 31, 2013 and 2012 was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions: no dividend yield, volatility of 60% and 73%, maximum contractual life of ten years, and a risk-free interest rate of 1.19% and 0.67%.

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KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

7. Stockholders' Equity (Continued)

        The Company accounts for restricted stock units issued to employees at fair value, based on the market price of the Company's stock on the date of grant, net of estimated forfeitures. A summary of restricted stock unit activity for the years ended December 31, 2014 is as follows:

	Number of Options			Weighted-Average Grant-Date Fair Value
Outstanding at December 31, 2012		—		$	—
Granted		63,000			27.16
Outstanding at December 31, 2013		63,000		$	27.16
Granted		95,000			43.47
Vested		(17,000	)		28.33
Cancelled		(3,000	)		44.02
Outstanding at December 31, 2014		138,000		$	37.92

        The fair value of restricted stock units vested during the year ended December 31, 2014 was $667,000. No restricted stock units vested during the years ended December 31, 2013 and 2012.

        Total equity-based compensation cost recorded in the consolidated statements of operations and comprehensive loss, which includes the value of stock options, restricted stock units, and the value of stock options issued to nonemployees and directors for services is allocated as follows:

	Year Ended December 31,
	2014		2013		2012
Research and development	$	6,371,000	$	3,869,000	$	904,000
General and administrative		6,078,000		2,634,000		953,000
	$	12,449,000	$	6,503,000	$	1,857,000

        As of December 31, 2014, there was $26,271,000 of unrecognized compensation expense related to unvested employee stock option agreements, which is expected to be recognized over a weighted-average period of approximately 2.91 years and $2,360,000 related to restricted stock unit agreements which is expected to be recognized over a weighted-average period of approximately 0.86 years. For stock awards subject to graded vesting, the Company recognizes compensation cost on a straight-line basis over the service period for the entire award.

8. Commitments, Collaborations and Contingencies

Commitments

        The Company leases its facilities under operating leases.

        In March 2014, the Company entered into a facility lease agreement for 24,475 square feet of office space in Westlake Village, CA with a monthly base rent of $62,000 subject to annual fixed rate escalation increases of 3% for a term of 36 months beginning on August 1, 2014 with an option to renew for an additional 36 months. The lease includes an additional 8,723 square feet commencing no later than April 1, 2015 at the same rate per square foot, which the Company occupied in November 2014. The Company recognizes rent expense on a straight-line basis for the full amount of the commitment, including the minimum rent increases over the life of the lease. The lease agreement

F-23

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

8. Commitments, Collaborations and Contingencies (Continued)

provides for free rent for three months for the initial lease space and until April 1, 2015 on the additional space, as well as leasehold improvement allowances of $319,000. These lease incentives were accounted for as deferred rent and are amortized to rent expense over the life of the lease. Under the terms of the lease agreement, the Company expects to incur net rent expense associated with this lease of $854,000 per year.

        Rent expense under the Company's operating leases for the years ended December 31, 2014, 2013 and 2012, was $741,000, $409,000 and $379,000, respectively.

        Future minimum lease payments are as follows at December 31, 2014:

	Operating Leases
Years ended December 31:
2015	$	962,000
2016		1,059,000
2017		629,000
Total future minimum lease payments	$	2,650,000

Collaboration Arrangements

        From time to time, the Company enters into collaborative arrangements for its research and development and manufacturing activities. Each collaboration is unique in nature and the Company's significant agreements are discussed below.

Bayer

        In August 2010, the Company entered into a license agreement with Bayer Consumer Care AG that provides Bayer with an exclusive license to develop, manufacture and commercialize ATX-101 outside of the United States and Canada. In connection with the License Agreement the Company also entered into a related Services, Research, Development and Collaboration Agreement with Bayer's affiliate, Intendis GmbH. These agreements are referred to jointly as the collaboration arrangement with Bayer, and Bayer Consumer Care AG and Intendis GmbH are referred to jointly as Bayer. In connection with the entry into the collaboration arrangement, Bayer paid the Company an upfront license fee of approximately $21,319,000 and approximately $22,247,000 for research and development to fund a portion of Bayer's European Phase III clinical trials. The Company received a contingent event-based payments of $15,800,000 on May 31, 2012, triggered by the completion of Bayer's European Phase III clinical trial for ATX-101, the receipt of two consecutive validated manufacturing lots and Bayer's subsequent decision to pursue continued development and seek regulatory approval of ATX-101. This amount was recorded as revenue upon receipt as all revenue recognition criteria had been met. At this time, Bayer also elected to pursue additional research and development activities related to ATX-101, which are distinct from the original development activities, and subsequently funded $17,400,000 for these additional Bayer development activities. In March 2014, the Company acquired the rights to ATX-101 outside the United States and Canada from Bayer and no longer expects to recognize revenue from Bayer.

        License fees of $21,319,000 were deferred and recognized on a straight-line basis over period of substantial involvement in collaboration activities that were required to be conducted relative to the

F-24

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

8. Commitments, Collaborations and Contingencies (Continued)

upfront license fee and development funds received from Bayer. These activities were completed as of May 31, 2012.

        Amounts to fund collaboration efforts of $22,247,000 and $17,400,000 were recorded as restricted cash and deferred development funds and recognized as an offset to research and development expenses as the restricted cash was utilized to fund development activities. Amounts recognized as offsets to research and development expense were $3,570,000, $11,739,000 and $10,075,000 for the years ended December 31, 2014, 2013 and 2012, respectively.

        Deferred development funds remaining at the time that the Company purchased the rights to ATX-101 outside of the United States and Canada in March 2014 of $967,000 were no longer considered restricted cash and were deducted from the one-time charge to in-process research and development, reducing the in-process research and development expense recorded in March 2014.

        In March 2014, the Company entered into an agreement whereby it acquired the rights to develop and commercialize ATX-101 outside of the United States and Canada from Bayer. Under the new agreement, KYTHERA Holdings Ltd., a wholly-owned Bermuda subsidiary of the Company, purchased these rights. As a result of this agreement, Bayer was issued 698,103 shares of the Company's common stock valued at $33,000,000 based on an average closing stock price of $47.27 over a period set forth in the agreement. Additionally, the Company issued an unsecured promissory note for $51,000,000, which is subordinated to amounts owed under the Company's existing credit facility, bears interest at 5% per annum and is payable no later than 2024. Additionally, Bayer is eligible to receive up to $123,800,000 upon the achievement of certain long-term sales milestone payments on annual sales of ATX-101 outside of the United States and Canada. As of December 31, 2014, the achievement of the related sales levels is not considered to be probable.

        The acquisition date costs allocated to the acquired rights consists of the following:

Fair value of common stock issued	$	31,429,000
Fair value of note payable to Bayer		21,600,000
Other		(272,000	)
Total in-process research and development	$	52,757,000

        The fair value of the common stock issued is based on the closing price of the Company's common stock on the acquisition date of $45.02 per share. As the note payable to Bayer includes an interest rate which was below the borrowing rate available to the Company at issuance, it was recorded at its fair value of $21,600,000, which is the present value of the future cash flows assuming a borrowing rate of 15%, which approximates the market rate for debt with similar terms and consideration of default and credit risk. Other represents the net impact of the reduction in costs resulting from the residual restricted cash of $967,000 that reverted to the Company, partially offset by $695,000 of transaction costs related to the acquisition.

        This transaction was accounted for as an acquisition of a group of assets. As the acquired rights to ATX-101, represent acquired-in-process research and development, with no alternative future uses, the costs allocated to such rights, $52,757,000, were immediately expensed upon acquisition and reflected as in-process research and development in the consolidated statement of operations and comprehensive loss. This charge is considered to be a component of research and development expense.

        See Note 5, "Notes Payable" for a more detailed discussion of the promissory note.

F-25

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

8. Commitments, Collaborations and Contingencies (Continued)

Los Angeles Biomedical Research

        In August 2005, the Company entered into an exclusive license agreement with Los Angeles Biomedical Research Institute at Harbor/UCLA Medical Center, or LA Biomed, pursuant to which it obtained a worldwide exclusive license to practice, enforce and otherwise exploit certain patent rights related to the use of the active ingredient in ATX-101. The exclusive license requires the Company to pay LA Biomed a milestone payment of $500,000 upon receipt of initial marketing approval of ATX-101, as well as non-royalty sublicense fees equal to 10% of any sublicense income, up to a total of $5,000,000, 50% of which the Company may elect to satisfy through the issuance of capital stock. Additionally, upon commercialization of a licensed product or service, the Company is obligated to pay low- to mid- single digit royalties on net product sales of ATX- 101. The Company may terminate this license without penalty upon 90 days' notice to LA Biomed and LA Biomed may terminate the license in certain circumstances if the Company fails to perform, or violates any term of the agreement, subject to applicable cure provisions. Subject to default by the Company or termination, the license remains in effect until the last patent or patent application in the licensed patent rights has expired or been revoked, invalidated or abandoned.

        In August 2010, due to the receipt of the upfront license fee from Bayer, the Company incurred non-royalty sublicense fees of $1,950,000, which was deferred and recognized as sublicense fee expense on a straight-line basis over the same period as the license income. During 2010, the Company made payments of cash and stock to LA Biomed totaling $390,000 related to the non-royalty sublicense fee incurred. The remainder of $1,560,000 was paid upon our IPO in 50% cash and 50% stock.

        Additionally, due to the receipt of the contingent event-based payment of $15,800,000 payable from Bayer on May 31, 2012, the Company incurred an additional non-royalty sublicense fee of $1,580,000 payable to LA Biomed, which was paid in 50% cash and 50% stock.

Supply Arrangements

Pfizer, Inc.

        The Company currently has an exclusive supply agreement with Pfizer, Inc., or Pfizer, as the single-source supplier of a key raw material for ATX-101. The agreement with Pfizer expires in December 2016. The agreement can also be terminated prior to expiration by either party (i) upon 60 days' written notice of an uncured material breach, (ii) upon 24 months' written notice, (ii) the bankruptcy or insolvency of the other party or (iv) by Pfizer if the Company abandons development of ATX-101. The Company is not required to purchase any minimum or specific quantities from Pfizer, however, any purchase of the key starting material must be made from Pfizer. Payments are due to Pfizer 30 days after receipt of an invoice following shipment of the material.

Hospira, Inc.

        In November 2010, the Company entered into a long-term agreement with Hospira, Inc., or Hospira, as its drug product fill/finish supplier. The initial term of the agreement expires five years after the first day of the month after our first bona fide sale of ATX-101 to a non-affiliate customer after ATX-101 receives regulatory approval, and may be extended for additional and successive two year terms. The agreement may be terminated prior to expiration by either party upon 24 months' written notice. The agreement may also be terminated by either party upon 60 days' written notice of an uncured material breach, the bankruptcy or insolvency of the other party or upon notice that the

F-26

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

8. Commitments, Collaborations and Contingencies (Continued)

other party is unable to perform for 180 days due to a force majeure. The Company is not required to purchase any minimum or specific quantities from Hospira; however, if ATX-101 is approved, Hospira has the right to be the Company's sole provider of drug product for a period of three year following commercialization, and, following the completion of the third year, the right to provide no less than seventy-five percent of the Company's total annual requirement of drug product. Payments are due to Hospira 30 days after receipt of an invoice or, with respect to certain pre- specified events, upon completion of such event.

Contingencies

        The Company is subject to certain legal proceedings, complaints and claims arising out of the conduct of its business. In accordance with ASC 450, Contingencies ("ASC 450"), the Company records a reserve for estimated losses when the loss is probable and the amount can be reasonably estimated. Since the Company believes that it has provided adequate reserves, when necessary, it anticipates that the ultimate outcome of any matters currently pending against the Company will not materially affect the consolidated financial position, results of operations or consolidated cash flows of the Company.

9. Fair Value Measurements

        The Company applies various valuation approaches in determining the fair value of its financial assets and liabilities within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

        The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.

F-27

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

9. Fair Value Measurements (Continued)

        At December 31, 2014 and 2013, the Company had cash equivalents comprised of U.S. Treasury securities money market accounts whose value is based using quoted market prices with no adjustments applied. Accordingly, these securities are classified as Level 1. U.S. Government agency securities and corporate debt securities are measured at fair value using Level 2 inputs. These securities are investment grade with maturity dates of two years or less from the balance sheet date. The Company reviews trading activity and pricing for these investments as of the measurement date. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from various third party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy. There were no transfers of assets or liabilities between the fair value measurement levels during the years ended December 31, 2014 and 2013.

        The following fair value hierarchy table presents information about each major category of the Company's financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and 2013.

	Fair Value Measurement at December 31, 2014 Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2014
Assets
Cash equivalents	$	22,691,000	$	—	$	—	$	22,691,000
U.S. government agency securities		—		2,001,000		—		2,001,000
Corporate debt securities		—		68,434,000		—		68,434,000
Total	$	22,691,000	$	70,435,000	$	—	$	93,126,000

	Fair Value Measurement at December 31, 2013 Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2013
Assets
Cash equivalents	$	95,537,000	$	—	$	—	$	95,537,000
U.S. government agency securities		—		2,003,000		—		2,003,000
Corporate debt securities		—		53,537,000		—		53,537,000
Total	$	95,537,000	$	55,540,000	$	—	$	151,077,000

        The Company has notes payable, which are liabilities for which fair value is disclosed as of December 31, 2014 and 2013. Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the Company believes that the carrying value of the notes payable related to the credit facility (Level 2) approximates its fair value at December 31, 2014 and 2013. At December 31, 2014, the Company had a note payable with Bayer at a

F-28

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

9. Fair Value Measurements (Continued)

below market interest rate of 5%. The carrying value of the note was calculated assuming a discount rate of 15% based on an analysis to determine the market rate available to the Company for similar debt at issuance. Based on an analysis of various factors at December 31, 2014, including the Company's cost of equity, the effective interest rate on the credit facility notes payable, the rate of public company structured debt arrangements for companies at a similar stage, its subordinated nature, other debt issuance by investment firms to similar companies and management's judgment, the Company believes that the carrying value of this note payable approximates its fair value. Since several of the factors analyzed are considered to be unobservable inputs, this is considered to be a Level 3 valuation.

        The fair values of cash equivalents, accounts payable and accrued liabilities approximate their carrying values due to the short-term nature of these accounts.

10. 401(k) Savings Plan

        In 2006, the Company sponsored a defined contribution savings plan under Section 401(k) of the Internal Revenue Code ("the 401(k) Plan"). The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pretax basis. The Company matches a percentage of its eligible employees' contributions. For the years ended December 31, 2014, 2013 and 2012, the total amounts included in expense for its contributions were $362,000, $341,000 and $208,000, respectively.

11. Income Taxes

        There is no provision for income taxes because the Company has incurred operating losses since inception. At December 31, 2014, the Company has concluded that it is more likely than not that the Company may not realize the benefit of its deferred tax assets due to its history of losses. Accordingly, the net deferred tax assets have been fully reserved.

        The Company recorded net deferred tax assets of approximately $94,691,000 and $73,687,000 as of December 31, 2014 and 2013, respectively, which have been fully offset by a valuation allowance due to uncertainties surrounding its ability to generate future taxable income to realize these assets. The deferred tax assets are primarily composed of federal and state tax net operating losses, or NOL carryforwards, R&D credit carryforwards, stock compensation and start-up expenditures. As of December 31, 2014, the Company has federal and California NOL carryforwards of approximately $219,792,000 and $215,159,000, which will begin to expire in 2025 and 2015, respectively. Of these deferred tax assets, approximately $9,655,000 will be credited directly to additional paid in capital. At December 31, 2014, the Company has federal and state tax credit carryforwards of approximately $8,773,000 and $5,957,000 available to reduce future federal and state tax liability, respectively. The federal tax credits begin to expire in 2026. Under California law, California tax credits do not have an expiration date.

        In general, if the Company experiences a greater than 50 percentage point aggregate change in ownership of certain significant stockholders over a three-year period (a "Section 382 ownership change"), utilization of its pre-change NOL carryforwards are subject to an annual limitation under Section 382 of the Internal Revenue Code (and similar state laws). The annual limitation generally is determined by multiplying the value of the Company's stock at the time of such ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may

F-29

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

11. Income Taxes (Continued)

result in expiration of a portion of the NOL carryforwards before utilization and may be substantial. The Company has determined that ownership changes have occurred in prior years which, after limitations, the Company expects will not materially impact future utilization of the NOL carryforwards. The ability of the Company to use its remaining NOL carryforwards may be further limited or lost if the Company experiences additional Section 382 ownership changes as a result of future changes in its stock ownership.

        The components of deferred tax assets at December 31, 2014 and 2013 are as follows:

	December 31,
	2014			2013
Deferred tax assets:
Net operating loss carryforwards	$	83,436,000		$	57,010,000
Research tax credits		10,799,000			8,652,000
Stock compensation		6,499,000			2,447,000
Start-up expenditures		4,767,000			5,214,000
Depreciation		142,000			204,000
Accruals		534,000			160,000
Total gross deferred tax assets		106,177,000			73,687,000
Less: valuation allowance		(94,691,000	)		(73,687,000	)
Net deferred tax assets		11,486,000			—
Deferred tax liabilities:
Discount on note payable		(11,486,000	)		—
Total deferred tax liabilities		(11,486,000	)		—
Net deferred income taxes:	$	0		$	0

        The components of the net income tax benefit for the years ended December 31, 2014, 2013 and 2012 are as follows:

	2014			2013			2012
Benefit for income taxes
Current	$	—		$	—		$	—
Deferred		32,716,000			24,240,000			14,913,000
Valuation allowance		(32,716,000	)		(24,240,000	)		(14,913,000	)
Net income tax benefit	$	—		$	—		$	—

F-30

KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

11. Income Taxes (Continued)

        A reconciliation of the difference between the benefit for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows for the years ended December 31, 2014, 2013 and 2012:

	2014			2013			2012
Income tax benefit at statutory rate	$	46,111,000		$	17,650,000		$	12,512,000
State income taxes, net of federal benefit		5,262,000			2,918,000			1,980,000
Research & development credits		1,308,000			1,839,000			542,000
Return to provision adjustments		—			2,022,000			475,000
Permanent items		(18,000	)		(189,000	)		(596,000	)
Foreign rate differential		(19,947,000	)		—			—
Valuation allowance		(32,716,000	)		(24,240,000	)		(14,913,000	)
Net benefit	$	—		$	—		$	—

        The reconciliation of the total gross amounts of unrecognized tax benefits "UTBs" (excluding interest, penalties, and the federal tax benefit of state taxes related to UTBs) for the years ended December 31, 2014, 2013 and 2012, is as follows:

	2014		2013		2012
Balance at beginning of year	$	1,527,000	$	842,000	$	655,000
Increases/Decreases based on tax positions related to current year		455,000		685,000		187,000
Increases for tax positions of prior years		227,000		—		—
Settlements		—		—		—
Balance at end of year	$	2,209,000	$	1,527,000	$	842,000

        If all of the UTBs were recognized, it would impact the Company's effective tax rate.

        The Company's policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. There was no accrued interest and penalties associated with uncertain tax positions as of December 31, 2014, 2013 and 2012.

        The Company files income tax returns in the U.S. federal and California jurisdictions. The Company is subject to federal and California tax examination since inception.

12. Selected Quarterly Financial Data (unaudited)

        The following table contains quarterly financial information for 2014 and 2013. The Company believes that the following information reflects all normal recurring adjustments necessary for a fair

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KYTHERA BIOPHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements (Continued)

12. Selected Quarterly Financial Data (unaudited) (Continued)

statement of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Year Ended December 31, 2014
Total operating expenses(1)	$	68,858,000		$	18,326,000		$	21,311,000		$	23,157,000
Other income (expense), net		(587,000	)		(1,156,000	)		(1,160,000	)		(1,066,000	)
Net loss		(69,445,000	)		(19,482,000	)		(22,471,000	)		(24,223,000	)
Net loss per share, basic and diluted	$	(3.18	)	$	(0.86	)	$	(0.99	)	$	(1.07	)

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Year Ended December 31, 2013
Total operating expenses	$	13,759,000		$	11,740,000		$	11,004,000		$	13,563,000
Other income (expense), net		(367,000	)		(518,000	)		(505,000	)		(455,000	)
Net loss		(14,126,000	)		(12,258,000	)		(11,509,000	)		(14,018,000	)
Net loss per share, basic and diluted	$	(0.77	)	$	(0.67	)	$	(0.62	)	$	(0.66	)

(1)

Included in operating expenses for the first quarter of the year ended December 31, 2014 is a charge of in-process research and development of $52,757,000. See Note 8 "Commitments, Collaborations and Contingencies".

13. Subsequent Events (unaudited)

        In February 2015, the Company entered into a licensing arrangement with Actelion and University of Pennsylvania pursuant to which it obtained exclusive worldwide rights to setipiprant, a clinical-stage selective and potent oral antagonist to the prostaglandin D₂ (PGD₂) receptor and exclusive worldwide rights to certain patent rights owned by the University of Pennsylvania covering the use of PGD₂ receptor antagonists for the treatment of hair loss. As part of the agreement, Actelion received an initial payment of $1,500,000 and will be eligible to receive up to an additional $25,500,000 in potential development and regulatory milestones, as well as royalties on sales if setipiprant is successfully commercialized. University of Pennsylvania will receive an initial payment of $100,000, certain annual license maintenance fees beginning in the third year of the agreement, as well as is eligible to receive up to $4,125,000 in milestone payments and royalties on sales of products commercialized under the patents provided for in the agreement.

        In January 2015, the Company into a three year distribution services agreement with Besse Medical for the distribution of ATX-101 in the United States, with consecutive automatic extensions of one year unless either party provides written notice of intent not to renew the agreement within 180 days. We expect that Besse Medical will be the exclusive reseller of the product in the United States, subject to the Company's ability to sell directly to healthcare providers. The Company intends to sell ATX-101 to Besse at a fixed price, subject to certain adjustments and cost-sharing provisions.

        In February 2015, the Company filed with the Securities and Exchange Commission a Registration Statement on Form S-8 registering 681,844 shares of common stock to become issuable under the Company's 2015 Employee Stock Purchase Plan, which remains subject to shareholder approval.

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