10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2016

OR

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

Commission File Number 001-36617

VITAE PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	04-3567753
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
502 West Office Center Drive, Fort Washington, PA	19034
(Address of principal executive offices)	(Zip Code)

(215) 461-2000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically 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  ☒  No  ☐

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 ☐	Accelerated filer ☒
Non-accelerated filer ☐   (Do not check if a smaller reporting company)	Smaller reporting company ☐

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

As of July 29, 2016, there were 28,841,067 outstanding shares of the registrant’s common stock, $.0001 par value per share.

VITAE PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Balance Sheets as of June 30, 2016 and December 31, 2015	4
	Statements of Operations for the three and six months ended June 30, 2016 and 2015	5
	Statements of Comprehensive Loss for the three and six months ended June 30, 2016 and 2015	6
	Statements of Cash Flows for the six months ended June 30, 2016 and 2015	7
	Notes to the Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 3.	Defaults Upon Senior Securities	71
Item 4.	Mine Safety Disclosures	71
Item 5.	Other Information	71
Item 6.	Exhibits	74
Signatures		75

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “design,” “intend,” “expect,” “could,” “plan,” “potential,” “predict,” “seek,” “should,” “would” or the negative version of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short- and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, assumptions and other important factors, including those described in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the Securities and Exchange Commission on March 4, 2016. In light of these risks, uncertainties, assumptions and other factors, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward- looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Forward-looking statements include, but are not limited to, statements about:

· the timing of enrollment, commencement and completion of our clinical trials;

· the timing and success of preclinical studies and clinical trials conducted by us and our future development partners, if any;

· the scope, progress, expansion, and costs of developing and commercializing our current or future product candidates;

· the size and growth of the potential markets for our current or future product candidates and the ability to serve those markets;

· our expectations regarding our expenses and revenue, the sufficiency of our cash resources and needs for additional financing;

· our ability to establish and maintain development partnerships;

· the ability to obtain and maintain regulatory approval of our product candidates, and the labeling for any approved products;

· the rate and degree of market acceptance of any of our current or future product candidates;

· our expectations regarding competition or our market position with respect to competitors;

· our anticipated growth strategies;

· our ability to attract or retain key personnel;

· our expectations regarding federal, state and foreign regulatory requirements;

· regulatory developments in the United States and foreign countries;

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· our ability to obtain and maintain intellectual property protection for our structure-based drug discovery platform and our product candidates;

· the anticipated trends and challenges in our business and the market in which we operate; and

· the use or sufficiency of our existing cash, cash equivalents and marketable securities.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date of this report. Except as required by law, we disclaim any duty to update any of these forward-looking statements after the date of such statements are made, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Vitae Pharmaceuticals, Inc.

Balance Sheets

	As of
	June 30,		December 31,
	2016		2015
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	24,145,996	$	11,773,692
Marketable securities, available-for-sale		53,295,696		47,596,144
Prepaid expenses and other current assets		1,059,415		1,767,167
Total current assets		78,501,107		61,137,003
Cash—restricted		200,000		200,000
Property and equipment, net		485,972		509,340
Total assets	$	79,187,079	$	61,846,343
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,569,905	$	2,991,186
Accrued expenses		4,558,076		4,338,568
Total current liabilities		6,127,981		7,329,754
Deferred rent and lease incentives		27,022		48,839
Total liabilities		6,155,003		7,378,593
Stockholders’ equity:
Preferred stock, $0.0001 par value, 15,000,000 shares authorized at June 30, 2016 and December 31, 2015 no shares issued and outstanding at June 30, 2016 and December 31, 2015		—		—
Common stock, $0.0001 par value, 150,000,000 shares authorized at June 30, 2016 and December 31, 2015 28,841,278 and 22,066,224 shares issued and 28,841,067 and 22,066,013 shares outstanding at June 30, 2016 and December 31, 2015 respectively		2,884		2,207
Additional paid in capital		267,402,079		228,460,955
Treasury stock		(2,324)		(2,324)
Accumulated other comprehensive income (loss)		10,784		(29,515)
Accumulated deficit		(194,381,347)		(173,963,573)
Total stockholders’ equity		73,032,076		54,467,750
Total liabilities and stockholders’ equity	$	79,187,079	$	61,846,343

The accompanying notes are an integral part of these financial statements.

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Vitae Pharmaceuticals, Inc.

Statements of Operations (Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Collaborative revenues	$	3,274	$	161,588	$	54,627	$	311,827
Operating expenses:
Research and development		7,878,900		7,772,822		15,515,195		15,278,738
General and administrative		2,659,908		2,259,358		5,157,230		4,370,414
Total operating expenses		10,538,808		10,032,180		20,672,425		19,649,152
Loss from operations		(10,535,534)		(9,870,592)		(20,617,798)		(19,337,325)
Other income (expenses):
Other income		—		1,430		—		1,430
Interest income		125,487		107,820		200,024		182,013
Interest expense		—		—		—		(107,864)
Loss on debt extinguishment		—		—		—		(206,678)
Total other income (expenses)		125,487		109,250		200,024		(131,099)
Net loss	$	(10,410,047)	$	(9,761,342)	$	(20,417,774)	$	(19,468,424)
Per share information:
Net loss per common share:
Basic	$	(0.36)	$	(0.45)	$	(0.79)	$	(0.91)
Diluted	$	(0.36)	$	(0.45)	$	(0.79)	$	(0.91)
Weighted-average number of common shares:
Basic		28,829,553		21,837,676		25,686,529		21,315,094
Diluted		28,829,553		21,837,676		25,686,529		21,315,094

The accompanying notes are an integral part of these financial statements.

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Vitae Pharmaceuticals, Inc.

Statements of Comprehensive Loss (Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Net loss	$	(10,410,047)	$	(9,761,342)	$	(20,417,774)	$	(19,468,424)
Other comprehensive income (loss):
Unrealized gains (losses) on marketable securities		3,988		(20,521)		40,299		(10,120)
Comprehensive loss	$	(10,406,059)	$	(9,781,863)	$	(20,377,475)	$	(19,478,544)

The accompanying notes are an integral part of these financial statements.

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Vitae Pharmaceuticals, Inc.

Statements of Cash Flows (Unaudited)

	Six Months Ended June 30,
	2016		2015
Operating activities:
Net loss	$	(20,417,774)	$	(19,468,424)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation		111,145		104,723
Stock-based compensation expense		1,491,446		869,313
Deferred rent and lease incentives		(13,775)		(5,891)
Amortization of deferred financing fees		—		35,821
Noncash portion of loss on early extinguishment of debt		—		122,225
Changes in assets and liabilities:
Prepaid expenses and other current assets		707,752		(822,107)
Accounts payable and accrued expenses		(1,205,292)		3,213,764
Interest payable		—		(278,620)
Net cash used in operating activities		(19,326,498)		(16,229,196)
Investing activities:
Purchases of property and equipment		(92,301)		(130,515)
Purchases of investments		(41,389,253)		(55,053,651)
Sales of investments		35,730,000		19,988,571
Net cash used in investing activities		(5,751,554)		(35,195,595)
Financing activities:
Principal payments under debt facilities		—		(4,935,260)
Payment of offering costs		(578,092)		(620,218)
Settlement of restricted stock		—		(1,910,101)
Proceeds from the issuance of common stock, net of repurchases		38,028,448		38,855,130
Net cash provided by financing activities		37,450,356		31,389,551
Net increase (decrease) in cash and cash equivalents		12,372,304		(20,035,240)
Cash and cash equivalents at beginning of period		11,773,692		29,494,755
Cash and cash equivalents at end of period	$	24,145,996	$	9,459,515
Supplemental disclosures of cash flow information:
Cash paid for interest	$	—	$	395,346

The accompanying notes are an integral part of these financial statements.

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Vitae Pharmaceuticals, Inc.

Notes to Financial Statements (Unaudited)

1. Organization

Vitae Pharmaceuticals, Inc. (“Vitae” or the “Company”) is a clinical-stage biotechnology company focused on discovering and developing novel, small molecule drugs for diseases in which there are significant unmet medical needs. The Company is developing a robust and growing portfolio of novel product candidates internally generated by Contour®, its proprietary structure-based drug discovery platform. The Company has a portfolio that includes several wholly-owned product candidates in various stages of development.

The Company’s most advanced, wholly-owned product candidate is VTP-43742, a first in class oral small molecule, which is being developed for the treatment of psoriasis as well as multiple autoimmune disorders, and for which the Company announced positive top-line clinical and biomarker results from its Phase 2a proof-of-concept trial in March 2016. The Company’s second most advanced wholly-owned product candidate is VTP-38543 for the treatment of atopic dermatitis, which is in Phase 2a clinical development. The Company is also advancing a second RORγt clinical candidate, VTP-45489, which is a chemically distinct compound from VTP-43742. A clinical trial of VTP-45489 is expected to initiate in the fourth quarter of 2016.  The Company intends to advance and retain rights to these and other programs and product candidates that the Company believes it can develop and commercialize, and to strategically partner where doing so can accelerate the program and generate non-dilutive capital for Vitae.

The Company also has a product candidate, VTP-36951, in pre-clinical development for the treatment and prevention of Alzheimer’s disease, or Alzheimer’s. VTP-36951 was being developed exclusively by Boehringer Ingelheim GmbH (“BI”) as BI 1147560 pursuant to a Research Collaboration and License Agreement with BI that was entered into in June 2009 (the “BACE Agreement”). In July 2015, BI notified the Company that it was terminating the BACE Agreement, effective as of October 21, 2015, for strategic business reasons. In connection with the termination of the BACE Agreement, the Company received the rights to the BACE program, including VTP-36951, which includes, among other rights, certain exclusive rights to develop and commercialize the terminated products for the treatment of Alzheimer’s, diabetes and the other indications covered by the BACE Agreement. The Company has decided not to make additional investments into this program at this time and will assess the program following the disclosure of other companies’ BACE program clinical trial results.  However, the Company will continue to assess strategic options relating to this program during such time.

The Company was also developing BI187004/VTP-34072 (“BI187004”), which was in a Phase 2 clinical trial for the treatment of type 2 diabetes, and was being developed under a Research Collaboration and License Agreement with BI that was entered into in October 2007 (the “11β Agreement”). In December 2015, the Company announced that BI187004 did not achieve the predefined primary efficacy endpoint criteria of the trial. As a result, BI informed the Company of its intention to terminate the program and the 11β Agreement effective as of March 9, 2016. The Company has no current plans to continue the program independently, but will continue to assess strategic options relating to this program.

The collaborations with BI, including the BACE Agreement, have provided the Company with an aggregate of $158 million in funding as of June 30, 2016, including $30 million from sales of the Company’s equity securities and $128 million in upfront license fees, research funding and success-based milestones.

Vitae is currently pursuing the following strategies: advance its growing portfolio of product candidates, establish late-stage development and commercialization capabilities for certain of the Company’s product candidates in the U.S. and potentially other markets, selectively collaborate with large biotechnology and pharmaceutical companies to maximize the value of the Company’s product candidates, leverage Contour to rapidly discover novel small molecule product candidates for additional validated, difficult-to-drug targets, and continue investing in technology, people and intellectual property.

As of June 30, 2016, the Company had cash, cash equivalents and marketable securities of approximately $77.4 million. Based on the Company’s current operating plan, the Company believes that its existing cash, cash

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equivalents and marketable securities will be sufficient to fund its currently anticipated operating expenses and capital expenditure requirements into the second half of 2018, which is expected to be approximately 12 months  after its currently planned announcement of top-line data from the anticipated 16 week Phase 2 clinical trial for VTP-43742 in psoriasis patients. The Company will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all of the Company’s planned research and development activities. The future success of the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain profitable operations. The Company is subject to a number of risks similar to other life sciences companies, including, but not limited to, successful discovery and development of its drug candidates, raising additional capital, development by its competitors of new technological innovations, protection of proprietary technology and market acceptance of the Company’s products.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and are unaudited. The interim unaudited financial statements have been prepared on the same basis as the financial statements as of and for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (“Annual Report on Form 10-K”). In the opinion of management, the accompanying financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2016 and the results of its operations, comprehensive loss and cash flows for the three and six months ended June 30, 2016 and 2015. The results for the three and six months ended June 30, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016, any other interim periods, or any future year or period.  The information contained in the accompanying financial statements and the notes thereto should be read in conjunction with the financial statements and notes thereto as of and for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 4, 2016.

Fair Value of Financial Instruments

At June 30, 2016 and December 31, 2015, the Company’s financial instruments included cash and cash equivalents, restricted cash, marketable securities, accounts payable, and accrued expenses. The carrying amounts reported in the Company’s financial statements for cash and cash equivalents, restricted cash, accounts payable and accrued expenses approximates their respective fair values because of the short-term nature of these instruments. The Company’s marketable securities are carried at fair value based on quoted market prices and other observable inputs. The Company determines the estimated fair value of financial instruments using available market information and management’s estimates. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.

Net Income (Loss) Per Common Share

Basic net income (loss) per share is determined by using the weighted average number of shares of common stock outstanding during each period. Diluted net income (loss) per common share is computed by using the weighted-average number of shares of common stock outstanding, plus, for periods with net income attributable to common stock, the dilutive effects of stock options, restricted stock units, and warrants. Potential dilutive shares consist of incremental common stock issuable upon the exercise of stock options and warrants. Basic and dilutive computations are the same in periods with net losses attributable to common stockholders as the dilutive effects of stock options, restricted stock units and warrants would be antidilutive.

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Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) and subsequently issued additional updates amending the guidance contained in Topic 606 thereby affecting the guidance contained in ASU 2014-09. ASU 2014-09 and the subsequent Topic 606 updates will supersede and replace nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, and are effective for annual reporting periods beginning after December 15, 2017, including interim periods therein. The Company is evaluating the guidance in ASU 2014-09 and the subsequent Topic 606 updates and has not yet determined what, if any, effect this guidance will have on its results of operations or financial condition.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern. ASU 2014-15 requires management of all entities to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued, and to make certain disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 is effective for the Company for annual reporting periods beginning in 2016 and for interim reporting periods starting in the first quarter of 2017. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on its financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the balance sheet classification of deferred taxes and requires that all deferred taxes be presented as noncurrent. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. The adoption of this update is not expected to have a material effect on the Company’s financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. ASU 2016-02 is effective beginning after December 15, 2018 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company has not yet determined what the effects of adopting this ASU will be on its financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation, which simplifies the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company's payments for tax withholdings should be classified. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. The Company has not yet determined what the effects of adopting this ASU will be on its financial statements.

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3. Net Loss Per Common Share

The following table sets forth the computation of basic and diluted net loss per common share for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Basic and diluted net loss per common share calculation:
Net loss	$	(10,410,047)	$	(9,761,342)	$	(20,417,774)	$	(19,468,424)
Weighted average number of common shares:
Basic and diluted		28,829,553		21,837,676		25,686,529		21,315,094
Net loss per common share
Basic and diluted	$	(0.36)	$	(0.45)	$	(0.79)	$	(0.91)

The following outstanding securities at June 30, 2016 and 2015 have been excluded from the computation of diluted weighted shares outstanding, as their effects on net loss per share would have been anti-dilutive:

	June 30,
	2016	2015
Stock options	2,244,925	1,794,027
Employee stock purchase plan	9,401	15,397
Warrants	45,468	45,468
Total	2,299,794	1,854,892

4. Accrued Expenses

At June 30, 2016 and December 31, 2015, accrued expenses consisted of the following:

	June 30,		December 31,
	2016		2015
Payroll and related costs	$	1,243,619	$	1,926,213
Research and development related costs		2,657,346		1,914,336
Legal and accounting related costs		399,211		256,708
Other		257,900		241,311
Total	$	4,558,076	$	4,338,568

5. Fair Value Measurements

The Company measures certain assets and liabilities at fair value in accordance with Accounting Standards

Codification (ASC) 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The guidance in ASC 820 outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, the Company maximizes the use of quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. 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.

· Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

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· Level 3—Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

The Company’s Level 1 assets included money market funds and certificates of deposit (“CD”). Level 2 assets included U.S. government agency securities and corporate debt securities. The following fair value hierarchy tables present information about each major category of financial assets measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015:

	Fair Value Measurements as of  June 30, 2016 Using
							Balance as of
	Level 1		Level 2		Level 3		June 30, 2016
Assets
Money market funds	$	23,271,553	$	—	$	—	$	23,271,553
Cash-restricted, CD		200,000		—		—		200,000
Marketable securities, available-for-sale		—		53,295,696		—		53,295,696
Total assets	$	23,471,553	$	53,295,696	$	—	$	76,767,249

	Fair Value Measurements as of  December 31, 2015 Using
							Balance as of
	Level 1		Level 2		Level 3		December 31, 2015
Assets
Money market funds	$	7,925,684	$	—	$	—	$	7,925,684
Other cash equivalents		—		2,752,930		—		2,752,930
Cash-restricted, CD		200,000		—		—		200,000
Marketable securities, available-for-sale		—		47,596,144		—		47,596,144
Total assets	$	8,125,684	$	50,349,074	$	—	$	58,474,758

6. Investments

Marketable Securities

Marketable securities consisted of the following as of June 30, 2016 and December 31, 2015:

	Cost		Unrealized		Unrealized		Fair
	Basis		Gains		Losses		Value
June 30, 2016
Corporate notes and bonds	$	53,284,912	$	22,333	$	(11,549)	$	53,295,696
Total marketable securities	$	53,284,912	$	22,333	$	(11,549)	$	53,295,696
December 31, 2015
Corporate notes and bonds	$	47,625,609	$	2,591	$	(32,056)	$	47,596,144
Total marketable securities	$	47,625,609	$	2,591	$	(32,056)	$	47,596,144

As of June 30, 2016, the Company’s marketable securities had maturities that were less than one year.

7. Debt Extinguishment

On February 27, 2015, the Company repaid the outstanding balance due under a credit facility with Silicon Valley Bank and Oxford Finance LLC. The total payoff was $4,342,855, which included prepayment and other additional fees of $84,453. The Company had $20,852 of deferred financing fees and $101,373 of unamortized debt discount as of the payoff date. The debt repayment was accounted for as an extinguishment as per ASC 470-50, Debt: Modifications and Extinguishments, and a loss on extinguishment of debt totaling $206,678 was recorded in the six months ended June 30, 2015, consisting of the unamortized deferred financing, unamortized debt discount and prepayment and other additional fees.

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8. Stockholders’ Equity

Common Stock

On June 30, 2016, the Company entered into a sales agreement with Cantor Fitzgerald & Co. (“Cantor”), pursuant to which the Company may offer and sell shares of the Company’s common stock from time to time through Cantor having an aggregate offering price of up to $40.0 million. The Company is not obligated to make any sales of the shares under the sales agreement. As of June 30, 2016, the Company has not sold any shares of common stock pursuant to the sales agreement with Cantor.

On March 24, 2016, the Company issued and sold a total of 5,833,333 shares of its common stock at $6.00 per share in an underwritten public offering, for gross proceeds of $35.0 million. On March 31, 2016, the underwriters of the Company’s public offering exercised their option to purchase additional shares and the Company issued and sold an additional 815,000 shares of common stock at $6.00 per share for aggregate gross proceeds of $4.9 million. Net proceeds from the offering, including the sale of the additional shares, was approximately $36.9 million, after deducting underwriting discounts and commissions and other offering expenses.

On January 28, 2015, the Company issued and sold a total of 3,450,000 shares of its common stock at $11.90 per share in an underwritten public offering, including 450,000 shares of common stock sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares. Net proceeds from the offering, including the sale of the additional shares, was approximately $38.0 million, after deducting underwriting discounts and commissions and other offering expenses.

Preferred Stock

As of June 30, 2016, the Company had authorized 15,000,000 shares of preferred stock at $0.0001 par value. There were no shares of preferred stock issued or outstanding as of June 30, 2016.

Treasury Stock

In connection with cashless employee stock option exercises for the six months ended June 30, 2015 employees tendered 211 shares of common stock with a fair value of $2,324 to the Company as consideration for the exercise price. Treasury stock is recorded using the cost method. Treasury stock retirements are recorded by deducting the par value from common stock and charging the remaining excess of cost over par to accumulated deficit.

Warrants

As of June 30, 2016, the Company had warrants outstanding for the purchase of 45,468 shares of common stock at exercise prices ranging from $20.70 to $27.60 per share. The following table summarizes the warrants outstanding and exercisable as of June 30, 2016:

		Exercise		Expiration
Warrants to Purchase	Shares	Price		Date
Common stock	1,449	$	20.70	07/12/2016
Common stock	14,130	$	27.60	08/28/2018
Common stock	29,889	$	27.60	12/21/2021

On July 12, 2016, warrants to purchase 1,449 common shares with an exercise price of $20.70 per share expired unexercised.

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Shares Reserved for Future Issuance

At June 30, 2016, the Company has reserved the following shares of common stock for issuance:

Common stock options outstanding	2,244,925
Shares available for future grant under employee compensation plans	2,434,639
Shares available through employee stock purchase plan	375,896
Warrants	45,468
	5,100,928

9. Employee Compensation Plans

In July 2014, the Company’s board of directors approved the 2014 Stock Plan (the “2014 Plan”) and reserved to be authorized for issuance under the 2014 Plan the sum of (1) 1,782,500 shares of the Company’s common stock, (2) the number of shares of the Company’s common stock reserved under the Predecessor Plans (as defined below) that are not issued or subject to outstanding awards under the Predecessor Plans as of the closing of the Company’s initial public offering on September 24, 2014 (IPO) and (3) any shares of the Company’s common stock which are subject to outstanding options under the Predecessor Plans as of the closing of the Company’s IPO that subsequently expire or lapse unexercised or are subsequently forfeited to or repurchased by the Company, provided that the shares reserved under clauses (2) and (3) above shall include no more than 1,070,687 shares of the Company’s common stock. As of June 30, 2016, there are 2,434,639 shares available for grant without restriction.

Under the 2014 Plan, options to purchase common stock, restricted stock and restricted stock units may be granted to the Company’s employees, nonemployee directors, and consultants providing services to the Company. The aggregate number of shares of the Company’s common stock reserved for issuance under the 2014 Plan shall automatically be increased on the first business day of each of the Company’s fiscal years by a number equal to the smallest of (i) 4% of the total number of shares of the Company’s common stock actually issued and outstanding on the last business day of the prior fiscal year (excluding any rights to purchase shares of the Company’s common stock that may be outstanding, such as options or warrants), (ii) 1,426,000 shares of the Company’s common stock or (iii) a number of shares of Common Stock determined by the Company’s board of directors. As of January 1, 2016, the number of shares of common stock that may be issued under the 2014 Plan was automatically increased by 882,640 shares, increasing the number of shares of common stock available for issuance under the 2014 Plan to 3,756,092 shares.

The Company has three additional share-based compensation plans pursuant to which outstanding awards have been made, but from which no further awards can or will be made: (i) the 2001 Stock Plan (the “2001 Plan”); (ii) the 2004 Stock Plan (the “2004 Plan”); and the 2013 Stock Plan (the “2013 Plan”, and collectively with the 2001 Plan and the 2004 Plan, the “Predecessor Plans”).

The cost of stock-based compensation awards are determined based on the grant-date fair value, net of the effects of estimated forfeitures of the awards, and is recognized into expense over the award’s service period. Stock-based compensation expense for the three and six months ended June 30, 2016 and 2015 was recognized as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Research and development	$	324,221	$	235,819	$	664,219	$	373,577
General and administrative		428,341		303,856		827,227		495,736
Total stock-based compensation expense	$	752,562	$	539,675	$	1,491,446	$	869,313

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	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Stock options	$	711,683	$	488,328	$	1,337,842	$	783,422
Employee stock purchase plan		40,879		51,347		153,604		85,891
Total stock-based compensation expense	$	752,562	$	539,675	$	1,491,446	$	869,313

Stock Options

All options granted under the Plans were granted with exercise prices equal to or above the fair market value of the Company’s common stock on the date of grant. Options granted under the Plans vest over a time period or based on performance milestones established at the sole discretion of the Company’s board of directors or its compensation committee. Vesting for time-based options generally occurs over a period of not greater than four years. All stock options expire no later than ten years from the grant date. Under the terms of the Plans, employees may use shares to exercise a portion of these options. Shares tendered for this purpose are valued at the fair market value as of the date the options are exercised.

The following table summarizes stock option activity under the Plans from January 1, 2016 through June 30, 2016:

		Weighted-		Weighted-
		Average		Average	Aggregate
	Number	Exercise		Contractual	Intrinsic
	of Shares	Price		Life (in Years)	Value
Outstanding, January 1, 2016	1,865,316	$	8.1159
Granted	491,625	$	9.3169
Exercised	(95,071)	$	3.5602
Expired	—	$	—
Forfeited	(16,945)	$	10.0491
Outstanding, June 30, 2016	2,244,925	$	8.5698	7.41	$	6,583,575
Exercisable, June 30, 2016	881,618	$	6.9236	5.31	$	3,845,186
Vested and Expected to Vest, June 30, 2016	2,206,412	$	8.5462

The total intrinsic value of options exercised during the six months ended June 30, 2016 and 2015 was $326,124 and $1,752,314, respectively.

The Company granted 303,559 performance-based stock options to employees in March 2011. These performance options have a 10-year life and exercise prices equal to the fair value of the Company’s stock at the grant date. Vesting of no more than 60% of these performance options is dependent on (i) meeting certain performance conditions, which relate to the Company’s research and development progress, which were established by the Company’s board of directors and (ii) the passage of time subsequent to the achievement of such performance conditions. Vesting of no more than 40% of these performance options is dependent on (i) meeting certain performance conditions, which relate to a deemed liquidation of the Company, an IPO or consummation of a strategic transaction, which were established by the Company’s board of directors and (ii) the passage of time subsequent to the achievement of such performance conditions. The Company’s board of directors determines if the performance conditions have been met. Stock-based compensation expense for these options is recorded when management estimates that the vesting of these options is probable based on the status of the Company’s research and development programs and other relevant factors and stock-based compensation expense was recorded ratably over the service period associated with the performance condition. As of June 30, 2016, the vesting of 165,883 performance-based stock options had been deemed probable. Any change in these estimates will result in a cumulative adjustment in the period in which the estimate is changed, so that as of the end of a period, the cumulative compensation expense recognized for an award or grant equals the amount that would be recognized on a straight-line basis as if the current estimates had been utilized since the beginning of the service period.

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The Company uses the Black-Scholes valuation model to estimate the fair value of stock options at the grant date. The Black-Scholes valuation model requires the Company to make certain estimates and assumptions, including assumptions related to the expected price volatility of the Company’s stock, the period during which the options will be outstanding, the rate of return on risk- free investments, and the expected dividend yield for the Company’s stock.

The fair values of stock options granted during the six months ended June 30, 2016 and 2015 were calculated using the following weighted-average assumptions:

	Six Months Ended
	June 30,
	2016	2015
Weighted-average risk-free interest rate	1.40%	1.69%
Expected term of options (in years)	6.12	6.13
Expected stock price volatility	73%	81%
Expected dividend yield	0%	0%

The weighted average fair value of options granted during the six months ended June 30, 2016 and 2015 was $6.04 and $9.83 per share, respectively. The fair values of stock options granted were calculated using the following weighted-average assumptions:

· Risk-free interest rate: The Company bases the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term.

· Expected term of options: The expected term of options represents the period of time options are expected to be outstanding. The expected term of the options granted is derived using the “simplified” method, as prescribed by the SEC Staff Accounting Bulletin No. 107, Share‑Based Payment.

· Expected stock price volatility: The expected volatility is based on historical stock price volatilities of similar entities within the Company’s industry over the period that is commensurate with the expected term of the option.

· Expected dividend yield: The estimate for annual dividends is $0.00, because the Company has not historically paid, and does not expect for the foreseeable future to pay, a dividend.

The total cash received from employees as a result of employee stock option exercises during the six months ended June 30, 2016 and 2015 was $338,468 and $263,430, respectively.

As of June 30, 2016, excluding performance-based stock options that have not been deemed probable, the aggregate unrecognized stock-based compensation expense related to unvested options granted under the Stock Plans that were expected to vest was $7,305,404. That expense is expected to be recognized as follows:

Year ending December 31,
2016	$	1,476,869
2017		2,608,487
2018		2,107,329
2019		955,881
2020		156,838
	$	7,305,404

The aggregate estimated fair value of options for which the satisfaction of the related-performance conditions have not been deemed probable is $546,951 as of June 30, 2016.

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Restricted Stock Units (“RSU”)

Under settlement procedures applicable to a fully vested performance-based RSU, which was held by the Company’s chief executive officer, the Company was required to deliver the underlying common shares on March 13, 2015. On the settlement date, the Company net settled the award by delivering approximately 220,148 shares of its common stock to its chief executive officer and withholding approximately 171,156 shares of common stock to satisfy income taxes at the applicable minimum statutory rate. In connection with the net settlement, the Company remitted the $1,910,101 tax liability on behalf of its chief executive officer to the relevant tax authorities in cash.

Employee Stock Purchase Plan

In July 2014, the Company established an Employee Stock Purchase Plan (the “Purchase Plan”). Under the Company’s Purchase Plan, eligible employees can purchase common stock through accumulated payroll deductions at such times as are established by the administrator.  The Purchase Plan is administered by the compensation committee of the Company’s board of directors. Under the Purchase Plan, eligible employees may purchase stock at 85% of the lower of the fair market value of a share of the Company’s common stock on the first day of an offering period or on the purchase date. Eligible employees may contribute up to 15% of their eligible compensation. A participant may purchase a maximum of 2,100 shares of common stock per purchase period. Under the Purchase Plan, a participant may not accrue rights to purchase more than $25,000 worth of the Company’s common stock for each calendar year in which such right is outstanding.

As of the Company’s first business day of each fiscal year, the aggregate number of shares that may be issued under the Purchase Plan shall automatically increase by a number equal to the least of (i) 1% of the total number of shares of the Company’s common stock actually issued and outstanding on the last business day of the prior fiscal year (excluding any rights to purchase shares of the Company’s common stock that may be outstanding, such as options or warrants), (ii) 356,500 shares of the Company’s common stock, or (iii) a number of shares of the Company’s common stock determined by the Company’s board of directors.  The Company’s board of directors determined not to increase the number of shares available for issuance under the Purchase Plan in 2016. As of June 30, 2016, 375,896 shares remained available for issuance.

In accordance with the guidance in ASC 718-50, the ability to purchase shares of the Company’s common stock at the lower of the offering date price or the purchase date price represents an option and, therefore, the Purchase Plan is a compensatory plan under this guidance. Accordingly, stock-based compensation cost is determined based on the option’s grant-date fair value and is recognized over the requisite service period of the option. The Company used the Black-Scholes valuation model and recognized stock-based compensation expense of $40,879 and $51,347 for the three months ended June 30, 2016 and 2015, respectively, and $153,604 and $85,891 for the six months ended June 30, 2016 and 2015, respectively.

10. Collaborative Research Agreements

Boehringer Ingelheim

11β HSD1 Inhibitors

In October 2007, the Company entered into the 11β Agreement with BI pursuant to which BI was responsible for the development and commercialization of 11β HSD1 inhibitors for certain indications, including type 2 diabetes.

In December 2015, BI notified the Company that it was terminating the 11β Agreement effective as of March 9, 2016. Under the 11β Agreement, no material payments were required to be made by or to the Company in connection with the termination of the agreement.

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Beta-site Amyloid Precursor Protein-cleaving Enzyme 1 (BACE) Inhibitors

In June 2009, the Company entered into the BACE Agreement with BI pursuant to which BI was responsible for the development and commercialization of BACE inhibitors for the treatment of Alzheimer’s disease and other forms of dementia.

In July 2015, BI notified the Company that it was terminating the BACE Agreement, effective as of October 21, 2015, for strategic business reasons.  In connection with the termination of the BACE Agreement, the Company received the rights to the BACE program, including VTP-36951, which  includes, among other rights, certain exclusive rights to develop and commercialize the terminated products for the treatment of Alzheimer’s, diabetes and the other indications covered by the BACE Agreement.  Under the BACE Agreement, no material payments were required to be made by or to the Company in connection with the termination of the agreement.

11. Income Taxes

For the three and six months ended June 30, 2016 and 2015, the Company did not record a current or deferred income tax expense or benefit. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company’s history of operating losses, the Company has concluded that it is not more likely than not that the benefit of its deferred tax assets will be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of June 30, 2016 and December 31, 2015.

12. Related Party Transactions

A member of the Company’s board of directors is a partner/founder of a law firm that provided various legal services to the Company. The Company has incurred costs of $180,000 and $60,000 for the three months ended June 30, 2016 and 2015, respectively, and $519,000 and $293,000 for the six months ended June 30, 2016 and 2015, respectively. Additionally, $88,000 and $27,000 was due to the related party as of June 30, 2016 and December 31, 2015, respectively.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties and assumptions. You should read the “Risk Factors” and “Information Regarding Forward-Looking Statements” sections of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Vitae Pharmaceuticals, Inc. (we, us, Vitae or the Company) is a clinical-stage biotechnology company focused on discovering and developing novel, small molecule drugs for diseases with significant unmet medical needs. We are developing a robust and growing portfolio of novel product candidates internally generated by Contour®, our proprietary structure-based drug discovery platform. We intend to advance and retain rights to our current and future programs and product candidates that we believe we can develop and commercialize, and to strategically partner where doing so can accelerate the program and generate non-dilutive capital for Vitae. Our portfolio includes several product candidates in various phases of development:

· Our most advanced, wholly-owned product candidate is VTP-43742, a first in class oral RORγtinhibitor, which is being developed for the treatment of psoriasis as well as multiple other autoimmune disorders. We plan to initiate a 16 week Phase 2 clinical trial of VTP-43742 in psoriasis patients in the fourth quarter of 2016 with three objectives: (1) assess the 16 week efficacy of VTP-43742 in moderate to severe psoriasis patients; (2) assess the safety and tolerability of the product candidate in a larger population and over a longer treatment period; and (3) position VTP-43742 to begin pivotal trials as soon as practicable after the completion of the Phase 2 clinical trial, if successful.  Top-line data from the Phase 2 clinical trial is expected to be announced in the second half of 2017.  The decision to move forward into this study was based on previously announced positive top-line results from two Phase 1 studies (a single ascending dose trial and a multiple ascending dose Phase 1 study) that assessed the safety, tolerability, pharmacokinetics and pharmacodynamics of VTP-43742 in healthy human volunteers over multiple dose levels, and positive top-line clinical and biomarker results from a Phase 2a multiple ascending dose proof-of-concept trial in patients with moderate to severe psoriasis, in which VTP-43742 was administered for four weeks. We continue to assess whether clinical trials in additional indications are appropriate for VTP-43742. In the proof-of-concept trial, clear signals of efficacy were observed in the 350 mg dose group and in the 700 mg dose group. Between weeks zero and two, there was a modest onset of Psoriasis Area Severity Index (PASI) score reduction, and for the last two weeks of the trial, and particularly between weeks three and four, there was an acceleration of the rate of reduction in PASI score in both the 350 mg and 700 mg dose groups, suggesting the potential for greater reductions in PASI scores with longer duration of treatment. Full efficacy in psoriasis is not generally seen in other classes of drugs until at least 12 weeks of continuous therapy. We believe the PASI score reductions observed for VTP-43742 at four weeks and the acceleration of rate of the PASI reduction between weeks three and four are consistent with the potential of VTP-43742 to achieve greater levels of efficacy with extended treatment. VTP-43742 was shown to be generally well tolerated at all dose levels tested, with no serious adverse events reported. In the 700 mg dose group, reversible transaminase elevations greater than three times the upper limits of normal were observed in three patients while being dosed, which did not trigger stopping rules of the trial, and two patients reached those levels after the four weeks of dosing completed. The transaminase levels fully reversed for all of these patients and none of them experienced related elevations in bilirubin, had any other sign of serious liver damage or required any further action. Drug-related elevated transaminase levels were not previously observed in our preclinical or clinical trials. Pharmacokinetics were consistent with once-a-day dosing.

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· Our wholly-owned product candidate VTP-38543 is a potential first in class topical LXRβ selective agonist, for the treatment of mild to moderate atopic dermatitis. VTP-38543 is in an on-going Phase 2a proof-of-concept clinical trial assessing the safety, tolerability and efficacy in patients with atopic dermatitis. Based on its mechanism, VTP-38543 is expected to improve barrier function and decrease inflammation, in this case in damaged skin tissue. VTP-38543 has been shown in preclinical studies to stimulate the development of terminally differentiated skin cells known as corneocytes as well as to increase the surrounding lamellar body lipids in the skin to improve its barrier function, while also decreasing skin inflammation. In a preclinical model of atopic dermatitis, topical VTP-38543 has demonstrated equal anti-inflammatory efficacy versus a high potency topical corticosteroid, the current standard of care. In addition to the clinical data, a number of biomarkers are being assessed in the on-going Phase 2a proof-of-concept clinical trial which are expected to help guide our decision on next steps for VTP-38543.  The biomarkers being used to assess barrier function are SREBP1c, a measure of lipid synthesis and ABCG1, a measure of lipid secretion, and Keratin-16 and filaggrin, both of which are associated with keratinocyte differentiation to corneocytes to form the impenetrable outer barrier of skin.  We expect these biomarkers to provide insight into the barrier effect of VTP-38543.  Pro-inflammatory cytokines from punch skin biopsies will also be assessed, including, specifically, IL-6.  We anticipate top-line clinical trial results in the fourth quarter of 2016.

· We are advancing a second RORγt clinical candidate, VTP-45489, which is a chemically distinct compound from VTP-43742.  VTP-45489 has a competitive pre-clinical profile and is expected to be dosed once-a-day making it a desirable clinical candidate.  We plan to initiate a Phase 1 single ascending dose clinical trial in healthy human volunteers assessing safety, tolerability, pharmacokinetics and pharmacodynamics across a broad dose range in the third quarter of 2016.

We have leveraged our expertise and ability in structure-based drug discovery to create a growing portfolio of novel, potent and selective product candidates. Our goal is to further leverage this leadership in structure-based drug discovery to deliver first- or best-in-class small molecule drugs to patients in diseases with significant unmet medical needs. The key elements of our business strategy are to:

· advance our growing portfolio of product candidates;

· establish late-stage development and commercialization capabilities for certain of our product candidates in the United States and potentially other markets;

· selectively collaborate with large biotechnology and pharmaceutical companies to maximize the value of our product candidates;

· leverage Contour to rapidly discover novel small molecule product candidates for additional validated, difficult-to-drug targets; and

· continue investing in technology, people and intellectual property.

We believe these strategies provide us with multiple, potential sustainable-growth opportunities.

We were incorporated in May 2001 and commenced principal operations during 2002. Since that time, we have been principally engaged in the discovery and development of novel product candidates. Prior to our initial public offering (IPO) in September 2014, we had funded our operations principally with $132.7 million of capital in the form of license fees, milestone payments and research and development funding from our strategic partners and $120.1 million from the sale of convertible preferred stock, including $40.0 million of equity sales to our strategic partners, including BI. We have also funded our operations through credit facilities, equipment lease financings, federal grants and investment income. Through the issuance and sale of 7,906,250 shares of our common stock in our IPO, we raised $56.4 million, after deducting underwriting discounts and commissions and other offering expenses.

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On January 28, 2015, we issued and sold a total of 3,450,000 shares of our common stock at $11.90 per share in an underwritten public offering, including 450,000 shares of common stock sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares.  Net proceeds from the offering, including the sale of the additional shares, was approximately $38.0 million, after deducting underwriting discounts and commissions and other offering expenses.

On March 24, 2016, we issued and sold a total of 5,833,333 shares of our common stock at $6.00 per share in an underwritten public offering, for gross proceeds of $35.0 million. On March 31, 2016, the underwriters of our public offering exercised their option to purchase additional shares and we issued and sold an additional 815,000 shares of common stock at $6.00 per share for aggregate gross proceeds of $4.9 million. Net proceeds from the offering, including the sale of the additional shares, was approximately $36.9 million, after deducting underwriting discounts and commissions and other offering expenses.

For the six months ended June 30, 2016 and 2015, we had net losses of $20.4 million and $19.5 million, respectively. As of June 30, 2016, we had an accumulated deficit of $194.4 million. We have devoted substantially all of our capital resources to the research and development of our product candidates. Since our inception in 2001, we have had no revenues from product sales. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates from discovery through preclinical development and clinical trials, and to eventually seek regulatory approval and pursue commercialization. Furthermore, we have incurred and expect to continue to incur additional costs associated with operating as a public reporting company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

Based on our current business plan, we believe that our existing cash, cash equivalents and marketable securities of approximately $77.4 million as of June 30, 2016, will be sufficient to fund our currently anticipated operating expenses and capital expenditure requirements into the second half of 2018, which is expected to be approximately 12 months after our currently planned announcement of top-line data from the anticipated 16 week Phase 2 clinical trial for VTP-43742 in psoriasis patients. We will need to secure additional funding in the future in order to carry out all of our planned research and development activities. We will seek to fund our operations through the sale of equity, debt financings or other capital sources, including potential collaborations or partnerships with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates.

Recent Highlights

Since March 31, 2016, we experienced the following:

Research and Development Activities:

· Continued enrollment of our Phase 2a proof-of-concept clinical trial of VTP-38543 in atopic dermatitis. We expect to report top-line efficacy results in the fourth quarter of 2016.  

Corporate Items:

· In June 2016, we appointed Carole Sable, M.D., as our Chief Medical Officer. Dr. Sable will oversee the clinical development of our pipeline, including VTP-43742 and VTP-38543.

· In July 2016, our board of directors appointed Daniel M. Junius as a member of our board of directors.

Financial Developments:

· Reported net operating expenses of $10.5 million for the three months ended June 30, 2016, and cash, cash equivalents and marketable securities of $77.4 million as of June 30, 2016.

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Product Portfolio

We have developed and utilized Contour, a computational structure-based drug discovery platform, to design and optimize compounds across a range of therapeutic targets and disease areas. The following table summarizes key information about our most advanced product candidates as of June 30, 2016:

PRODUCT CANDIDATE	INDICATION (TARGET)	WORLDWIDE COMMERCIAL RIGHTS	STAGE OF CLINICAL DEVELOPMENT AND ANTICIPATED MILESTONES
VTP-43742	Moderate to severe psoriasis as our lead indication with other autoimmune diseases under consideration (RORγt)	Vitae	     A 16 week Phase 2 clinical trial in psoriasis expected to begin in the fourth quarter of 2016      Top-line data from the Phase 2 clinical trial is expected to be announced in the second half of 2017
VTP-38543	Mild to moderate Atopic dermatitis (LXRβ)	Vitae	     Top-line Phase 2a efficacy proof-of-concept results expected in fourth quarter of 2016
VTP-45489	Autoimmune diseases (RORγt)	Vitae	     Initiate a single ascending dose (SAD) clinical trial in normal healthy volunteers in the third quarter of 2016

RORγt Program

We are the leaders in discovering and developing orally active small molecule inhibitors of RORγt activity, for the treatment of a variety of autoimmune disorders, and have validated that inhibition of RORyt has clinical effect in psoriasis patients. Autoimmune disorders comprise a large number of diseases in which the body mounts an inappropriate immunological response against normal human tissues. These disorders include: psoriasis, psoriatic arthritis, ankylosing spondylitis, inflammatory bowel disease and multiple sclerosis, as well as other diseases. Due to the breath of autoimmune disorders that a RORγt inhibitor may treat, we believe there is an opportunity to advance multiple compounds into clinical development. We have two orally active, once-a-day product candidates in development, our most advanced in the clinic, VTP-43742, and our second product candidate, VTP-45489, which is expected to enter the clinic in the third quarter of 2016.

VTP-43742

In September of 2015, we announced positive top-line results from a Phase I single ascending dose clinical trial which assessed the safety, tolerability, pharmacokinetics and pharmacodynamics of VTP-43742 in 53 healthy human volunteers over several dose levels. VTP-43742 was observed to be safe and generally well tolerated at all dose levels across a broad dose range. In addition, VTP-43742 was evaluated in an ex vivo assay for its ability to inhibit the production of pro-inflammatory cytokine IL-17A in blood obtained from study subjects. Subjects receiving VTP-43742 showed a dose-dependent suppression of RORγt dependent IL-17A production by more than 90 percent, with the effect largely sustained over the full 24-hour measurement period.

In November 2015, we announced positive top-line results from a Phase 1 double-blind, placebo-controlled multiple ascending dose clinical trial of VTP-43742 designed to evaluate the safety, tolerability, pharmacokinetic and pharmacodynamic profile of multiple ascending doses of VTP-43742 in 40 healthy human volunteers over multiple dose levels.

In March 2016, we announced positive top-line clinical and biomarker results from the Phase 2a proof-of-concept multiple ascending dose trial in patients with moderate to severe psoriasis, in which VTP-43742 was administered once daily for four weeks. In the trial, clear signals of efficacy were observed in the 350 mg dose group and in the 700 mg dose group. Between weeks zero and two, there was a modest onset of PASI reduction, and for the last

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two weeks of the trial, and particularly between weeks three and four, there was an acceleration of the rate of reduction in PASI score in both the 350 mg and 700 mg dose groups, suggesting the potential for greater reductions in PASI scores with longer duration of treatment. Full efficacy in psoriasis is not generally seen in other classes of drugs until at least 12 weeks of continuous therapy. We believe the PASI score reductions observed for VTP-43742 at four weeks and the acceleration of rate of PASI reduction between weeks three and four are consistent with the potential of VTP-43742 to achieve greater levels of efficacy with extended treatment. VTP-43742 was shown to be generally well tolerated at all dose levels tested, with no serious adverse events reported. In the 700 mg dose group, reversible transaminase elevations greater than three times the upper limits of normal were observed in three patients while being dosed, which did not trigger any stopping rules of the trial, and two patients reached those levels after the four weeks of dosing completed. The transaminase levels fully reversed for all of these patients and none of them experienced related elevations in bilirubin, had any other sign of serious liver damage or required any further action. Drug-related elevated transaminase levels were not previously observed in our preclinical or clinical trials. Pharmacokinetics were consistent with once-a-day dosing.

Biomarker data were assessed in both the 350 mg and 700 mg dose groups.  Two common inflammatory cytokines found in psoriasis patients were assessed in the Phase 2a proof-of-concept trial, plasma IL-17A and IL-17F, as well as skin IL-17A and IL-17F.  There was a dose dependent reduction in plasma IL-17A and IL-17F from baseline. All plasma IL-17 A and IL-17F reductions were statistically significant. Skin IL-17A and IL-17F changes were also measured in both the 350 mg and 700 mg dose groups. The skin IL-17A changes in both the 350 mg and 700 mg dose groups were mixed with no clear change and changes in skin IL-17F were statistically significant for both dose groups compared to baseline.  The skin biomarker results are consistent with the results of systemic monoclonal antibodies targeting the TH17 pathway in patients with psoriasis. 

We plan to initiate a 16 week Phase 2 clinical trial in psoriasis patients in the fourth quarter of 2016 with three objectives: (1) assess the 16 week efficacy of VTP-43742 in moderate to severe psoriasis patients; (2) assess the safety and tolerability of the product candidate in a larger population and over a longer treatment period; and (3) position VTP-43742 to begin pivotal trials as soon as practicable after the completion of the Phase 2 clinical trial, if successful. We continue to assess whether clinical trials in additional indications are appropriate for VTP-43742.  Top-line data from the Phase 2 clinical trial is expected to be announced in the second half of 2017.

We have selected moderate to severe psoriasis as the initial, lead indication for VTP-43742. It is our belief that of the diseases for which VTP-43742 may have utility, psoriasis represents the most attractive opportunity. Our decision is based on the clinical validation of the Th17 pathway by the IL-17 and IL-23 monoclonal antibodies, our belief in the probability of technical success, the unmet need requiring better oral therapies, the potential size of the market and the potential length of time to filing a New Drug Application (NDA) with the Food and Drug Administration (FDA) compared to the other indications we evaluated.

VTP-45489

We have clinically validated RORγt as a therapeutic target providing us the confidence to continue to advance a second RORγt clinical candidate, VTP-45489, in our pipeline.  VTP-45489 is a chemically distinct compound from VTP-43742.  VTP-45489 has a competitive pre-clinical profile and is expected to be dosed once-a-day making it a desirable clinical candidate.  We plan to initiate a single ascending dose trial in healthy human volunteers assessing safety, tolerability, pharmacokinetics and pharmacodynamics across a broad dose range. The trial is expected to initiate in the third quarter of 2016.

VTP-38543 (Liver X Receptor Beta (LXRβ) for Atopic Dermatitis)

We have discovered and are developing VTP-38543, an LXRβ selective agonist, as a topical agent for the treatment of mild to moderate atopic dermatitis. VTP-38543 has been shown in preclinical studies to stimulate mature skin cells to synthesize and secrete lipids to improve its barrier function, while also decreasing skin inflammation.  Based on its mechanism, VTP-38543 is expected to improve barrier function and decrease inflammation in damaged skin tissue.

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Atopic dermatitis is a common inflammatory skin disease in children that also affects a large number of adults. The number of people in the United States with atopic dermatitis is estimated to be up to 32 million.  The most common level of severity of atopic dermatitis is mild to moderate and estimated to comprise up to 90% of all atopic dermatitis patients. It is characterized by a loss of barrier function of the skin, as well as skin inflammation. Currently available topical therapies for the treatment of mild to moderate atopic dermatitis are anti-inflammatory agents which address skin inflammation and do not address the issue of barrier function.

We have selected VTP-38543 as a product candidate for atopic dermatitis.  We are currently conducting a four-week Phase 2a randomized, double-blind vehicle controlled multiple ascending dose, proof-of-concept trial in adult patients with mild to moderate atopic dermatitis.  The clinical trial is evaluating three topical doses of VTP-38543 for safety, tolerability, efficacy, pharmacokinetic and pharmacodynamic profile in 100 patients. Each dose cohort consists of 20 patients.  Due to the modest cohort size and high vehicle response rate, the trial is not powered to demonstrate a statistical difference from vehicle.  Three efficacy endpoints are being assessed in the clinical trial, which include physician assessments, patient assessments and biomarkers. The physician assessment utilizes the Investigator’s Global Assessment (IGA) scale, which is a five point scale measuring the change of the severity of the patient’s disease from baseline. The IGA scale is considered a relatively imprecise measurement of effect, especially in a small clinical trial, due to its small scale. The second efficacy endpoint being evaluated is Severity Scoring of Atopic Dermatitis (SCORAD), which evaluates five clinical characteristics to determine disease severity: erythema, edema/papulation, oozing/crusts, excoriation and lichenification. SCORAD also assesses subjective symptoms of pruritus and sleep loss reported by patients using Visual Analogue Scales (VAS).  The final efficacy endpoint being evaluated is the Eczema Area and Severity Index (EASI), which assesses extent of disease at four body sites and measures four clinical signs: erythema, induration/papulation, excoriation and lichenification. Both SCORAD and EASI are thought to be more sensitive measures of efficacy compared to the IGA scale.  In addition to the clinical data, a number of biomarkers are being assessed which are expected to guide our decision on next steps for VTP-38543.  The biomarkers being used to assess barrier function are SREBP1c, a measure of lipid synthesis and ABCG1, a measure of lipid secretion, and Keratin-16 and filaggrin, both of which are associated with keratinocyte differentiation to corneocytes to form the impenetrable outer barrier of skin.  We expect these biomarkers to provide insight into the barrier effect of VTP-38543. Pro-inflammatory cytokines from punch skin biopsies will be assessed, including, specifically, IL-6, as well as cell histology and immunohistochemistry changes.  We anticipate reviewing the clinical data in conjunction with the all of the biomarker data to decide on the appropriate next steps for VTP-38543, which could include advancing into a further clinical trial in patients with mild to moderate atopic dermatitis. Top-line results for our Phase 2a proof-of-concept clinical trial are expected in the fourth quarter of 2016.

VTP-36951 (B-site Amyloid Precursor Protein-Cleaving Enzyme (BACE) Inhibitors)

VTP-36951 is our wholly owned BACE inhibitor that was being developed for the treatment and prevention of Alzheimer’s disease exclusively by Boehringer Ingelheim GmbH (BI).  Effective October 21, 2015, BI terminated the research collaboration and license agreement between us and BI (the BACE Agreement) for strategic business reasons. In connection with the termination of the BACE Agreement, we received the rights to the BACE program, including VTP-36951, which includes, among other rights, certain exclusive rights to develop and commercialize the terminated products for the treatment of Alzheimer’s disease, diabetes and the other indications covered by the BACE Agreement. BI had completed all GLP toxicology studies that are necessary prior to first in human trials prior to the termination of the agreement.

We have decided not to make additional investments into this program at this time and we will assess the program following the disclosure of Merck’s BACE inhibitor program clinical trial results, which Merck has previously stated is expected in 2017. 

Discovery Activities

We continue to invest in discovery activities utilizing Contour,our computational structure-based drug discovery platform, to design and optimize compounds, and which we use to discover molecules to targets with known biology, characterized as difficult to drug and with a high unmet medical need.  During the second quarter of 2016, following the demonstration of animal proof-of-concept, we selected a new candidate which was generated from

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Contour for pre-clinical development for a currently undisclosed program.  A patent has been filed covering the chemistry from the program.

Strategic Partnerships

B-site Amyloid Precursor Protein-Cleaving Enzyme Inhibitors with BI

In June 2009, we entered into the BACE Agreement. Based upon discoveries we made using Contour, we and BI formed a worldwide strategic partnership granting BI exclusive rights to develop and commercialize BACE inhibitors for the treatment of certain indications, including Alzheimer’s. The inhibition of BACE, an enzyme involved in the formation of amyloid-β and amyloid-β plaques, which are insoluble aggregates made up of amyloid-β protein and which accumulate in the brains of patients with Alzheimer’s, offers the potential to slow or even halt disease progression. Under the terms of the BACE Agreement, BI was to lead development and commercialization of all products for Alzheimer’s to capitalize on its global marketing and sales expertise and was responsible for all clinical and other product development, regulatory, manufacturing and commercialization activities and costs for the BACE program. On July 23, 2015, BI notified us that it was terminating the BACE Agreement, effective as of October 21, 2015, for strategic business reasons. In connection with the termination of the BACE Agreement, we received the rights to the BACE program, including VTP-36951 and a predecessor compound (VTP-37948), which includes, among other rights, certain exclusive rights to develop and commercialize the terminated products for the treatment of Alzheimer’s, diabetes and the other indications covered by the BACE Agreement. In April 2016, we entered into a letter agreement with BI for the purchase of certain physical materials by us from BI following termination of the BACE Agreement and pursuant to which we granted BI a non-exclusive royalty in the low single digits for the use of the rights obtained from BI in the field outlined in the BACE Agreement.

Prior to termination of the BACE Agreement, we were developing VTP-37948/BI 1181181 (BI1181181), in collaboration with BI for Alzheimer’s disease. However, in February of 2015, BI voluntarily placed BI 1181181 on a temporary clinical hold to further investigate skin reactions observed in some study participants during a Phase 1 multiple rising dose trial. BI had completed its analysis and concluded that skin reactions are burdensome for patients and, therefore, an obstacle for further development of the compound. BI had decided to move forward with the development of VTP-36951, which was discovered as part of our BACE collaboration. BI had completed all GLP toxicology studies that are necessary prior to first in human trials.

11β HSD1 Inhibitors with BI

In October 2007, we entered into a research collaboration and license agreement with BI, which we refer to as the 11β Agreement. Based upon discoveries we made using Contour, we and BI formed a worldwide strategic partnership granting BI exclusive rights to develop and commercialize novel compounds for patients with type 2 diabetes and certain related metabolic disease conditions, such as abnormal blood cholesterol and triglyceride levels, obesity and hypertension, or high blood pressure. The collaborative research program portion of this strategic partnership began in October 2007 and expired in December 2009. In December 2015, we announced that BI187004 did not achieve the predefined primary efficacy endpoint criteria of the trial. As a result, BI informed us of its intention to terminate the program and the 11β Agreement effective as of March 9, 2016. We have no current plans to continue the program independently.

Under the 11β Agreement, we received an aggregate of $65.2 million in non-equity funding as of June 30, 2016, including upfront license fees, research funding and success-based milestone payments. Pursuant to the 11β Agreement, BI was responsible for all clinical and other product development, regulatory, manufacturing and commercialization activities and costs for the 11β program, including BI187004.

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Financial Operations Overview

Revenue

To date, we have not generated any revenue from product sales. Primarily all of our revenue to date has been derived from license fees, milestone payments and collaborative research and development payments received from our strategic partners.

In the future, we may generate revenue from a combination of product sales, license fees, milestone payments and research and development payments in connection with strategic partnerships, and royalties resulting from the sales of products developed under licenses of our intellectual property. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, research and development reimbursements, milestone and other payments received under our strategic partnerships, and the amount and timing of payments that we receive upon the sale of our products, to the extent any of our products are successfully commercialized. We do not expect to generate revenue from product sales for many years, if ever. If we or our strategic partners fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Research and Development Expenses

Research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred.

These expenses include, but are not limited to:

· employee-related expenses, which include salaries, benefits and stock-based compensation;

· expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies;

· the cost of acquiring and manufacturing preclinical and clinical trial materials;

· outsourced professional scientific services;

· laboratory materials and supplies used to support our research activities;

· allocated expenses for rent, utilities and other facility-related costs; and

· software license fees associated with in-licensed products and technology.

The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or the period, if any, in which material net cash inflows may commence from any of our other product candidates. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials which vary significantly over the life of a project as a result of differences arising during clinical development, including:

· the number of clinical sites included in the trials;

· the length of time required to enroll suitable patients;

· the number of patients that ultimately participate in the trials;

· the number of doses patients receive;

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· the duration of patient follow-up; and

· the results of our clinical trials.

Our expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals, and the expense of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights. We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of the foregoing variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those which we currently anticipate, or if we experience significant delays in enrollment in any our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Drug commercialization takes several years and requires millions of dollars in development costs.

We track research and development expenses on a program-by-program basis and have allocated common expenses, such as facilities, depreciation, stock-based compensation and other research and development support expenses to each program based on the personnel resources allocated to each program. We generally track these costs as separate programs after a program achieves animal-proof-of principle. In addition to our program specific costs, we have discovery costs related primarily to the design, synthesis and assessment of product candidates for new molecular targets and for previous product candidates for which we have decided not to pursue further development. These costs include attempts to replicate literature data, structural biology around the target and, to a limited extent, compound synthesis. Generally, these costs include activities up to and including animal proof-of-concept. In addition, discovery expenses include technology development costs related to Contour. These expenses consist principally of salaries and related costs for personnel engaged in the development and enhancement of the technology.

We expect that the expenses related to our entire pipeline will continue to increase with successful progression of our product candidates and preclinical candidates into later stages of development and as we commence new discovery efforts on promising biological targets. However, future research and development costs for any particular program or product candidate are not reasonably certain because such costs are dependent on a number of variables, including successful completion of preclinical and clinical studies, the design and cost of future studies and the amount and timing of discovery efforts committed to back-up compounds.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, business development, legal and human resources functions. Other general and administrative expenses include facility costs not otherwise included in research and development expenses, patent filing and prosecution costs and professional fees for investor relations, legal, auditing and tax services.

Other Income

Other income primarily includes the impact of sales of Pennsylvania tax credits.

Interest Income, Interest Expense and Loss on Debt Extinguishment

Interest income consists of interest earned on our cash, cash equivalents and marketable securities. The primary objective of our investment policy is capital preservation.

Interest expense consists primarily of interest, amortization of debt discount, and amortization of deferred financing costs associated with any debt we owe.

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Loss on debt extinguishment consists of prepayment and other additional fees and the write-offs of unamortized debt discount and unamortized deferred financing costs as of the date of a debt repayment.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. In accordance with GAAP, we base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We define our critical accounting policies as those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in detail in Note 2 to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

Our revenues are generated primarily through collaborative arrangements which generally contain multiple elements, or deliverables, including licenses and research and development activities to be performed by us on behalf of the licensee. Payments to us under these arrangements typically include one or more of the following: (1) nonrefundable, upfront license fees, (2) funding of discovery research efforts on a full time equivalent, (FTE), basis, (3) reimbursement of research, development and intellectual property costs, (4) milestone payments, and (5) royalties on future product sales.

We account for revenue arrangements with multiple deliverables entered into prior to January 1, 2011 in accordance with Accounting Standard Codification (ASC) Topic 605-25, Revenue Recognition: Multiple-Element Arrangements. The multiple-deliverable items are divided into separate units of accounting if certain criteria are met, including whether the delivered item has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. We allocate the consideration we receive among the separate units of accounting based on their respective fair value, and apply the applicable revenue recognition criteria to each of the separate units. Where an item in a revenue arrangement with multiple deliverables does not constitute a separate unit of accounting and for which delivery has not occurred, we defer revenue until the delivery of the item is completed.

Effective January 1, 2011, we adopted, on a prospective basis, Accounting Standards Update (ASU) 2009-13, Multiple-Deliverable Revenue Arrangements, which amends ASC 605-25 and also adopted ASU 2010-17, Revenue Recognition—Milestone Method. Our collaborations with BI were entered into prior to the adoption of this guidance. The BACE Agreement amendment entered into December 2012 was accounted for under ASC 2009-13.

In accordance with ASU 2009-13, we consider whether the deliverables under the arrangement represent separate units of accounting. In determining the units of accounting, we evaluate certain criteria, including whether the deliverables have stand-alone value. The consideration received is allocated to the separate units of accounting using the relative selling price method, and the applicable revenue recognition criteria is applied to each of the separate units.

We determine the estimated selling price for agreement deliverables using the following hierarchy: (1) vendor-specific objective evidence, (VSOE), (2) third-party evidence, (TPE) or (3) best estimate of selling price if neither VSOE nor TPE is available. Determining the best estimate of selling price for a deliverable requires significant judgment and

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consideration of various factors, including market conditions, items contemplated during agreement negotiation as well as internally developed net present value models.

We typically receive upfront, nonrefundable payments when licensing our intellectual property. For intellectual property licenses that do not have stand-alone value from the other deliverables to be provided, revenue is recognized over the contractual or estimated performance period, which is typically the term of the research and development obligations. The periods over which revenue should be recognized are subject to estimates by us and may change over the course of the research and development agreement. Such a change could have a material impact on the amount of revenue we record in future periods.

Payments or reimbursements resulting from our research and development efforts are recognized as the services are performed and are presented on a gross basis so long as there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection of the related receivable is reasonably assured. Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue.

In accordance with ASU 2010-17, revenue is recognized from milestone payments when: (i) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement; and (ii) we do not have ongoing performance obligations related to the achievement of the milestone earned. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment (a) is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item or items as a result of a specific outcome resulting from our performance to achieve the milestone, (b) relates solely to past performance and (c) is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within the arrangement. We have concluded that the clinical and development and regulatory milestones pursuant to our research and development arrangements are substantive.

Royalty revenue is recognized when earned. We have not earned any royalty revenues to date.

Accrued Clinical and Preclinical Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued clinical expenses include:

· fees paid to vendors in connection with the preclinical development activities;

· fees paid to contract manufacturers in connection with the production of preclinical and clinical trial materials;

· fees paid to contract research organizations in connection with clinical studies; and

· fees paid to investigative sites in connection with clinical studies.

We base our expenses related to preclinical and clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust

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the accrual accordingly. 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 in any particular period.

Stock-Based Compensation

We account for stock-based compensation expense in accordance with the provisions of ASC 718, Compensation—Stock Compensation, which addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of or may be settled by the issuance of the enterprise’s equity instruments. ASC 718 requires that we measure the cost of equity-based service awards based on the grant-date fair value of the award, net of estimated forfeitures, and recognize the cost of such awards over the period during which the employee is required to provide service in exchange for the award (the vesting period) on a straight-line basis.

We issue both performance-based stock options and performance-based restricted stock units (RSUs). Stock-based compensation expense is recognized beginning when it is deemed probable that the performance-based goal will be met, as determined by our board of directors.

Under our Employee Stock Purchase Plan (the Purchase Plan), the employees ability to purchase shares of our common stock at the lower of the offering date price or the purchase date price represents a stock option under ASC 718‑50. Accordingly, the Purchase Plan is a compensatory plan and stock-based compensation cost is determined based on the fair value of the award on the date of grant and is recognized over the requisite service period of the award.

We expect to continue to grant stock options, and potentially other forms of equity awards, in the future, and to the extent that we do, our actual stock-based compensation expense recognized in future periods will likely increase. We have historically granted stock options at exercise prices not less than the fair market value of our common stock.

Determining Fair Value of Stock-Based Awards

Determining the amount of share-based compensation to be recorded requires us to develop estimates of the fair value of stock options as of their grant date. Calculating the fair value of share-based awards requires that we make highly subjective assumptions. The fair value of each stock-based award is calculated using the Black-Scholes option pricing model. Use of this valuation methodology requires that we make assumptions as to the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Prior to our IPO, there was no public market for the trading of our common stock. Due to this fact 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 that are publicly traded. We selected companies from the biopharmaceutical industry with similar characteristics to us, including those in the early stage of product development and with a therapeutic focus.

To calculate the expected term of stock option grants to employees, we use the simplified method as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment, as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention to pay cash dividends. The risk-free interest rate used for each grant is based on the U.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected life.

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The fair value of options granted were calculated using the following weighted-average assumptions in the Black-Scholes option pricing model for the six months ended June 30, 2016 and 2015:

	Six Months Ended
	June 30,
Stock Options:	2016	2015
Weighted-average risk-free interest rate	1.40%	1.69%
Expected term of options (in years)	6.12	6.13
Expected stock price volatility	73%	81%
Expected dividend yield	0%	0%

The purchase price of common stock under the Purchase Plan is equal to 85% of the lesser of (i) the fair market value per share of the common stock on the first business day of an offering period and (ii) the fair market value per share of the common stock on the purchase date. The fair value of the discounted purchases made under our ESPP is calculated using the Black-Scholes model. The fair value of the look-back provision plus the 15% discount is recognized as compensation expense over the offering period.

The cost of each stock-based compensation award is determined based on the grant-date fair value, net of the effects of estimated forfeitures of the awards, and is recognized into expense over the award’s service period. Stock-based compensation expense for the six months ended June 30, 2016 and 2015 was recognized as follows:

	Six Months Ended
	June 30,
	2016		2015
Research and development	$	664,219	$	373,577
General and administrative		827,227		495,736
Total stock-based compensation expense	$	1,491,446	$	869,313

	Six Months Ended
	June 30,
	2016		2015
Stock options	$	1,337,842	$	783,422
Employee stock purchase plan		153,604		85,891
Total stock-based compensation expense	$	1,491,446	$	869,313

Income Taxes

For the three and six months ended June 30, 2016 and 2015, we did not record a current or deferred income tax expense or benefit. We have evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on our history of operating losses, we have concluded that it is not more likely than not that the benefit of our deferred tax assets will be realized. Accordingly, we have provided a full valuation allowance for deferred tax assets as of June 30, 2016 and December 31, 2015.

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Results of Operations

Comparison of three months ended June 30, 2016 and 2015

	Three Months Ended
	June 30,
	2016		2015		Change
	(in thousands)
Collaborative revenues	$	3	$	162	$	(159)
Operating expenses:
Research and development		7,879		7,773		106
General and administrative		2,660		2,259		401
Total operating expenses		10,539		10,032		507
Operating loss		(10,536)		(9,870)		(666)
Other income		—		1		(1)
Interest income		125		108		17
Net loss	$	(10,411)	$	(9,761)	$	(650)

Collaborative Revenues.  For the three months ended June 30, 2016 and 2015, collaborative revenue was entirely related to intellectual property cost reimbursements of $3,000 and $0.2 million, respectively. The decrease of $0.2 million was primarily related to a reduction in intellectual property costs associated with our Research Collaboration and License Agreement with BI that was entered into in October 2007 (the “11β Agreement”).

Research and Development.  Research and development expense for the three months ended June 30, 2016 was $7.9 million compared to $7.8 million for the three months ended June 30, 2015, an increase of approximately $0.1 million. The increase was primarily attributable to a $0.6 million increase in outside study expenses for our potential future clinical candidates, a $0.2 million increase in drug manufacturing and clinical expenses associated with our LXRβ atopic dermatitis program, a $0.1 million increase in stock-based compensation expense and a $0.1 million increase in compensation expenses partially offset by a $0.9 million decrease in drug development and manufacturing expenses associated with our RORγt program.

We also track fully-allocated research and development expenses on a program-by-program basis. Below is a summary of our research and development expenses by program for the three months ended June 30, 2016 and 2015:

	Three Months Ended
	June 30,
	2016		2015
	(in thousands)
RORγt	$	2,202	$	3,927
LXRβ		1,382		952
Other Programs		4,295		2,894
Total research and development expenses	$	7,879	$	7,773

RORγt

RORγt program expenses for the three months ended June 30, 2016 were $2.2 million compared to $3.9 million for the three months ended June 30, 2015, a decrease of approximately $1.7 million. The decrease was primarily attributable to a reduction in manufacturing expenses resulting from the timing of development activities and the shift in discovery activities from our RORγt program to our potential future clinical candidates.

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LXRβ

LXRβ program expenses for the three months ended June 30, 2016 were $1.4 million compared to $1.0 million for the three months ended June 30, 2015, an increase of approximately $0.4 million. The increase was primarily attributable to drug manufacturing and clinical expenses activities associated with our LXRβ atopic dermatitis program.

Other Programs

Other program expenses for the three months ended June 30, 2016 were $4.3 million compared to $2.9 million for the three months ended June 30, 2015, an increase of approximately $1.4 million. The increase was primarily attributable to shift in discovery activities from our RORγt program to our potential future clinical candidates. A lead candidate for an undisclosed clinical target has been selected for preclinical development. Included in both periods are costs associated with the development of our Contour platform, which have remained generally consistent year over year.

General and Administrative.  General and administrative expenses for the three months ended June 30, 2016 were $2.7 million compared to $2.3 million for the three months ended June 30, 2015, an increase of approximately $0.4 million. The increase was primarily a result of a $0.1 million increase in legal fees, a $0.1 million increase in patent related expenses, a $0.1 million increase in stock-based compensation expense and a $0.1 million increase in compensation expenses.

Interest Income.  Interest income for the three months ended June 30, 2016 was $0.1 million compared to $0.1 million for the three months ended June 30, 2015. The slight increase in interest income was primarily attributable to higher portfolio yields for the three months ended June 30, 2016 as compared to June 30, 2015.

Comparison of six months ended June 30, 2016 and 2015

	Six Months Ended
	June 30,
	2016		2015		Change
	(in thousands)
Collaborative revenues	$	55	$	312	$	(257)
Operating expenses:
Research and development		15,515		15,279		236
General and administrative		5,157		4,370		787
Total operating expenses		20,672		19,649		1,023
Operating loss		(20,617)		(19,337)		(1,280)
Other income		—		1		(1)
Interest income		200		182		18
Interest expense		—		(108)		108
Loss on debt extinguishment		—		(206)		206
Net loss	$	(20,417)	$	(19,468)	$	(949)

Collaborative Revenues.  For the six months ended June 30, 2016 and 2015, collaborative revenue was entirely related to intellectual property cost reimbursements of $0.1 and $0.3 million, respectively. The decrease of $0.2 million was primarily related to a reduction in intellectual property costs associated with our 11β Agreement which terminated in March 2016.

Research and Development.  Research and development expense for the six months ended June 30, 2016 was $15.5 million compared to $15.3 million for the six months ended June 30, 2015, an increase of approximately $0.2 million. The increase was primarily attributable to a $0.9 million increase in drug manufacturing and clinical expenses associated with our LXRβ atopic dermatitis program,  a $0.9 million increase in outside study expenses for our potential future clinical candidates, a $0.5 million increase in clinical expenses associated with our RORγt program, a $0.3 million

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increase in stock-based compensation expense and a $0.1 million increase in compensation expenses partially offset by a $2.5 million decrease in drug development and manufacturing expenses associated with our RORγt program.

We also track fully-allocated research and development expenses on a program-by-program basis. Below is a summary of our research and development expenses by program for the six months ended June 30, 2016 and 2015:

	Six Months Ended
	June 30,
	2016		2015
	(in thousands)
RORγt	$	4,913	$	8,458
LXRβ		2,562		1,345
Other Programs		8,040		5,476
Total research and development expenses	$	15,515	$	15,279

RORγt

RORγt program expenses for the six months ended June 30, 2016 were $4.9 million compared to $8.5 million for the six months ended June 30, 2015, a decrease of approximately $3.6 million. The decrease was primarily attributable to a reduction in manufacturing expenses resulting from the timing of development activities and the shift in discovery activities from our RORγt program to our potential future clinical candidates.

LXRβ

LXRβ program expenses for the six months ended June 30, 2016 were $2.6 million compared to $1.3 million for the six months ended June 30, 2015, an increase of approximately $1.3 million. The increase was primarily attributable to drug manufacturing and clinical expenses activities associated with our LXRβ atopic dermatitis program.

Other Programs

Other program expenses for the six months ended June 30, 2016 were $8.0 million compared to $5.5 million for the six months ended June 30, 2015, an increase of approximately $2.5 million.  The increase was primarily attributable to shift in discovery activities from our RORγt program to our potential future clinical candidates. A lead candidate for an undisclosed clinical target has been selected for preclinical development. Included in both periods are costs associated with the development of our Contour platform, which have remained generally consistent year over year.

General and Administrative.  General and administrative expenses for the six months ended June 30, 2016 were $5.2 million compared to $4.4 million for the six months ended June 30, 2015, an increase of $0.8 million. The increase was primarily a result of a $0.3 million increase in stock-based compensation expense, a $0.2 million increase in legal fees and a $0.2 million increase in compensation expenses.

Interest Income.  Interest income for the six months ended June 30, 2016 was $0.2 million compared to $0.2 for the six months ended June 30, 2015. The slight increase in interest income was primarily attributable to higher portfolio yields partially offset by a decrease in our average cash balance for the six months ended June 30, 2016 as compared to June 30, 2015.

Interest Expense.  Interest expense for the six months ended June 30, 2015, totaling $0.1 million, consisted of the interest expense associated with the then outstanding debt under the credit facility with Silicon Valley Bank and Oxford Finance LLC.

Loss on Debt Extinguishment.  Loss on debt extinguishment was $0.2 million for the six months ended June 30, 2015. The loss was due to the repayment of the outstanding balance of the Silicon Valley Bank and Oxford Finance LLC credit facility on February 27, 2015. The total payoff was $4.3 million, which included prepayment and

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other additional fees of $84,453. Included in the loss on debt extinguishment were write-offs of unamortized deferred financing fees of $20,852 and unamortized debt discount of $0.1 million as of the date of payoff.

Liquidity and Capital Resources and Plan of Operations

As of June 30, 2016, we had cash, cash equivalents and marketable securities of approximately $77.4 million and working capital of $72.4 million. As of June 30, 2016, our cash equivalents and marketable securities included money market funds, certificates of deposit and corporate debt securities. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our currently anticipated operating expenses and capital expenditure requirements into the second half of 2018. As of June 30, 2016, we had an accumulated deficit of $194.4 million.

On March 24, 2016, we issued and sold a total of 5,833,333 shares of our common stock at $6.00 per share in an underwritten public offering, for gross proceeds of $35.0 million. On March 31, 2016, the underwriters of our public offering exercised their option to purchase additional shares and we issued and sold an additional 815,000 shares of common stock at $6.00 per share for aggregate gross proceeds of $4.9 million. Net proceeds from the offering, including the sale of the additional shares, was approximately $36.9 million, after deducting underwriting discounts and commissions and other offering expenses.

On January 28, 2015, we issued and sold a total of 3,450,000 shares of our common stock at $11.90 per share in an underwritten public offering, including 450,000 shares of common stock sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares. Net proceeds from the offering, including the sale of the additional shares, was approximately $38.0 million, after deducting underwriting discounts and commissions and other offering expenses.

On September 29, 2014, we sold 6,875,000 shares of common stock in our IPO for net proceeds of $48.8 million after underwriting discounts and commissions and other offering expenses. On October 27, 2014, we issued and sold an additional 1,031,250 shares of common stock at the IPO price of $8.00 per share for net proceeds of $7.6 million, after deducting underwriting discounts and commissions and other offering expenses, in connection with the full exercise by the underwriters of their over-allotment option.

Prior to our IPO, we funded our operations through the private placement of equity securities, revenue from strategic partnerships, debt financing and interest income. As of June 30, 2016, we have received gross proceeds of $120.1 million from the issuance of convertible preferred stock, including $40.0 million of equity sales to our strategic partners, all which occurred prior to our IPO. As of June 30, 2016, we had received an aggregate of $138.7 million in cash from non-equity capital in the form of license fees, milestone payments and research and development funding received from our strategic partners. In addition, we have received approximately $39.8 million in funding from our debt financings with various commercial lenders; all such debt has been repaid.

Under settlement procedures applicable to an outstanding RSU award held by our chief executive officer, we were required to deliver the underlying 391,304 shares on March 13, 2015. On the settlement date, we net settled the award by delivering approximately 220,148 shares of our common stock to our chief executive officer and withholding approximately 171,156 shares of common stock to satisfy income taxes at the applicable minimum statutory rate. In connection with the net settlement, we remitted the tax liabilities on behalf of our chief executive officer to the relevant tax authorities in cash.

On October 5, 2015, we filed a universal shelf registration statement with the SEC for the issuance of common stock, preferred stock, warrants, rights, debt securities and units up to an aggregate amount of $200.0 million (the 2015 Shelf Registration Statement). On November 5, 2015, the 2015 Shelf Registration Statement was declared effective by the SEC. In the future, we may periodically offer one or more of these securities in amounts, prices and terms to be announced when and if the securities are offered. At the time any of the securities covered by the 2015 Shelf Registration Statement are offered for sale, a prospectus supplement will be prepared and filed with the SEC containing specific information about the terms of any such offering.

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On June 30, 2016, we entered into a sales agreement with Cantor Fitzgerald & Co. (Cantor), pursuant to which we may offer and sell shares of the our common stock from time to time through Cantor having an aggregate offering price of up to $40.0 million. As of June 30, 2016, no shares of common stock have been sold pursuant to the sales agreement.

Analysis of Cash Flows

Comparison of six months ended June 30, 2016 and 2015

The following table summarizes our cash flows for the six months ended June 30, 2016 and 2015:

	Six Months Ended
	June 30,
	2016		2015
		(in thousands)
Net cash provided by (used in):
Operating activities	$	(19,326)	$	(16,229)
Investing activities		(5,752)		(35,196)
Financing Activities		37,450		31,390
Net increase (decrease) in cash and cash equivalents	$	12,372	$	(20,035)

Net cash used in operating activities

During the six months ended June 30, 2016 and 2015, our operating activities used cash of $19.3 million and $16.2 million, respectively, primarily resulting from the operating losses of $20.6 million and $19.3 million, respectively. Operating losses in both periods were driven significantly by cash payments for research and development expenses and general administrative expenses exceeding cash inflows from revenue arrangements.

Net cash used in investing activities

During the six months ended June 30, 2016 our investing activities used cash of $5.8 million. The cash used in investing activities was primarily a result of the purchase price of marketable securities exceeding the sale and maturity of similar marketable securities. Purchases of property and equipment for the six months ended June 30, 2016 were approximately $92,000.

During the six months ended June 30, 2015 our investing activities used cash of $35.2 million. The cash used in investing activities was primarily a result of the purchase price of marketable securities exceeding the sale and maturity of similar marketable securities. Purchases of property and equipment for the six months ended June 30, 2015 were approximately $131,000.

Net cash provided by financing activities

During the six months ended June 30, 2016, our financing activities provided cash of $37.5 million. The cash provided by financing activities was primarily a result of proceeds received from the issuance of our common stock through our public offering in March 2016, net of paid offering expenses, totaling $36.9 million, proceeds received from the exercise of common stock options of $0.3 million and proceeds received from the purchase of shares through our Employee Stock Purchase Plan of $0.2 million.

During the six months ended June 30, 2015, our financing activities provided cash of $31.4 million. The cash provided by financing activities was primarily a result of proceeds received from the issuance of our common stock through our public offering in January 2015, net of expenses, totaling $38.0 million and proceeds received from the exercise of common stock options of $0.3 million. These increases were partially offset by the repayment of the outstanding principal balance of the Silicon Valley Bank and Oxford Finance LLC credit facility of $4.9 million and the

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net settlement of a RSU award where we withheld 171,156 shares of common stock and remitted $1.9 million in tax liabilities on behalf of our chief executive officer to the relevant tax authorities.

Plan of Operation

We anticipate we will incur net losses for the next several years as we continue clinical development of our RORγt and LXRβ programs, which will drive significantly higher research and development expenses. In addition, we plan to continue to invest in research and preclinical efforts to discover and potentially develop additional product candidates, build commercial capabilities and expand our corporate infrastructure. We may not be able to complete the development and initiate commercialization of these programs if, among other things, our preclinical research and clinical trials are not successful or if the FDA does not approve our product candidates arising out of our current preclinical program when we expect, or at all.

We are a publicly-traded company and incur significant legal, accounting and other expenses that we were not required to incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules adopted by the SEC and The NASDAQ Stock Market, requires public companies to implement specified corporate governance practices that we were not required to incur as a private company. We expect these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We estimate that we incur approximately $2.0 million to $3.0 million in incremental costs per year associated with being a publicly traded company, although it is possible that our incremental costs will be higher than we currently estimate.

Based on our current business plan, we believe that our existing cash, cash equivalents and marketable securities as of June 30, 2016, will be sufficient to fund our currently anticipated operating expenses and capital expenditure requirements into the second half of 2018, which is expected to be approximately 12 months after our currently planned announcement of top-line data from the anticipated 16 week Phase 2 clinical trial for VTP-43742 in psoriasis patients. We have based these estimates of our capital needs on assumptions that may prove to be wrong or which we may determine to adjust, and we could utilize our available capital resources sooner than we currently expect. If we are required to raise additional capital, we may seek to sell additional equity or debt securities or incur indebtedness. The sale of additional equity and debt securities may result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. We may also seek funding through collaborations or partnerships with other companies or other strategic transactions. If we are unable to raise sufficient additional capital we may need to substantially curtail our planned operations.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

the number and characteristics of the product candidates we pursue;

the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical trials;

the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;

the cost of manufacturing our product candidates and any products we successfully commercialize;

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

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

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the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.

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

Contractual Obligations

There have been no material changes since December 31, 2015 to our contractual obligations from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, other than payments made or received in the ordinary course of business.

Recently Issued Accounting Standards

We did not adopt any new accounting pronouncements during the three months ended June 30, 2016 that had a material effect on our financial statements.

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and subsequently issued additional updates amending the guidance contained in Topic 606 thereby affecting the guidance contained in ASU 2014-09. ASU 2014-09 and the subsequent Topic 606 updates will supersede and replace nearly all existing GAAP revenue recognition guidance, including industry-specific guidance, and are effective for annual reporting periods beginning after December 15, 2017, including interim periods therein. We are evaluating ASU 2014-09 and the subsequent Topic 606 updates and have not yet determined what, if any, effect this guidance will have on our results of operations or financial condition.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern. ASU 2014-15 requires management of all entities to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued, and to make certain disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 is effective for annual reporting periods beginning in 2016 and for interim reporting periods starting in the first quarter of 2017. We are currently evaluating the impact of the adoption of ASU 2014-15 on our financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the balance sheet classification of deferred taxes and requires that all deferred taxes be presented as noncurrent. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. The adoption of this update is not expected to have a material effect on our financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. ASU 2016-02 is effective beginning after December 15, 2018 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. We have not yet determined what the effects of adopting this ASU will be on our financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation, which simplifies the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company’s payments for tax withholdings should be classified. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. We have not yet determined what the effects of adopting this ASU will be on our financial statements.

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JOBS Act

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act), and are eligible to take 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, only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) until we cease to be an “emergering growth company,” reduced disclosure obligations regarding executive compensation in our periodic reports and proxy or information statements, exemptions from the requirements of holding a non-binding advisory vote on executive compensation and seeking stockholder approval of any golden parachute payments not previously approved and not being required to adopt certain accounting standards until those standards would otherwise apply to private companies.

As an emerging growth company, we have irrevocably elected to not take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards and, as a result, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to market risk related to changes in interest rates. As of June 30, 2016 and December 31, 2015, we had cash and cash equivalents and marketable securities of $77.4 million and $59.4 million, respectively, consisting of money market funds, certificates of deposit and corporate debt securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in marketable debt securities. Our marketable securities are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. We have the ability to hold our marketable securities until maturity, and therefore we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a change in market interest rates on our investments. We do not currently have any auction rate securities.

We contract with research organizations and investigational sites globally. We may be subject to fluctuations in foreign currency rates in connection with payments made under these agreements. Historically, we have not hedged our foreign currency exchange rate risk, as the impacts of changes in foreign currency rates on payments made under these arrangements have not been material.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), are controls and other procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the rules and forms promulgated by the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report on Form 10-Q, the Company completed an evaluation, as of June 30, 2016, under the supervision of and with the participation of the Company’s management, including the Chief Executive and Chief Financial Officers, as to the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

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It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Based upon the evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2016, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, the Company is subject to claims in legal proceedings arising in the normal course of its business. The Company does not believe that it is currently party to any pending legal actions that could reasonably be expected to have a material adverse effect on its business, financial condition, results of operations or cash flows.

Item 1A.Risk Factors.

You should carefully consider the risk factors set forth below as well as the other information contained in this Quarterly Report on From 10-Q and in our other public filings in evaluating our business and prospects. Any of the following risks could materially and adversely affect our business, prospects, financial condition or results of operations. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently believe to be immaterial may also materially adversely affect our business, prospects, financial condition or results of operations. In these circumstances, the market price of our common stock would likely decline and you could lose all or part of your investment.

Risks Related to Our Financial Position and Capital Needs

We have incurred substantial operating expenses in every year since our inception and anticipate that we will continue to incur substantial operating expenses for the foreseeable future. We may never achieve profitability from product sales.

We are a clinical stage biotechnology company with no product sales to date. Investment in biotechnology product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we have incurred substantial operating expenses in every period since our inception in 2001. With the exception of collaboration revenues from programs that we partnered, we had no revenues. For the six months ended June 30, 2016 and 2015, we had operating expenses of $20.7 million and $19.6 million, respectively. As of June 30, 2016, we had an accumulated deficit of $194.4 million. Our operating expenses have resulted principally from costs incurred in our discovery, research and development activities.

We anticipate that our expenses will increase in the future as we expand our development, manufacturing and commercialization activities, continue our discovery and research activities, and seek regulatory approval for our product candidates. If we do not enter into partnerships for any of our product candidates on acceptable terms, we may incur substantial operating losses over the next several years as we execute our plan to expand our development, manufacturing and commercialization activities and continue our discovery and research activities. There can be no assurance that we will enter into a new collaboration or receive milestone payments or royalties and, therefore, no assurance our operating expenses and net losses will not increase prohibitively in the future.

To become and remain profitable, we or our partners must succeed in developing our product candidates, obtaining regulatory approval for them, and manufacturing, marketing and selling those products for which we or our partners may obtain regulatory approval. We or they may not succeed in these activities, and we may never generate revenue from product sales. Even if we are profitable in the future, we may not be able to sustain profitability in subsequent periods. Our failure to become and remain profitable would depress our market value and could impair our ability to raise capital, expand our business, discover or develop other product candidates or continue our operations. A decline in the value of our company could cause you to lose all or part of your investment.

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We currently have no source of product sales revenue.

To date, we have not generated any revenues from commercial sales of our product candidates. Our ability to generate product revenue depends upon our ability, alone or with our partners, to successfully commercialize products, including any of our current product candidates or other product candidates that we may develop, in-license or acquire in the future. We do not anticipate generating revenue from the sale of products for the foreseeable future. Our ability to generate future product revenue from our current or future product candidates also depends on a number of additional factors, including our or our partners’ ability to:

· successfully complete research and clinical development of current and future product candidates;

· establish and maintain supply and manufacturing relationships with third parties, and ensure adequate and legally compliant manufacturing of bulk drug substances and drug products to maintain that supply;

· obtain marketing approval from relevant regulatory authorities in jurisdictions where we or our partners intend to market our product candidates;

· launch and commercialize future product candidates for which we or our partners obtain marketing approval, if any, and if launched independently, successfully establish a sales force, marketing and distribution infrastructure;

· obtain coverage and adequate product reimbursement from third-party payors, including government payors;

· achieve market acceptance for our or our partners’ products, if any;

· establish, maintain and protect our intellectual property rights; and

· attract, hire and retain qualified personnel.

In addition, because of the numerous risks and uncertainties associated with biotechnology product development, including that our product candidates may not advance through development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of any potential future product sales revenues. In addition, our expenses could increase beyond expectations if we decide to or are required by the FDA or foreign regulatory authorities to perform studies or trials in addition to those that we currently anticipate. Even if we complete the development and regulatory processes described above, we anticipate incurring significant costs associated with launching and commercializing these products.

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

As of June 30, 2016, our cash, cash equivalents and marketable securities were approximately $77.4 million. We believe that we will continue to expend substantial resources for the foreseeable future as we continue to develop VTP-43742 and VTP-38543. We will expend additional resources as we move current and future product candidates into preclinical and clinical development. These expenditures will include costs associated with research and development, potentially acquiring new technologies, conducting preclinical studies and clinical trials, seeking regulatory approvals and manufacturing products, as well as marketing and selling products approved for sale, if any. In addition, other unanticipated costs may arise. Because the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates.

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Our future capital requirements depend on many factors, some of which may be beyond our control, including:

· the scope, progress, results and costs of researching and developing our other product candidates, and conducting preclinical studies and clinical trials;

· the timing of, and the costs involved in, obtaining regulatory approvals for our other product candidates if clinical trials are successful;

· the cost of commercialization activities for our other product candidates, if any of these product candidates is approved for sale, including marketing, sales and distribution costs;

· the timing, receipt, and amount of milestone and royalty payments on product candidates developed under any future collaborations;

· the cost of manufacturing our other product candidates for clinical trials in preparation for regulatory approval and commercialization;

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

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

· the timing, receipt, and amount of sales of, or royalties on, other future product candidates, if any.

Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our currently anticipated operating expenses and capital expenditure requirements into the second half of 2018, which is expected to be approximately 12 months after our currently planned announcement of top-line data from the anticipated 16 week Phase 2 clinical trial for VTP-43742 in psoriasis patients. Our operating plan may change as a result of many factors currently unknown to us, and we may need additional funds sooner than planned. 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. The global economic downturn and market instability has made the business climate more volatile and more costly. In addition, the United Kingdom's recent decision to exit the European Union (“Brexit”) could contribute to instability and volatility in the global financial and foreign exchange markets. These economic conditions, and uncertainty as to the general direction of the macroeconomic environment, are beyond our control and may make any necessary debt or equity financing more difficult, more costly, and more dilutive. 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 one or more of our product candidates or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates on unfavorable terms to us.

We may seek additional capital through a variety of means, including through private and public equity offerings, debt financings and strategic partnerships. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts for VTP-43742, VTP-

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38543 or other current or future product candidates or grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves.

Our ability to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future tax payments may be limited by provisions of the Internal Revenue Code, and may be subject to further limitation as a result of our initial public offering.

Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We believe that, as a result of our initial public offering, our follow-on public offerings in January 2015 and March 2016, our preferred stock financings and other transactions, we have experienced, or may experience, an “ownership change.” We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As of December 31, 2015, we had federal and state net operating loss carryforwards of approximately $87.3 million and $84.5 million, respectively, and federal research and development credits of approximately $7.7 million, which could be limited if we experience an “ownership change.” Any such limitations would generally be equal to our equity value at the time of the ownership change multiplied by a risk-free rate of return published monthly by the IRS, which may result in greater tax liabilities than we would incur in the absence of such limitation. Such an increased liability could adversely affect our business, results of operations, financial condition and cash flow.

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

As has been widely reported, global credit and financial markets have been experiencing extreme disruptions over the past several years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. In addition, Brexit could adversely affect European or worldwide economic or market conditions and could contribute to instability and volatility in global financial markets. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be compromised by economic downturns, a volatile business environment and unpredictable and unstable market conditions. If the current equity and credit markets deteriorate, or do not improve, it may make any necessary equity or debt financing more difficult to secure, more costly or more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could harm our growth strategy, financial performance and stock price and could require us to delay or abandon plans with respect to our business, including clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers or other third parties with which we conduct business may not survive difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.

Risks Related to the Clinical Development and Regulatory Approval of Our Product Candidates

If we or our partners do not obtain regulatory approval for our current and future product candidates, our business will be adversely affected.

Our product candidates are and will be subject to extensive governmental regulations relating to, among other things, development, clinical trials, manufacturing and commercialization. In order to obtain regulatory approval for the commercial sale of any product candidates, we or our partners must demonstrate through extensive preclinical studies and clinical trials that the product candidate is safe and effective for use in each target indication. Clinical testing is expensive, time-consuming and uncertain as to outcome. For instance, in the first quarter of 2015, BI voluntarily placed BI 1181181 on a temporary clinical hold to further investigate skin reactions observed in some study participants during a Phase 1 multiple rising dose trial. After completing its analysis, BI concluded that skin reactions are burdensome for patients and, therefore, an obstacle for further development of the compound.

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We or our partners may gain regulatory approval for VTP-43742, VTP-38543 or other current or future product candidates  in some but not all of the territories available or some but not all of the target indications, resulting in limited commercial opportunity for the approved product candidates, or we or they may never obtain regulatory approval for these product candidates.

Delays in the commencement, enrollment or completion of clinical trials of our product candidates could result in increased costs to us as well as a delay or failure in obtaining regulatory approval, or prevent us from commercializing our product candidates on a timely basis, or at all.

We cannot guarantee that clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of testing. Events that may prevent successful or timely commencement, enrollment or completion of clinical development include:

· delays by us or our partners in reaching a consensus with regulatory agencies on trial design;

· delays in reaching agreement on acceptable terms with prospective clinical research organizations (CROs) and clinical trial sites;

· delays in obtaining required Institutional Review Board (IRB) approval at each clinical trial site;

· delays in recruiting suitable patients to participate in clinical trials;

· imposition of a voluntary clinical hold by our partners or us or a clinical hold by regulatory agencies for any reason, including safety concerns or after an inspection of clinical operations or trial sites;

· failure by CROs, other third parties or us or our partners to adhere to clinical trial requirements;

· failure to perform in accordance with the FDA’s good clinical practices (GCP) or applicable regulatory guidelines in other countries;

· delays in the testing, validation, manufacturing and delivery of the product candidates to the clinical sites;

· delays caused by patients not completing participation in a trial or not returning for post-treatment follow-up;

· clinical trial sites or patients dropping out of a trial;

· occurrence of serious adverse events in clinical trials that are associated with the product candidates that are viewed to outweigh its potential benefits; or

· changes in regulatory requirements and guidance that require amending or submitting new clinical protocols.

Delays, including delays caused by the above factors, can be costly and could negatively affect our or our partners’ ability to complete a clinical trial. If we or our partners are not able to successfully complete clinical trials, we will not be able to continue development, obtain regulatory approval or commercialize our product candidates.

Clinical failure may occur at any stage of clinical development, and because our product candidates are in an early stage of development, there is a high risk of failure, and we may never succeed in developing marketable products or generating product revenue.

Our early encouraging preclinical results for VTP-43742, VTP-38543, VTP-45489, VTP-38443 and VTP-36951 and clinical results for VTP-43742, BI187004 and BI 1181181 are not necessarily predictive of the results of our ongoing or future clinical trials. Promising results in preclinical studies of a drug candidate may not be predictive of

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similar results in humans during clinical trials, and successful results from early clinical trials of a drug candidate may not be replicated in later and larger clinical trials or in clinical trials for different indications. For instance, in February 2015, BI voluntarily placed BI 1181181 on a temporary clinical hold to further investigate skin reactions observed in some study participants during a Phase 1 multiple rising dose trial. After completing its analysis, BI concluded that skin reactions are burdensome for patients and, therefore, an obstacle for further development of the compound. Additionally, in June 2015, we announced that top-line clinical efficacy results from the metformin arm of the on-going Phase 2 proof-of-concept clinical trial of BI187004 in the treatment of overweight type 2 diabetic patients did not meet BI’s predefined endpoint criteria. If the results of our or our partners’ ongoing or future clinical trials are inconclusive with respect to the efficacy of our product candidates or if we or they do not meet the clinical endpoints with statistical significance or do not meet market expectations or if there are safety concerns or adverse events associated with our product candidates, we may need to delay, reduce, modify or redesign the scope of, or eliminate one or more product development programs and we or our partner may be prevented or delayed in obtaining marketing approval for the applicable product candidate, which could have a material adverse effect on our business, prospects and financial condition and on the value of our common stock. In addition, if our competitor’s clinical trials in similar indications are not successful, we may need to conduct additional or cost prohibitive clinical studies to overcome the presumptions resulting from these unsuccessful trials. For instance, in 2012, we halted our plans for a large Phase 2 clinical trial for a former product candidate, VTP-27999, which was being developed for renin inhibition, a protein important for kidney function and blood pressure control, following the release of clinical data from another pharmaceutical company that would have required us to significantly increase the scope, scale and duration of clinical trial work to obtain regulatory approval. Moreover, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay or prevent regulatory approval. Even if clinical trials are successful, the risk remains that unexpected concerns may arise from additional data or analysis or that additional information may arise or issues may be identified in connection with continuing review of clinical data.  For instance in the third quarter of 2016, we identified a third patient in the 700 mg dose group of our VTP-43742 Phase 2a proof-of-concept clinical trial who experienced reversible transaminase elevations greater than three times the upper limits of normal while being dosed. Alternatively, even if we or our partners obtain regulatory approval, that approval may be for indications or patient populations that are not as broad as intended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. We or our partners may also be required to perform additional or unanticipated clinical trials to obtain approval or be subject to additional post-marketing testing requirements to maintain regulatory approval. In addition, regulatory authorities may withdraw their approval of a product or impose restrictions on its distribution, such as in the form of a modified risk evaluation and mitigation strategy.

Even if we or our partners receive regulatory approval for our product candidates, such approved products will be subject to ongoing regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions, and we or our partners may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our approved products.

Any regulatory approvals that we or our partners receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor safety and efficacy. In addition, if the FDA approves any of our 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, as well as continued compliance with current good manufacturing practice (cGMP) and GCP, for any clinical trials that we or our partners conduct post-approval.

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Later discovery of previously unknown problems with an approved product, including adverse events of unanticipated severity or frequency, or with manufacturing operations or processes, or failure to comply with regulatory requirements, may result in, among other things:

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

· fines, warning letters, or holds on clinical trials;

· refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our partners, or suspension or revocation of product license approvals;

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

· injunctions or the imposition of civil or criminal penalties.

The FDA’s 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 or our partners are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or not able to maintain regulatory compliance, we or our partners may lose any marketing approval that may have been obtained and we may not achieve or sustain profitability, which would adversely affect our business.

If we or our partners fail to obtain regulatory approval in jurisdictions outside the United States, we and they will not be able to market our products in those jurisdictions.

We and our partners intend to market our product candidates, if approved, in international markets, alone or in conjunction with others. Such marketing will require separate regulatory approvals in each market and compliance with numerous and varying regulatory requirements. The approval procedures vary from country-to-country and may require additional testing. Moreover, the time required to obtain approval may differ from that required to obtain FDA approval. In addition, in many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We or our partners may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market.

Risks Related to Our Reliance on Third Parties

We rely on third parties to conduct preclinical studies and clinical trials for our product candidates, and if they do not properly and successfully perform their obligations to us, we may not be able to obtain regulatory approvals for our product candidates.

We plan to design the clinical trials for VTP-43742, VTP-38543 and VTP-45489 and expect to do so for any future unpartnered product candidates. However, we rely on CROs and other third parties to assist in managing, monitoring and otherwise carrying out many of these studies and trials. We compete with many other companies for the resources of these third parties. Conflicts may arise between us and our CROs, such as conflicts concerning the interpretation of clinical data, which could, among other things, delay the completion of clinical trials, the finalization of clinical trial reports or the initiation of subsequent trials. The third parties on whom we rely generally may terminate their engagements at any time, and having to enter into alternative arrangements would delay development and commercialization of our product candidates.

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The FDA and foreign regulatory authorities require compliance with regulations and standards, including GCP, for designing, conducting, monitoring, recording, analyzing, and reporting the results of clinical trials to assure that the data and results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Although we rely on third parties to conduct many of our and their clinical trials, we are responsible for ensuring that each of these clinical trials is conducted in accordance with its general investigational plan, protocol and other requirements.

If these third parties do not successfully carry out their duties under their agreements, if the quality or accuracy of the data they obtain is compromised due to their failure to adhere to clinical trial protocols or to regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, the clinical trials of our product candidates may be delayed or not meet regulatory requirements. In addition, during challenging and uncertain economic times and in tight credit markets, there may be a disruption or delay in the performance of our third party contractors. If such third parties are unable to satisfy their commitments to us, our business and results of operations would be adversely affected. If clinical trials do not meet regulatory requirements or if these third parties need to be replaced, preclinical development activities or clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product candidates on a timely basis or at all.

We intend to rely on third-party manufacturers to make our product candidates, and any failure by these manufacturers may delay or impair the ability to complete clinical trials or commercialize our product candidates.

Manufacturing small molecule therapeutics is complicated and is tightly regulated by the FDA, the European Medicines Agency (EMA) and comparable regulatory authorities around the world. For preclinical studies, clinical trials and commercial supply of our products that we have not partnered, we use and expect to continue to use contract manufacturing organizations. Successfully transferring complicated manufacturing techniques to contract manufacturing organizations and scaling up these techniques for commercial quantities will be time consuming and we may not be able to achieve such transfer. Moreover, the market for contract manufacturing services for product candidates is highly cyclical, with periods of relatively abundant capacity alternating with periods in which there is little available capacity. If any need we have for contract manufacturing services increases during a period of industry-wide tight capacity, we may not be able to access the required capacity on a timely basis or on commercially viable terms.

In addition, we contract with fill-and-finishing providers with the appropriate expertise, facilities and scale to meet our needs. Failure to maintain cGMP can result in a contractor receiving FDA sanctions, which can impact our contractors’ ability to operate or lead to delays in our clinical development programs. We have been notified by BI that it previously received a warning letter from the FDA in May 2013 concerning its manufacturing practices. In the warning letter, the FDA said it had identified significant violations of cGMP for the manufacture of active pharmaceutical ingredients (API) and the cGMP regulations for finished pharmaceuticals. In June 2014, the FDA issued a close out letter to BI which stated that the FDA had completed an evaluation of BI’s corrective actions in response to the May 2013 warning letter. While the FDA’s close out letter stated that, based on its evaluation, it appeared that BI had addressed the violations contained in the May 2013 warning letter, the FDA stated that future FDA inspections and regulatory activities would further assess the adequacy and sustainability of BI’s corrections of the violations. We believe that our current fill-and-finish contractors are operating in accordance with cGMP, but we can give no assurance that FDA or other regulatory agencies will not conclude that another lack of compliance exists. In addition, any delay in contracting for fill-and-finish services, or failure of the contract manufacturer to perform the services as needed, may delay clinical trials, registration and launches, and delay or limit our ability to receive any corresponding milestone or royalty payments. Any such issues may have a substantial negative effect on our business.

We may not be successful in establishing and maintaining additional strategic partnerships, which could adversely affect our ability to develop and commercialize products, negatively impacting our operating results.

A part of our strategy is to strategically evaluate and, as deemed appropriate, enter into additional collaborations in the future when strategically attractive, including potentially with major biotechnology or pharmaceutical companies, which could include another collaboration relating to our BACE program. We face significant competition in seeking appropriate partners for our product candidates, and the negotiation process is time-consuming and complex. In order for

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us to successfully partner our product candidates, potential partners must view these product candidates as economically valuable in markets they determine to be attractive in light of the terms that we are seeking and other available products for licensing by other companies. Even if we are successful in our efforts to establish new strategic partnerships, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such strategic partnerships if, for example, development or approval of a product is delayed or sales of an approved product are disappointing. Any delay in entering into new strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market.

If we fail to establish and maintain additional strategic partnerships related to our product candidates, we will bear all of the risk and costs related to the development of any such product candidate, and we may need to seek additional financing, hire additional employees and otherwise develop expertise for which we have not budgeted. This could negatively affect the development of any unpartnered product candidate.

Risks Related to Our Intellectual Property

If we are unable to obtain or protect intellectual property rights related to our product candidates, we may not be able to compete effectively.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our drug discovery platform and product candidates. We will only be able to protect our technologies from unauthorized use by third parties to the extent that valid and enforceable patents or trade secrets cover them. The patent position of biotechnology and pharmaceutical companies is generally uncertain because it involves complex legal and factual considerations. The standards applied by the United States Patent and Trademark Office (USPTO), and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biotechnology patents. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates in the United States or in other countries. There is no assurance that all potentially relevant prior art relating to our patents and patent applications have been found. We may be unaware of prior art that could be used to invalidate an issued patent or prevent our pending patent applications from issuing as patents. Even if patents do successfully issue and even if such patents cover our product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.

If patent applications we or our partners hold or have in-licensed with respect to our platform or product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for our products, it could dissuade companies from collaborating with us. Several patent applications covering our product candidates and compounds have been filed recently. We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patents or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful challenge to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product candidate that we or our partners may develop. Since patent applications in the United States and most other countries are confidential for a period of time after filing, and some remain so until issued, we and our partners cannot be certain that we were the first to file any patent application related to a product candidate. Furthermore, if third parties have filed such patent applications, an interference or derivation proceeding in the United States can be initiated by the USPTO or a third party to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after the earliest non-provisional filing date. Various extensions may be available; however, the life of a patent and the protection it affords is limited and all patents will eventually expire. If we encounter delays in obtaining regulatory approvals, the period of time during which we could market a product under patent protection could be reduced. Even if patents covering our product candidates are obtained, once the patent life has expired for a product, we may be open to competition from generic products.

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The patent prosecution process is expensive and time-consuming, and we and our current or future licensors, licensees or collaborators may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from or license to third parties and are reliant on our licensors, licensees or collaborators. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If our current or future licensors, licensees or collaborators fail to establish, maintain or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our licensors, licensees or collaborators are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised.

Furthermore, we may not have identified all United States and foreign patents or published applications that affect our business either by blocking our ability to commercialize our product candidates or by covering similar technologies that affect our market. In addition, some countries do not grant patent claims directed to methods of treating humans, and in these countries patent protection may not be available at all to protect our product candidates. Even if patents issue, we cannot guarantee that the claims of those patents will be valid and enforceable or provide us with any significant protection against competitive products, or otherwise be commercially valuable to us.

We also rely on trade secrets to protect our technology, particularly where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While we use reasonable efforts to protect our trade secrets, our licensors, employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.

If we fail to obtain or maintain patent protection or trade secret protection for any of our product candidates that we may develop, license or acquire, third parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate revenues and achieve profitability.

Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

Any loss of patent protection could have a material adverse impact on our business. We and our partners may be unable to prevent competitors from entering the market with a product that is similar to or the same as our products.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our and our partners’ patent applications and the enforcement or defense of our issued patents.

On September 16, 2011, the Leahy-Smith America Invents Act (the Leahy-Smith Act) was signed into law. The Leahy-Smith Act introduced a number of significant changes to U.S. patent law. These include provisions that affect the

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way patent applications are prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a “first to file” system in which the first inventor to file a patent application will be entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO, and are now able to challenge the validity of issued U.S. patents through various post-grant proceedings including opposition, derivation, reexamination, inter-partes review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope or enforceability of, or invalidate, our patent rights, which could adversely affect our or our partners’ competitive position.

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.

Periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our partners fail to maintain the patents and patent applications covering our product candidates, our competitors might be able to enter the market, which would have a material adverse effect on our business.

Third-party claims of intellectual property infringement or misappropriation may prevent or delay our development and commercialization efforts.

Our commercial success depends in part on us and our partners not infringing the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, ex-parte review and inter partes reexamination and post grant review proceedings before the USPTO and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields in which we and our partners are developing and may develop our product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties. If a third party claims that we infringe on their products or technology, we could face a number of issues, including:

· infringement and other intellectual property claims which, with or without merit, can be expensive and time-consuming to litigate and can divert management’s attention from our core business;

· substantial damages for past infringement, which we may have to pay if a court decides that our product infringes on a competitor’s patent;

· a court prohibiting us from selling or licensing our product unless the patent holder licenses the patent to us, which the patent holder would not be required to do;

· if a license is available from a patent holder, we may have to pay substantial royalties or grant cross licenses to our patents; and

· redesigning our processes so they do not infringe, which may not be possible or could require substantial funds and time.

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Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates, that we failed to identify. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until issued as patents. Except for the preceding exceptions, patent applications in the United States and elsewhere are generally published only after a waiting period of approximately 18 months after the earliest filing. Therefore, patent applications covering our platform technology or our product candidates could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our product candidates or the use or manufacture of our product candidates. We may also face a claim of misappropriation if a third party believes that we inappropriately obtained and used trade secrets of such third party. If we are found to have misappropriated a third party’s trade secrets, we may be prevented from further using such trade secrets, limiting our ability to develop our product candidates, and we may be required to pay damages.

If any third-party patents were held by a court of competent jurisdiction to cover aspects of our materials, formulations, methods of manufacture or methods for treatment, the holders of any such patents would be able to block our ability to develop and commercialize the applicable product candidate until such patent expired or unless we or our partners obtain a license. These licenses may not be available on acceptable terms, if at all. Even if we or our partners were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we or our partners could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we or our partners are unable to enter into licenses on acceptable terms. This could harm our business significantly. In addition, during the course of any patent or other intellectual property litigation, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our products, programs, or intellectual property could be diminished. Accordingly, the market price of our common stock may decline.

Parties making claims against us or our partners may obtain injunctive or other equitable relief, which could effectively block our or our partners’ ability to further develop and commercialize one or more of our product candidates. Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time-consuming, regardless of the outcome. Thus, even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other company business. In the event of a successful claim of infringement against us or our partners, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring our product candidates to market.

We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming, and unsuccessful. Further, our issued patents could be found invalid or unenforceable if challenged in court.

If we or any of our partners were to initiate legal proceedings against a third party to enforce a patent directed at one of our product candidates, or one of our future product candidates, the defendant could counterclaim that our patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or insufficient written description. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution. Third parties may also raise similar claims before the USPTO, 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

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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 or unenforceability, we would lose at least part, and perhaps all, of the patent protection on such product candidate. Such a loss of patent protection would have a material adverse impact on our business.

Interference proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

Most of our competitors are larger than we are and have substantially greater resources. They are, therefore, likely to be able to sustain the costs of complex patent litigation longer than we could. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our clinical trials, continue our internal research programs, in-license needed technology, or enter into development partnerships that would help us bring our product candidates to market.

We may need to license certain intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.

A third party may hold intellectual property, including patent rights that are important or necessary to the development or commercialization of our products. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would be required to obtain a license from these third parties. Such a license may not be available on commercially reasonable terms or at all, which could materially harm our business.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. 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 be a distraction to management.

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 rights are not as strong as those in the United States. These products may compete with our product candidates and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents 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.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third parties to assist with research and development and to manufacture our product candidates, we must, at times, share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. For example, any academic institution that we may collaborate with in the future will usually expect to be granted rights to publish data arising out of such collaboration, provided that we are notified in advance and given the opportunity to delay publication for a limited time period in order for us to secure patent protection of intellectual property rights arising from the collaboration, in addition to the opportunity to remove confidential or trade secret information from any such publication. In the future we may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.

The validity and enforceability of the patents and applications that cover our product candidates can be challenged by competitors.

If any of our product candidates are approved by the FDA, one or more third parties may challenge the patents covering this approved product candidate, which could result in the invalidation of, or render unenforceable, some or all of the relevant patent claims. For example, if a third party files an Abbreviated New Drug Application (ANDA) for a generic drug product containing an approved product candidate, and relies in whole or in part on studies conducted by or for us, the third party will be required to certify to the FDA that: (1) there is no patent information listed in the FDA’s Orange Book with respect to our NDA for the applicable approved product candidate; (2) the patents listed in the Orange Book have expired; (3) the listed patents have not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patents are invalid or will not be infringed by the manufacture, use or sale of the third-party’s generic drug product. A certification that the new product will not infringe the Orange Book-listed patents for the applicable approved product candidate, or that such patents are invalid, is called a paragraph IV certification. If the third party submits a paragraph IV certification to the FDA, a notice of the paragraph IV certification must also be sent to us once the third-party’s ANDA is accepted for filing by the FDA. We may then initiate a lawsuit to defend the patents identified in the notice. The filing of a patent infringement lawsuit within 45 days of receipt of the notice

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automatically prevents the FDA from approving the third-party’s ANDA until the earliest of 30 months or the date on which the patent expires, the lawsuit is settled, or the court reaches a decision in the infringement lawsuit in favor of the third party. If we do not file a patent infringement lawsuit within the required 45-day period, the third-party’s ANDA will not be subject to the 30-month stay. Litigation or other proceedings to enforce or defend intellectual property rights are often very complex in nature, may be very expensive and time-consuming, may divert our management’s attention from our core business, and may result in unfavorable results that could adversely impact our ability to prevent third parties from competing with our products.

If we do not obtain protection under the Hatch-Waxman Amendments by extending the patent terms and obtaining data exclusivity for our product candidates, our business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, one or more of our United States patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. Patent term restoration also may be available in certain foreign countries upon regulatory approval of our products candidates. However, we may not be granted patent term extension either in the United States or in any foreign country because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product may be shortened and our competitors may obtain approval of competing products following our patent expiration sooner, and our revenue could be reduced, possibly materially.

If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.

Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long-term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.

Risks Related to Commercialization of Our Product Candidates

Our future commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, patients, key opinion leaders and healthcare payors.

Even if we or our partners obtain regulatory approval for VTP-43742, VTP-38543 or other current or future product candidates that we may develop or acquire in the future, the product may not gain market acceptance among physicians, key opinion leaders, healthcare payors, patients and the medical community. Market acceptance of any approved products depends on a number of factors, including:

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

· the clinical indications for which the product is approved and the label approved by regulatory authorities for use with the product, including any warnings that may be required on the label;

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· acceptance by physicians, key opinion leaders and patients of the product as a safe and effective treatment;

· the cost, safety and efficacy of treatment in relation to alternative treatments;

· the availability of coverage and adequate reimbursement and pricing by third party payors and government authorities;

· the continued projected growth of drug markets in our various indications;

· relative convenience and ease of administration;

· the prevalence and severity of adverse side effects; and

· the effectiveness of our, and our partners’ sales and marketing efforts.

Market acceptance is critical to our ability to generate significant revenue. Any product candidate, if approved and commercialized, may be accepted in only limited capacities or not at all. If any approved products are not accepted by the market to the extent that we expect, we may not be able to generate significant revenue and our business would suffer.

Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our products profitably.

Market acceptance and sales of any approved product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors and may be affected by existing and future healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. As a result of negative trends in the general economy in the U.S. or other jurisdictions in which we may do business, these organizations may be unable to satisfy their reimbursement obligations or may delay payment. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for drugs and products. Coverage and reimbursement may not be available for any product that we commercialize and, even if these are available, the level of reimbursement may not be satisfactory. Inadequate reimbursement levels may adversely affect the demand for, or the price of, any drug candidate for which we obtain marketing approval.

Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is, among other things:

· a covered benefit under its health plan;

· safe, effective and medically necessary;

· appropriate for the specific patient;

· cost-effective; and

· neither experimental nor investigational.

Obtaining coverage and adequate reimbursement approval for a product from a government or other third party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to the payor. We or our partners may not be able to provide data sufficient to gain acceptance with respect to coverage and adequate reimbursement. Moreover, a third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate

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return on our investment in product development. Additionally, coverage and reimbursement for drug products can differ significantly from payor to payor. One third-party payor’s decision to cover a particular drug product does not ensure that other payors will also provide coverage for the drug product, or will provide coverage at an adequate reimbursement rate.

Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our product candidates, once approved, unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Sales of our product candidates will, therefore, depend substantially on the extent to which the costs of our product candidates will be paid by third-party payors.

We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidates. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our products. If reimbursement is not available or is available only to limited levels, we or our partners may not be able to commercialize certain of our products. In addition in the United States, third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement of new drugs. As a result, significant uncertainty exists as to whether and how much third-party payors will reimburse patients for their use of newly approved drugs, which in turn will put pressure on the pricing of drugs.

The impact of recent healthcare reform legislation and other changes in the healthcare industry and in healthcare spending on us is currently unknown, and may adversely affect our business model.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our drug candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any drug candidates for which we obtain marketing approval.

Our revenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a highly regulated industry and new laws, judicial decisions, or new interpretations of existing laws, or decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our business, operations and financial condition. There is significant interest in promoting health care reform, as evidenced by the enactment in the United States of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the Affordable Care Act). Among other things, the Affordable Care Act contains provisions that may reduce the profitability of drug products, including, for example, revised the methodology by which rebates owed by manufacturers to the state and federal government for covered outpatient under the Medicaid Drug Rebate Program, extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in Medicaid managed care plans, imposed mandatory discounts for certain Medicare Part D beneficiaries, and subjected manufacturers to new annual fees based on a pharmaceutical companies’ share of sales to federal healthcare programs.

We expect that the Affordable Care Act, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue or commercialize our drugs.

It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to existing healthcare legislation. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

· the demand for any drug products for which we may obtain regulatory approval;

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· our ability to set a price that we believe is fair for our products;

· our ability to obtain coverage and reimbursement approval for a product;

· our ability to generate revenues and achieve or maintain profitability; and

· the level of taxes that we are required to pay.

We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.

Our future success depends on our or our partners’ ability to demonstrate and maintain a competitive advantage with respect to the design, development and commercialization of our product candidates. Our objective is to design, develop and commercialize new products with superior efficacy, convenience, tolerability and safety. In many cases, the product candidates that we commercialize with our strategic partners or on our own will compete with existing, market-leading products.

If our product candidates are approved, they will compete with currently marketed drugs and potentially with product candidates currently in development focusing on the same mechanism or action which include:

· RORγt: We believe that a number of companies including large pharmaceutical companies and large biotech companies are actively assessing RORγt inhibitors in preclinical studies.

· LXRβ: We believe that Bristol Myers Squibb Company is studying an LXRβ inhibitor in cardiovascular clinical trials and Alexar Therapeutics, Inc. is developing an LXRβ inhibitor for dermatologic conditions.

Many of our potential competitors have significantly greater financial, manufacturing, marketing, drug development, technical and human resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and in manufacturing biotechnology products. These companies also have significantly greater research and marketing capabilities than we do and may also have products that have been approved or are in late stages of development, and have collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. As a result of all of these factors, our competitors may succeed in obtaining patent protection or FDA approval or discovering, developing and commercializing product candidates before we do. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. If we are not able to compete effectively against potential competitors, our business will not grow and our financial condition and operations will suffer.

We believe that our ability to successfully compete will depend on, among other things:

· the efficacy and safety profile of our product candidates, including relative to marketed products and product candidates in development by third parties;

· the time it takes for our product candidates to complete clinical development and receive marketing approval;

· the ability to commercialize any of our product candidates that receive regulatory approval;

· the price of our products, including in comparison to branded or generic competitors;

· whether coverage and adequate levels of reimbursement are available under private and governmental health insurance plans, including Medicare;

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· the ability to establish, maintain and protect intellectual property rights related to our product candidates;

· the ability to manufacture commercial quantities of any of our product candidates that receive regulatory approval; and

· acceptance of any of our product candidates that receive regulatory approval by physicians and other healthcare providers.

Our product candidates may cause undesirable side effects or have other properties that delay or prevent their regulatory approval or limit their commercial potential.

Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities and potential products liability claims. For instance, BI, our former partner, had completed two Phase 1 trials and commenced a Phase 2 trial for BI187004 in July 2014 and had completed two Phase 1 trials for BI 1181181 when, in February 2015, BI voluntarily placed BI 1181181 on a temporary clinical hold to further investigate skin reactions observed in some study participants during a subsequent Phase 1 multiple rising dose trial. Serious adverse events deemed to be caused by our product candidates could have a material adverse effect on the development of our product candidates and our business as a whole. Our understanding of the relationship between our product candidates and potential adverse events may change as we gather more information or future unexpected adverse events may occur. There can be no assurance that adverse events associated with our product candidates will not be observed. As is typical in drug development, we have a program of ongoing toxicology studies in animals for our other clinical stage product candidates and cannot provide assurance that the findings from such studies or any ongoing or future clinical trials will not adversely affect our clinical development activities.

If we or others identify undesirable side effects caused by our product candidates either before or after receipt of marketing approval, a number of potentially significant negative consequences could result, including:

· our clinical trials may be put on hold;

· we or our partners may be unable to obtain regulatory approval for our product candidates;

· regulatory authorities may withdraw approvals of our product candidates;

· regulatory authorities may require additional warnings on the label;

· a medication guide outlining the risks of such side effects for distribution to patients may be required;

· we could be sued and held liable for harm caused to patients; and

· our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and could substantially increase commercialization costs.

Price controls may be imposed in foreign markets, which may adversely affect our future profitability.

In some countries, particularly member states of the European Union, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union member states

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and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, we or our partners may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidates to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

Risks Related to Our Business and Industry

We may not successfully identify, develop, commercialize or market potential product candidates.

A key element of our strategy is to use our technology platform, Contour®, to build a pipeline of novel drug candidates. The drug discovery that we are conducting using our proprietary technology may not be successful in identifying compounds that are useful in treating diseases. Our research programs may initially show promise in identifying potential drug candidates, yet fail to yield drug candidates for clinical development for a number of reasons, including:

· our research methodology, including our screening technology, may not successfully identify medically relevant potential product candidates;

· our pursuit of difficult-to-drug targets may make it challenging to design potential product candidates;

· results of clinical trials conducted by others on similar indications or on compounds with similar mechanisms of action could result in our having to conduct additional or cost prohibitive clinical trials, which could delay development and possibly make commercialization prohibitively expensive;

· we may encounter product manufacturing difficulties that limit yield or produce undesirable characteristics that increase the cost of goods, cause delays or make the product candidates unmarketable;

· our product candidates may cause adverse effects in patients or subjects, even after successful initial toxicology studies, which may make the product candidates unmarketable;

· our product candidates may not demonstrate a meaningful benefit to patients or subjects; and

· our collaboration partners may change their development profiles or plans for potential product candidates or abandon a therapeutic area or the development of a partnered product.

If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business, operating results and prospects and could potentially cause us to cease operations. For instance, in February 2015, BI voluntarily placed BI 1181181 on a temporary clinical hold to further investigate skin reactions observed in some study participants during a subsequent Phase 1 multiple rising dose trial and following its analysis, BI determined to suspend development of BI 1181181 and move forward with the development of a structurally different compound, VTP-36951. Moreover, in 2012, we halted our plans for a Phase 2 clinical trial for a former product candidate, VTP-27999, which was being developed for renin inhibition, following the release of clinical data from another pharmaceutical company that would have required us to significantly increase the scope, scale and duration of clinical trial work to obtain regulatory approval. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.

If we are unable to identify suitable compounds for preclinical and clinical development, we will not be able to obtain revenues from sale of drugs in future periods, which likely would result in significant harm to our financial position and adversely impact our stock price.

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

We are highly dependent on members of our management and scientific teams, including Jeffrey Hatfield, our Chief Executive Officer and President, and Richard Gregg, M.D., our Chief Scientific Officer. The loss of the services of either of these persons could impede the achievement of our research, development and commercialization objectives. We do not maintain “key person” insurance for any of our executives or other employees.

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

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

We are exposed to the risk of employee and other third-party fraud or other misconduct. Misconduct by employees and other third-parties could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee and other third- party misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee and other third-party misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate.

Our current and future relationships with healthcare professionals, principal investigators, consultants, commercial partners, customers (actual and potential) and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to penalties.

Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any drug candidates for which we obtain marketing approval. Our current and future arrangements with healthcare professionals, principal investigators, consultants, customers (actual and potential) and third-party payors may expose us to broadly applicable fraud and abuse and other healthcare laws, including, without limitation, the federal Anti- Kickback Statute and the federal False Claims Act, that may constrain the business or financial arrangements and relationships through which we sell, market and distribute any drug candidates for which we obtain marketing approval. In addition, we may be subject to physician payment transparency laws and patient privacy and security regulation by the federal government and by the U.S. states and foreign jurisdictions in

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which we conduct our business. The applicable federal, state and foreign healthcare laws that may affect our ability to operate include the following:

· the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in whole or in part, under federal and state healthcare programs such as Medicare and Medicaid;

· federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

· the civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent;

· the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), which created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a healthcare offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters;

· HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), and their respective implementing regulations, which impose obligations on covered entities, including healthcare providers, health plans, and healthcare clearinghouses, as well as their respective business associates that create, receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

· the federal Open Payments program, created under Section 6002 of the Affordable Care Act and its implementing regulations, imposed new annual reporting requirements for certain manufacturers of drugs, devices, biologicals and medical supplies for certain payments and “transfers of value” provided to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit timely, accurately and completely the required information for all payments, transfers of value and ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1 million per year for “knowing failures”; and

· analogous state and foreign laws, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third- party payors, including private insurers; state and foreign laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare

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providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Further, the Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal statutes governing healthcare fraud. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti- Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

Efforts to ensure that our future business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations, which could significantly harm our business. If any of the physicians or other healthcare providers or entities with whom we expect to do business, including our current and future collaborators, is found not to be in compliance with applicable laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which could also affect our business.

We may encounter difficulties in managing our growth and expanding our operations successfully.

As we seek to advance our product candidates through clinical trials and commercialization, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and, if necessary, sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.

We have no sales, marketing or distribution capabilities and we will have to invest significant resources to develop these capabilities.

We have no internal sales, marketing or distribution capabilities. If any of our unpartnered product candidates ultimately receives regulatory approval, we may not be able to effectively market and distribute the product candidate. We will have to invest significant amounts of financial and management resources to develop internal sales, distribution and marketing capabilities, some of which will be committed prior to any confirmation that any of such product candidates will be approved. We may not be able to hire consultants or external service providers to assist us in sales, marketing and distribution functions on acceptable financial terms or at all. Even if we determine to perform sales, marketing and distribution functions ourselves, we could face a number of additional related risks, including:

· we may not be able to attract and build an effective marketing department or sales force;

· the cost of establishing a marketing department or sales force may exceed our available financial resources and the revenues generated by our product candidates that we may develop, in-license or acquire; and

· our direct sales and marketing efforts may not be successful.

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If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our 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. 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 our product candidates. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

· injury to our reputation;

· withdrawal of clinical trial participants;

· costs to defend the related litigations;

· a diversion of management’s time and our resources;

· substantial monetary awards to trial participants or patients;

· product recalls, withdrawals, or labeling, marketing or promotional restrictions;

· loss of revenue;

· the inability to commercialize our product candidates; and

· a decline in our stock price.

Failure to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. We currently carry product liability insurance covering our clinical trials in the amount of $5.0 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 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.

We and our development partners, third-party manufacturers and suppliers use biological materials and may use hazardous materials, and any claims relating to improper handling, storage, or disposal of these materials could be time consuming or costly.

We and our development partners, third-party manufacturers and suppliers may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety or the environment. Our operations and the operations of our development partner, third-party manufacturers and suppliers also produce hazardous waste products. Federal, state, and local laws and regulations govern the use, generation, manufacture, storage, handling, and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive and current or future environmental laws and regulations may impair our product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage and our property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from

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biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.

Our internal computer systems, or those of our development partners, third-party clinical research organizations or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.

Despite the implementation of security measures, our internal computer systems and those of our current and any future CROs and other contractors, consultants and collaborators are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our or our partners’ regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties to manufacture our product candidates and conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our or any of our partners’ data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidate could be delayed.

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

Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers to produce our product candidates. Our ability to obtain clinical supplies of our product candidates could be disrupted, if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption.

Due to the potential value of our investments, we could be determined to be an investment company, and if such a determination were made, we would become subject to significant regulation that would adversely affect our business.

We may be deemed to be an investment company under the Investment Company Act of 1940 if, among other things, we own “investment securities” with a value exceeding 40% of the value of our total assets, unless a particular exemption or safe harbor is applicable. We invest certain of our assets in short- and long-term, investment grade securities, some of which may qualify as investment securities under the Investment Company Act. Investment companies are subject to registration under the Investment Company Act and compliance with a variety of restrictions and requirements imposed by the Investment Company Act. If we were to be deemed an investment company we would become subject to these restrictions and requirements, and the consequences of having been an investment company without registering under the Investment Company Act could have a material adverse effect on our business, financial condition and results of operations, as well as restrict our ability to sell and issue securities, borrow funds, engage in various transactions or other activities and make certain investment decisions. In addition, we may incur significant costs to avoid investment company status if an exemption from the Investment Company Act were to be considered unavailable to us at a time when the value of our investment securities exceeds 40% of the value of our total assets. We believe that we satisfy the conditions to be exempt from the Investment Company Act because, among other things, we are primarily engaged, directly and primarily in a business other than that of investing, reinvesting, owning, holding, or trading in securities, namely the discovery and development of novel small molecule therapeutics. However, absent an exemptive order from the SEC, our status of being exempt cannot be assured. Nevertheless, to address any uncertainty in this regard, we generally invest a significant portion of our portfolio in money market funds and U.S. government securities and limit the level of investment in corporate bonds and other instruments that could be considered “investment securities.”

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Risks Related to Our Common Stock

An active trading market for our common stock may not be sustained.

Although our common stock has been listed and trading on The NASDAQ Global Market since our initial public offering in September 2014, an active trading market for our shares may not be sustained. If the market is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you or at all. In addition, an inactive market may impair our ability to raise capital by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration, which, in turn, could materially adversely affect our business.

The trading price of the shares of our common stock has been and will likely continue to be highly volatile, and purchasers of our common stock may not be able to resell the shares of our common stock at or above your purchase price and could incur substantial losses.

Our stock price has been and is likely to continue to be volatile. For example, between September 24, 2014 and July 29, 2016, the high and low sales prices per share of our common stock were $23.35 and $4.08, respectively. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above your purchase price. The market price for our common stock may be influenced by many factors, including:

· our and our partners’ ability to enroll patients in planned clinical trials;

· results of the clinical trials, and the results of trials of our competitors or those of other companies in our market sector, and the timing of the release of those results;

· the passage of legislation or other regulatory developments in the United States and foreign countries;

· actual or anticipated variations in our financial results or those of companies that are perceived to be similar to us;

· changes in the structure of healthcare payment systems, especially in light of current reforms to the U.S. healthcare system;

· our ability to discover and develop or partner additional product candidates;

· announcements by us or our competitors of consummation or termination of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

· our ability to enter into strategic partnerships for the development of our product candidates;

· market conditions in the pharmaceutical and biotechnology sectors and issuance of securities analysts’ research reports or recommendations;

· sales of our stock by us, our insiders and our other stockholders;

· trading volume of our common stock;

· speculation in the press or investment community;

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· general economic, industry and market conditions other events or factors, many of which are beyond our control;

· additions or departures of key personnel; and

· intellectual property, product liability or other litigation against us.

In addition, the stock market has recently experienced significant volatility, particularly with respect to pharmaceutical, biotechnology and other life sciences company stocks. The volatility of pharmaceutical, biotechnology and other life sciences company stocks often does not relate to the operating performance of the companies represented by the stock. As we operate in a single industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products, or to a lesser extent our markets. In the past, stockholders have initiated class action lawsuits against biotechnology and pharmaceutical companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources, which could have a material adverse effect on our business, financial condition and results of operations.

Our quarterly operating results may fluctuate significantly.

We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:

· variations in the level of expenses related to our clinical trial and development programs;

· addition or termination of clinical trials and development programs;

· regulatory developments affecting our current or future product candidates;

· our execution of any collaborative, licensing or similar arrangements and the timing of payments we may make or receive under these arrangements; and

· nature and terms of stock-based compensation grants and any intellectual property infringement lawsuit in which we may become involved.

If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.

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

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. We currently have research coverage by a small number of securities and industry analysts and there are no assurances that these analysts will continue coverage of our company. If one or more of the analysts who covers us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to regularly publish reports on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline.

We may use our cash and cash equivalents in ways that you and other stockholders may not approve.

Our management has broad discretion in the application of our cash and cash equivalents. Because of the number and variability of factors that will determine our use of our cash and cash equivalents, their ultimate use may vary substantially from their currently intended use. Our management might not apply our cash and cash equivalents in ways that ultimately increase the value of your investment. The failure by our management to apply our cash and cash

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equivalents effectively could harm our business. Pending their use, we may invest our cash and cash equivalents in a variety of capital preservation investments, including short- and long-term, interest-bearing, investment-grade instruments and U.S. government securities. These investments may not yield a favorable return to our stockholders.

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

A small number of institutional investors and equity funds hold a significant number of shares of our common stock. Sales by these stockholders of a substantial number of shares of our common stock or the expectation of such sales, could cause a significant reduction in the market price of our common stock.

The holders of 2,354,203 shares of our outstanding common stock, or approximately 8.2% of our total outstanding common stock as of June 30, 2016, are entitled to rights with respect to the registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act.

In addition to our outstanding common stock, as of June 30, 2016, there were a total of 2,290,393 shares of common stock that we have registered and that we are obligated to issue upon the exercise of currently outstanding options under our stock plans or issued warrants. Upon the exercise of these options or warrants, as the case may be, in accordance with their respective terms, these shares may be resold freely, subject to restrictions imposed on our affiliates under Rule 144.

If significant sales of these shares occur in short periods of time, these sales could reduce the market price of our common stock. Any reduction in the trading price of our common stock could impede our ability to raise capital on attractive terms, if at all.

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

We have never declared or paid any cash dividend on our common stock and do not currently intend to do so for the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business. Any future debt financing arrangement, which we may enter into from time to time, may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Any return to stockholders will therefore be limited to the appreciation of their stock. Therefore, the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

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

As a public company, we have and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which requires, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC, and The NASDAQ Global Market to implement provisions of the Sarbanes-Oxley Act, imposes significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has adopted additional rules and regulations in these areas, such as mandatory “say on pay” voting requirements that will apply to us when we cease to be an emerging growth company. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and may impact the manner in which we operate our business in ways we cannot currently anticipate.

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

We are an emerging growth company, and the reduced reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act) and are eligible to take 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, only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) reduced disclosure obligations regarding executive compensation in this report and our other periodic reports and proxy statements, exemptions from the requirements of holding non-binding advisory votes on executive compensation and seeking stockholder approval of any golden parachute payments not previously approved and not being required to adopt certain accounting standards until those standards would otherwise apply to private companies. We could be an emerging growth company until December 31, 2019, although circumstances could cause us to lose that status earlier, including if we become a large accelerated filer (in which case we will cease to be an emerging company as of the date we become a large accelerated filer, which, generally, would occur if, at the end of a fiscal year, among other things, the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter), if we have total annual gross revenue of $1.0 billion or more during any fiscal year (in which cases we would no longer be an emerging growth company as of December 31 of such fiscal year), or if we issue more than $1.0 billion in non-convertible debt during any three year period before that time (in which case we would cease to be an emerging growth company immediately). Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this report and our other periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

If we fail to maintain proper and effective internal control over financial reporting in the future, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, investors’ views of us and, as a result, the value of our common stock.

Pursuant to Section 404 of the Sarbanes-Oxley Act, our management was required to report upon the effectiveness of our internal control over financial reporting beginning with the Annual Report on Form 10-K for the year ended December 31, 2015. When and if we are a “large accelerated filer” or an “accelerated filer” and are no longer an “emerging growth company,” each as defined in the Exchange Act, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. However, for so long as we remain an emerging growth company, we intend to take advantage of an exemption available to emerging growth companies from these auditor attestation requirements. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation,

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testing, and possible remediation. To comply with the requirements of being a reporting company under the Exchange Act, we will need to upgrade our systems including information technology; implement additional financial and management controls, reporting systems, and procedures; and hire additional accounting and finance staff. If we or, if required, our auditors are unable to conclude that our internal control over financial reporting is effective, investors may lose confidence in our financial reporting, and the trading price of our common stock may decline.

Because a small number of our existing stockholders own a majority of our voting stock, your ability to influence corporate matters will be limited.

As of June 30, 2016, our current executive officers, directors and greater than 5% stockholders, together with their respective affiliates, beneficially owned approximately 53.6% of our common stock, including shares subject to outstanding options and warrants that are exercisable within 60 days after such date. As a result, such persons, acting together, will have the ability to control our management and affairs and substantially all matters submitted to our stockholders for approval, including the election and removal of directors and approval of any significant transaction. These persons will also have the ability to control our management and business affairs. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control, impeding a merger, consolidation, takeover or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our business, even if such a transaction would benefit other stockholders.

We may be subject to litigation, which could harm our stock price, business, results of operations and financial condition.

We may be subject to litigation in the future. In the past, following periods of volatility in the market price of their stock, many companies similar to ours have been the subjects of securities class action litigation. Any such litigation can result in substantial costs and diversion of management’s attention and resources and could harm our stock price, business results of operations and financial condition. As a result of these factors, holders of our common stock might be unable to sell their shares at or above the price they paid for such shares.

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

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, may delay or prevent an acquisition of us or a change in our management. These provisions include:

· authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

· limiting the removal of directors by the stockholders;

· creating a staggered board of directors;

· prohibiting cumulative voting in the election of directors, which would otherwise allow for less than a majority of stockholders to elect director candidates;

· prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;

· eliminating the ability of stockholders to call a special meeting of stockholders;

· permitting our board of directors to accelerate the vesting of outstanding option grants upon certain transactions that result in a change of control; and

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· establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. These provisions would apply even if an offer rejected by our board were considered beneficial by some stockholders. Any provision of our amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change of control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Effective August 3, 2016, we entered into amended and restated employment agreements  with each of our executive officers, including our named executive officers (each, an Employment Agreement):

· Jeffrey S. Hatfield, our President and Chief Executive Officer;

· Richard Gregg, M.D., our Chief Scientific Officer; and

· Arthur Fratamico, R.Ph., our Chief Business Officer.

The Compensation Committee (the Compensation Committee) of our board of directors (the Board) approved entering into the Employment Agreements following its review of an executive compensation study performed by the Compensation Committee’s compensation consultants.

Each executive officer will continue to receive his or her base salary and be eligible to receive the same annual bonus in effect as of the effective date of the applicable Employment Agreement, which may be reviewed and increased at the discretion of the Board or the Compensation Committee. Pursuant to the Employment Agreements, our executive officers will continue to be entitled to receive all other benefits generally available to our employees. Each of the Employment Agreements provides that the applicable officer’s employment with us is “at will.”

The Employment Agreement for Mr. Hatfield provides that if (A) Mr. Hatfield is terminated without cause or for good reason within 3 months prior to and 12 months following a change in control of the Company, then Mr. Hatfield will receive (i) a lump sum payment equal to 18 months’ salary, (ii) a lump sum payment, on an after tax basis, equal to 18 months COBRA continuation premiums for group health and dental coverage, (iii) payment of a bonus equal to the greater of (x) Mr. Hatfield’s prior fiscal year’s bonus or (y) target annual bonus and (iii) all outstanding equity awards shall be fully vested and exercisable; and (B) Mr. Hatfield is terminated without cause or resigns for good reason other than in connection with a change in control, then Mr. Hatfield will receive (i) severance in an amount equal to 12

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months’ salary continuation, (ii) payment, on an after tax basis, of COBRA continuation premiums for group health and dental coverage for  up to 12 months and (iii) payment of a bonus equal to the greater of (x) Mr. Hatfield’s prior year’s bonus or (y) target annual bonus.

The Employment Agreements for each of Dr. Gregg and Mr. Fratamico provide that if (A) such executive is terminated without cause or for good reason within 3 months prior to or 12 months following a change in control of the Company, then then such executive will receive (i) a lump sum payment equal to  12 months’ salary, (ii) a lump-sum payment, on an after tax basis, equal to 12 months of COBRA continuation premiums for group health and dental coverage,  (iii) payment of a pro-rated target bonus for actual time worked and (iv) all outstanding equity awards shall be fully vested and exercisable; and (B) such executive is terminated without cause or resigns for good reason other than in connection with a change in control of, then then such executive will receive (i) severance in an amount equal to 9 months’ salary continuation  and (ii)  payment, on an after tax basis, of  up to 9 months of COBRA continuation premiums for group health and dental coverage.

The Employment Agreements also provide for acceleration of any unvested equity held by our named executive officers in the event of a change of control. Under these provisions, in the event of change of control, each officer will receive 100% vesting for any equity securities that are outstanding and unvested as of the date of such transaction. In addition, unvested equity securities will vest in full if the officer is terminated without cause, or the officer resigns for good reason, in each case within 3 months before or 12 months of a change of control.

For the purpose of the Employment Agreements, the following terms have the definitions set forth below:

· A termination for “cause” means termination by us of the named executive officer’s employment by reason of the occurrence of any one or more of the following: (i) an act or acts of personal dishonesty taken by the named executive officer and intended to result in substantial personal enrichment of the named executive officer at the expense of the Company; (ii) repeated violations by the named executive officer of the named executive officer’s duties under the applicable Employment Agreement (other than as a result of incapacity due to physical or mental illness) which are demonstrably willful and deliberate on the named executive officer’s part, which are committed in bad faith or without reasonable belief that such violations are in the Company’s best interests and which are not remedied in a reasonable period of time after receipt of written notice from the Company; (iii) indictment or plea of nolo contendere of named executive officer of a felony involving moral turpitude; or (iv) the material breach of the executive’s proprietary information and inventions agreement. We shall provide the named executive officer with 30 days written notice of any determination of cause and provide the executive, for a period of 30 days following such notice, to cure such alleged event of “cause” to the extent that it can be cured. The definition of cause shall govern all equity award agreements by and between us and named executive officer, unless otherwise expressly provided in such equity award agreement.

· “Good reason” means (i) a material diminution in the named executive officer’s base compensation, except in connection with across-the-board salary reductions for all similarly situated management employees; (ii) a material diminution in the named executive officer’s authority, duties and responsibilities; (iii) removal from the position contemplated by the employment agreement; (iv) a requirement that the named executive officer report to a corporate officer or employee instead of reporting directly to the parent company’s chief executive officer (or, in the case of Mr. Hatfield, the parent company’s board of directors); (v) a relocation of named executive officer’s principal workplace by  more than 50 miles from where named executive officer performed services prior to the relocation; and (vi) any other action or inaction that constitutes a material breach by us of the applicable Employment Agreement or any other agreement under which the named executive officer provides services. However, that good reason shall not exist unless the named executive officer has given written notice to us within 90 days of the initial existence of the good reason event or condition(s) giving specific details regarding the event or condition; and unless we have had at least 30 days to cure such good reason event or condition after the delivery of such written notice and has failed to cure such event or condition within such 30 day cure period.

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This summary of the Employment Agreements for our named executive officers are qualified in their entirety by reference to the text of their respective Employment Agreements, which are included as Exhibits 10.34 through 10.36 hereto and incorporated herein by reference.

The Compensation Committee also approved amending and restating the employment agreements with our Chief Financial Officer and Chief Medical Officer on terms similar to those set forth in the Employment Agreements. The amended and restated employment agreements for our Chief Financial Officer and Chief Medical Officer are qualified in their entirety by reference to the text of their respective agreements, which are included as Exhibits 10.37 and 10.38 hereto and incorporated herein by reference.

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Item 6. Exhibits.

Exhibit Number	Description
4.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Vitae Pharmaceuticals, Inc.’s Form 8-K filed on September 29, 2014).
4.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Vitae Pharmaceuticals, Inc.’s Form 8-K filed on September 29, 2014).
10.33†	Management Cash Incentive Plan, as amended and restated June 28, 2016.
10.34†	Amended and Restated Employment Agreement between Vitae Pharmaceuticals, Inc. and Jeffrey S. Hatfield dated August 3, 2016.
10.35†	Amended and Restated Employment Agreement between Vitae Pharmaceuticals, Inc. and Richard E. Gregg, M.D.  dated August 3, 2016.
10.36†	Amended and Restated Employment Agreement between Vitae Pharmaceuticals, Inc. and Arthur Fratamico, R.Ph. dated August 3, 2016.
10.37†	Amended and Restated Employment Agreement between Vitae Pharmaceuticals, Inc. and Richard Morris dated August 3, 2016.
10.38†	Amended and Restated Employment Agreement between Vitae Pharmaceuticals, Inc. and Carole Sable, M.D. dated August 3, 2016.
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended June 30, 2016).

†Compensation arrangement.

The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Vitae Pharmaceuticals, 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 Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements 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.

	Vitae Pharmaceuticals, Inc.
Dated:     August 4, 2016	/s/ JEFFREY S. HATFIELD
	Jeffrey S. Hatfield
	Chief Executive Officer (Principal Executive Officer)
Dated:     August 4, 2016	/s/ RICHARD S. MORRIS
	Richard S. Morris
	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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EX-10.33

Exhibit 10.33

Vitae Pharmaceuticals, Inc.

Management Cash Incentive Plan

(As Amended and restated Effective June 28, 2016)

TABLE OF CONTENTS

Page

ARTICLE 1.	BACKGROUND AND PURPOSE	1
1.1	Effective Date	1
1.2	Purpose of the Plan	1
ARTICLE 2.	DEFINITIONS	1
ARTICLE 3.	SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS	3
3.1	Selection of Participants	3
3.2	Determination of Performance Goals	3
3.3	Determination of Target Awards	3
3.4	Determination of Payout Formula or Formulae	3
3.5	Determination of Actual Awards	3
3.6	Adjustments	4
ARTICLE 4.	PAYMENT OF AWARDS	4
4.1	Right to Receive Payment	4
4.2	Timing of Payment	4
4.3	Form of Payment	4
4.4	Payment in the Event of Death	4
ARTICLE 5.	ADMINISTRATION	4
5.1	Committee Authority	4
5.2	Decisions Binding	5
5.3	Delegation by the Committee	5
ARTICLE 6.	GENERAL PROVISIONS	5
6.1	Tax Withholding	5
6.2	No Effect on Employment	5
6.3	No Effect on Other Benefits	5
6.4	Successors	5
6.5	Nontransferability of Awards	5
ARTICLE 7.	DURATION, AMENDMENT AND TERMINATION	5
7.1	Duration of the Plan	5
7.2	Amendment, Suspension or Termination	6
ARTICLE 8.	LEGAL CONSTRUCTION	6
8.1	Severability	6
8.2	Requirements of Law	6
8.3	Governing Law	6
8.4	Captions	6
Appendix A  Performance Metrics		7

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Vitae Pharmaceuticals, Inc.
Management Cash Incentive Plan

ARTICLE 1.BACKGROUND AND PURPOSE

1.1Effective Date.  The Plan was amended and restated by the Committee on the date set forth above, became effective immediately and is not subject to approval by the Company’s stockholders.   

1.2Purpose of the Plan.  The Plan is intended to motivate Participants to achieve excellent short- and long-term financial performance for the Company and its business units.  The Plan provides Participants with the opportunity to earn cash incentive awards for the achievement of goals relating to the performance of the Company.

ARTICLE 2.DEFINITIONS

The following words and phrases shall have the following meanings, unless a different meaning is plainly required by the context:

2.1“Actual Award” means, as to any Performance Period, the actual award (if any) payable to a Participant for the Performance Period.  Each Actual Award is determined by the Payout Formula for the Performance Period, subject to the Committee’s authority under Section 3.5 to increase, eliminate or reduce the award otherwise indicated by the Payout Formula.

2.2“Affiliate” means any corporation or other entity (including, without limitation, partnerships and joint ventures) controlled by the Company.

2.3“Base Salary” means, as to any Performance Period, the Participant’s earned salary during the Performance Period.  Base Salary shall be calculated before both (a) deductions for taxes or benefits and (b) deferrals of compensation pursuant to Company-sponsored plans or Affiliate-sponsored plans.

2.4“Board” means the Company’s Board of Directors.

2.5“Committee” means the Compensation Committee of the Board.

2.6“Company” means Vitae Pharmaceuticals, Inc., a Delaware corporation, or any successor thereto.

2.7“Disability” means a permanent disability, as determined for purposes of the principal long-term disability insurance plan maintained by the Company for the benefit of the Participant.  If there is no such plan, Disability shall be determined in accordance with a policy established by the Committee.

2.8“Employee” means any employee of the Company or of an Affiliate, whether such employee is so employed when the Plan is adopted or becomes so employed after the adoption of the Plan.

2.9“Fiscal Quarter” means a fiscal quarter within a Fiscal Year of the Company.

2.10“Fiscal Year” means the fiscal year of the Company.

2.11“Participant” means, as to any Performance Period, an Employee who has been selected for participation in the Plan for that Performance Period pursuant to Section 3.1.  

2.12“Payout Formula” means, as to any Performance Period, the formula or payout matrix established by the Committee pursuant to Section 3.4 in order to determine the Actual Awards (if any) to be paid to Participants.  The formula or matrix may differ from Participant to Participant.

2.13“Performance Period” means a Fiscal Year, or any longer or shorter period determined by the Committee.

2.14“Performance Goals” means the goal(s) determined by the Committee to be applicable to a Participant for a Target Award for a Performance Period.  As determined by the Committee, the Performance Goal(s) may provide for a targeted level or levels of achievement using the performance criteria specified by the Committee.  Such criteria shall be based on one or more of the performance metrics set forth in Appendix A attached to the Plan.

2.15“Plan” means this Vitae Pharmaceuticals, Inc. Management Cash Incentive Plan, as set forth in this instrument and as hereafter amended from time to time.

2.16“Progress Payment” means a portion of the Target Award or Actual Award determined in accordance with Section 3.5 that has been earned by the Participant as of the end of the Progress Period, based on achievement of the applicable Performance Goals, and that may be paid to the Participant during the Performance Period.

2.17“Progress Period” means a period shorter than and within the Performance Period for which a Progress Payment may be made.

2.18“Retirement” means, with respect to any Participant, a Termination of Employment occurring in accordance with a policy or policies established by the Committee from time to time.

2.19“Target Award” means the target award payable under the Plan to a Participant for the Performance Period or Progress Period, as applicable, expressed as a percentage of his or her Base Salary or a specific dollar amount, as determined by the Committee in accordance with Section 3.3.  

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2.20“Termination of Employment” means a cessation of the employee-employer relationship between an Employee and the Company or an Affiliate for any reason, including (without limitation) a termination by resignation, discharge, death, Disability, Retirement or the disaffiliation of an Affiliate, but excluding a transfer from the Company to an Affiliate or between Affiliates.

ARTICLE 3.SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS

3.1Selection of Participants.  The Committee shall select the Employees who shall be Participants for any Performance Period.  The Committee also may designate as Participants one or more individuals (by name or position) who are expected to become Employees during a Performance Period.  Participation in the Plan is in the sole discretion of the Committee and shall be determined Performance Period by Performance Period.  Accordingly, an Employee who is a Participant for a given Performance Period is in no way assured of being selected for participation in any subsequent Performance Period.

3.2Determination of Performance Goals.  The Committee shall establish the Performance Goals for each Participant for the Performance Period.  Such Performance Goals shall be set forth in writing and shall be based on one or more of the performance metrics set forth in Appendix A attached to the Plan.  Any criteria used may be measured (a) in absolute terms, (b) in relative terms, including (without limitation) the passage of time and/or against other companies or metrics, (c) on a per-share basis, (d) against the performance of the Company as a whole or against particular segments or products of the Company and/or (e) on a pre-tax or after-tax basis.  Any Performance Goal may be measured on a basis other than generally accepted accounting principles.

3.3Determination of Target Awards.  The Committee shall establish a Target Award for each Participant for each Performance Period.  Such Target Award shall be set forth in writing.

3.4Determination of Payout Formula or Formulae.  The Committee shall establish a Payout Formula or Formulae for purposes of determining the Actual Award (if any) payable to each Participant.  Each Payout Formula shall (a) be in writing, (b) be based on a comparison of actual performance to the Performance Goals, (c) provide for the payment of a Participant’s Target Award if the Performance Goals for the Performance Period are achieved at the predetermined level and (d) provide for the payment of an Actual Award greater than or less than the Participant’s Target Award.

3.5Determination of Actual Awards.  After the end of each Performance Period or, to the extent that Progress Payments will be made, after the end of each Progress Period, the Committee shall certify the extent to which the Performance Goals applicable to each Participant for the Performance Period or Progress Period, as applicable, were achieved or exceeded, as determined by the Committee.  The Actual Award for each Participant shall be determined by applying the Payout Formula to the level of actual performance that has been certified by the Committee.  Any contrary provision of the Plan notwithstanding, the Committee may (a)  reduce or eliminate the Actual Award that otherwise would be payable under the Payout

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Formula or (b) determine whether or not any Participant will receive an Actual Award or Progress Payment in the event that the Participant incurs a Termination of Employment before such Actual Award or Progress Payment is to be paid pursuant to Section 4.2.  

3.6Adjustments.  The Committee may adjust the results under any Performance Goal to exclude any of the following events that occurs during a Performance Period: (a) asset write-downs, (b) litigation, claims, judgments or settlements, (c) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (d) accruals for reorganization and restructuring programs, (e) mergers or acquisitions and (f) any other extraordinary, unusual or non-recurring items.

ARTICLE 4.PAYMENT OF AWARDS

4.1Right to Receive Payment.  Each Actual Award or Progress Payment that may become payable under the Plan shall be paid solely from the general assets of the Company or the Affiliate that employs the Participant (as the case may be), as determined by the Company.  No amounts awarded or accrued under the Plan shall be funded, set aside or otherwise segregated prior to payment.  The obligation to pay Actual Awards or Progress Payments under the Plan shall at all times be an unfunded and unsecured obligation of the Company.  Participants shall have the status of general creditors of the Company or the Affiliate that employs the Participant.

4.2Timing of Payment.  Subject to Section 3.5, payment of each Actual Award or Progress Payment shall be made as soon as administratively practicable, but in no event later than two and one-half months after the end of the applicable Performance Period or Progress Period, as the case may be.

4.3Form of Payment.  Each Actual Award or Progress Payment shall be paid in cash (or its equivalent) in a single lump sum.

4.4Payment in the Event of Death.  If a Participant dies before receiving an Actual Award or Progress Payment (determined under Section 3.5) that was scheduled to be paid before his or her death for a prior Performance Period or Progress Period, then the Actual Award or Progress Payment shall be paid to the Participant’s designated beneficiary or, if no beneficiary has been designated, to the administrator or representative of his or her estate.  Any beneficiary designation or revocation of a prior designation shall be effective only if it is in writing, signed by the Participant and received by the Company prior to the Participant’s death.

ARTICLE 5.ADMINISTRATION

5.1Committee Authority.  The Plan shall be administered by the Committee, subject to Section 5.3.  The Committee shall have all powers and discretion necessary or appropriate to administer the Plan and to control its operation, including (without limitation) the power to (a) determine which Employees shall be granted awards, (b) prescribe the terms and conditions of the awards, (c) interpret the Plan, (d) adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees who are foreign nationals or employed outside of the United States, (e) adopt rules for the administration, interpretation and application of the Plan and (f) interpret, amend or revoke any such rules.

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5.2Decisions Binding.  All determinations and decisions made by the Committee, the Board or any delegate of the Committee pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons and shall be given the maximum deference permitted by law.

5.3Delegation by the Committee.  The Committee, on such terms and conditions as it may provide, may delegate all or part of its authority and powers under the Plan to one or more directors and/or employees of the Company.

ARTICLE 6.GENERAL PROVISIONS

6.1Tax Withholding.  The Company or an Affiliate, as applicable, shall withhold all required taxes from an Actual Award or Progress Payment, including any federal, state, local or other taxes.

6.2No Effect on Employment.  Nothing in the Plan shall interfere with or limit in any way the right of the Company or an Affiliate, as applicable, to terminate any Participant’s employment or service at any time, with or without cause.  Employment with the Company and its Affiliates is on an at-will basis only.  The Company expressly reserves the right, which may be exercised at any time and without regard to when during or after a Performance Period such exercise occurs, to terminate any individual’s employment with or without cause, and to treat him or her without regard to the effect that such treatment might have upon him or her as a Participant.

6.3No Effect on Other Benefits.  Except as expressly set forth in a Participant’s employment agreement with the Company, any Actual Awards or Progress Payments under the Plan shall not be considered for the purpose of calculating any other benefits to which such Participant may be entitled, including (a) any termination, severance, redundancy or end-of-service payments, (b) other bonuses or long-service awards, (c) overtime premiums, (d) pension or retirement benefits or (e) future Base Pay or any other payment to be made by the Company to such Participant.

6.4Successors.  All obligations of the Company and any Affiliate under the Plan, with respect to awards granted hereunder, shall be binding on any successor to the Company and/or such Affiliate, whether the existence of such successor is the result of a merger, consolidation, direct or indirect purchase of all or substantially all of the business or assets of the Company or such Affiliate, or any similar transaction.

6.5Nontransferability of Awards.  No award granted under the Plan shall be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will, by the laws of descent and distribution or to the limited extent provided in Section 4.4.  All rights with respect to an award granted to a Participant shall be available during his or her lifetime only to the Participant.

ARTICLE 7.DURATION, AMENDMENT AND TERMINATION

7.1Duration of the Plan.  The Plan shall commence on the date specified herein and shall remain in effect thereafter until terminated pursuant to Section 7.2.  

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7.2Amendment, Suspension or Termination.  The Board or the Committee may amend, suspend or terminate the Plan, or any part thereof, at any time and for any reason.  No award may be granted during any period of suspension or after termination of the Plan.

ARTICLE 8.LEGAL CONSTRUCTION

8.1Severability.  In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

8.2Requirements of Law.  The granting of awards under the Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities markets as may be required.

8.3Governing Law.  The Plan and all awards shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania, without regard to their conflict-of-law provisions.

8.4Captions.  Captions are provided herein for convenience only and shall not serve as a basis for interpretation or construction of the Plan.

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Appendix A

Performance Metrics

The Committee may establish Performance Goals derived from the following metrics:

· Backlog

· Bookings (including annual or total contract value bookings)

· Cash

· Cash and short-term investments

· Cash flow return on investment

· Comparisons with various stock market indices

· Deferred revenue

· Earnings or earnings per share (including earnings before taxes, earnings before interest and taxes or earnings before interest, taxes, depreciation and amortization)

· Expenses or expense reductions

· Free cash flow or free cash flow per share

· Gross profits

· Headcount

· Implementation, completion or attainment of measurable objectives with respect to research, development, products, regulatory approvals, projects or recruiting and maintaining personnel

· Market share

· Net income (before or after taxes)

· Operating margin or cash margin

· Operating profit/loss (on a GAAP or non-GAAP basis)

· Pre- or after-tax income (before or after allocation of corporate overhead and bonus)

· Reductions in costs

· Return on equity

· Revenue

· Stock price

· Total expenses

· Total stockholder return

· Working capital

· Increases or growth in any of the foregoing

7

EX-10.34

Exhibit 10.34

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (“Agreement”) dated as of August 3, 2016, by and between Vitae Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Jeffrey Hatfield (the “Executive”).

WHEREAS, the Company wishes to continue to employ the Executive to serve as the Company’s Chief Executive Officer and President, and the Executive is willing to continue to be employed and to serve in such capacity;

WHEREAS, the Company and Executive previously entered into an offer letter dated February 25, 2004 and subsequently amended on July 21, 2008 and September 4, 2013 (together, the “Offer Letter”), whereby the Executive was employed as the Company’s Chief Executive Officer and President; and

WHEREAS, the Company and the Executive wish to supersede the Offer Letter and set forth terms of the Executive’s employment by the Company as set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto, each intending to be legally bound, do hereby agree as follows:

1.Employment, Duties and Acceptance.

1.1.Employment; Duties.  The Executive shall serve as Chief Executive Officer and President, and to perform such other duties consistent with such positions (including service as a director or officer of the Company) as may be assigned by the Company’s Board of Directors (the “Board”) from time to time. The Executive’s title shall be Chief Executive Officer and President.  For so long as he is Chief Executive Officer and President of the Company, the Company agrees that it will nominate the Executive for re-election to the Board at the expiration of each term of office and that the Executive shall serve as a member of the Board for each period for which he is so elected or appointed.

1.2.Acceptance.  The Executive hereby accepts such employment and agrees to render the services described above on an exclusive basis to the Company. During the Term, and consistent with Section 1.1, the Executive agrees to serve the Company faithfully and to the best of the Executive’s ability and to use the Executive’s best efforts, skill and ability to promote the interests of the Company in a manner consistent with the Executive’s position. The Executive also agrees to devote the Executive’s entire business time, energy and skill to such employment, except for vacation time, absence for sickness or similar disability, and time spent performing services for any charitable, religious or community organizations, so long as such services do not materially interfere with the performance of the Executive’s duties hereunder or create a conflict of interest other than current board of director positions held by Executive and disclosed in Exhibit A. The Executive may not serve on the board of directors of any other for-profit business or organization without the prior consent of the Board. In consideration for the substantial consideration provided for herein and as a condition to this Agreement, the Executive agrees to

be bound by the terms of the Proprietary Information and Inventions Agreement attached hereto as Exhibit B.

1.3.Compliance with Policies.  The Executive shall comply with all duly adopted Company policies and codes of conduct and ethics in the performance of the Executive’s duties, as such policies may be in effect from time to time and which have been previously provided to the Executive in writing or otherwise made available to him.

1.4.Location.  The duties to be performed by the Executive hereunder shall be performed primarily at the Company’s offices in Fort Washington, Pennsylvania, subject to reasonable travel requirements consistent with the nature of the Executive’s duties from time to time on behalf of the Company. 

2.Term of Employment.

The term of the Executive’s employment under this Agreement (the “Term”) shall commence on the Effective Date, and shall end when terminated in accordance with Section 4.1.

3.Compensation and Benefits.

3.1.Salary.  During the Term, the Company agrees to pay to the Executive a base salary, payable in arrears in accordance with the Company’s standard payroll practices, at the initial annual rate of $489,250 (as adjusted in accordance with this Section 3.1, the “Base Salary”). The Executive’s Base Salary may be increased as determined by the Compensation Committee of the Board (the “Committee”). All payments of Base Salary or other compensation hereunder shall be less such deductions or withholdings as are required by applicable law and regulations.

3.2.Annual Bonus.  For each calendar year that ends during the Term, the Executive shall be entitled to participate in the Company’s annual bonus plan as may be adopted by the Company for senior executives of the Company (the “Bonus Program”). The Executive’s annual bonus under the Bonus Program for any year is herein referred to as the “Annual Bonus” and, except for any applicable Company and individual goals, shall otherwise only be conditioned upon the Executive remaining employed by the Company through the last business day of the fiscal year in which the award was earned; provided that nothing contained herein shall be construed to limit the Committee’s authority to adjust the Annual Bonus in accordance with the Bonus Program.

3.3.Business Expenses.  The Company shall pay or reimburse the Executive for all reasonable expenses actually incurred or paid by the Executive in the performance of the Executive’s services to the Company or its Affiliates, subject to and in accordance with applicable expense reimbursement and related policies and procedures as in effect from time to time. 

3.4.Vacation.  The Executive shall be entitled to an annual paid vacation in accordance with the applicable vacation policy, as in effect from time to time. Under the Company’s vacation policy in effect as of the Effective Date, the Executive is entitled to take up to twenty (20) days per calendar year.

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3.5.Employee Savings, Health and Welfare Plans; Perquisites.  The Executive (and, to the extent eligible, the Executive’s dependents and beneficiaries) shall be entitled to participate in all employee benefit plans of the Company, including its savings, health and welfare benefit plans and executive perquisites, as in effect from time to time, and on a basis no less favorable than any other senior executive (or the dependents and beneficiaries of other senior executives, as applicable).

3.6.Clawback.  The Executive agrees that any amount payable to him pursuant to annual bonus plan or any of Company equity plan or any other similar performance-based compensation may be subject to repayment in accordance with the Company’s written policy on recoupment of performance-based compensation, as may be adopted and revised by the Board from time to time, and/or subject to recoupment as required by any other provisions of any law (including, without limitation, Section 10D of the Securities Exchange Act of 1934, as amended), governmental regulation or stock exchange listing requirement and that such repayment obligation will apply notwithstanding any contrary provision of this Agreement.

4.Termination.

4.1.Employment at Will.  It is expressly acknowledged and agreed by the parties that the Executive’s employment by the Company constitutes employment at will and that, to the maximum extent permitted by law, either the Company or the Executive has the right to terminate the Executive’s employment at any time and for any reason, or without stated reason. Termination of the Executive’s employment, whether by the Company or the Executive, shall not be considered a breach of this Agreement, and the duties of the parties to each other upon and following a termination of employment shall be governed exclusively by this Agreement, or by the terms of any applicable benefit plan. 

4.2.Certain Definitions.  For all purposes related to the Executive’s employment by the Company during the Term, the following capitalized terms shall have the meanings set forth below:

4.2.1Cause.  A termination for “Cause” shall mean termination by the Company of the Executive’s employment by reason of the occurrence of any one or more of the following:

(i)        an act or acts of personal dishonesty taken by the Executive and intended to result in substantial personal enrichment of the Executive at the expense of the Company;

(ii)       repeated violations by the Executive of the Executive’s obligations under Section 1 of this Agreement (other than as a result of incapacity due to physical or mental illness) which are demonstrably willful and deliberate on the Executive’s part, which are committed in bad faith or without reasonable belief that such violations are in the best interests of the Company and which are not remedied in a reasonable period of time after receipt of written notice from the Company;

(iii)      indictment or plea of nolo contendere of Executive of a felony involving moral turpitude; or

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(iv)      the material breach of the Executive’s Proprietary Information and Inventions Agreement.

The Company shall provide the Executive with thirty (30) days written notice of any determination of Cause and provide the Executive, for a period of thirty (30) days following such notice, to cure such alleged event of “Cause” to the extent that it can be cured. The definition of Cause shall govern all equity award agreements by and between Company and Executive, unless otherwise expressly provided in such equity award agreement.

4.2.2Disability. “Disability” shall mean Executive’s inability to satisfactorily perform the essential functions and duties of Executive’s position with the Company, with or without reasonable accommodation, for either sixty (60) consecutive days or ninety (90) days in any 6 month period, as a result of any physical or mental impairment, as determined by the Board upon certification thereof by a qualified physician selected by the Board after such physician examines the Executive.  The Executive agrees, upon request by the Board, to submit to such examination and to provide the Board such medical evidence, records and examination data as is reasonably necessary for the Board to evaluate any potential Disability.  The Board agrees to treat such medical information confidentially as required by law.

4.2.3Good Reason.  “Good Reason” shall mean:

(i)A material diminution (30% or more) in the Executive’s base compensation, except in connection with across-the-board salary reductions for all similarly situated senior executives;

(ii)A material diminution in the Executive’s authority, duties and responsibilities;

(iii)Removal from the position set forth in Section 1.1 of this agreement;

(iv)A requirement that the Executive report to a corporate officer or employee instead of reporting directly to the parent company’s board of directors;

(v)A relocation of Executive’s principal workplace by more than 50 miles from where Executive performed services prior to the relocation; or

(vi)Any other action or inaction that constitutes a material breach by the Company of this Agreement or any other agreement under which the Executive provides services.

provided, however, that Good Reason shall not exist unless the Executive has given written notice to the Company within ninety (90) days of the initial existence of the Good Reason event or condition(s) giving specific details regarding the event or condition; and unless the Company has had at least thirty (30) days to cure such Good Reason event or condition after the delivery of such written notice and has failed to cure such event or condition within such thirty (30) day cure period.

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4.3.Termination Events.  

4.3.1Immediate Termination.  Executive’s employment and the Term shall terminate immediately upon the occurrence of any of the following:

(i)        the death of the Executive;

(ii)       Disability of the Executive; or

(iii)      notice by the Company to the Executive of a termination for Cause.

4.3.2Termination by the Company without Cause.  The Company may terminate the Executive’s employment without Cause upon thirty (30) days prior written notice and, in such event, the Term shall terminate upon expiration of such thirty (30) day period.

4.3.3Resignation by the Executive.  The Executive may resign the Executive’s position (i) voluntarily, which shall be effective ninety (90) days following written notice to the Company of the Executive’s intent to so resign or (ii) due to Good Reason, effective upon expiration of the Company’s thirty (30) day cure period and provided that the Company has not cured. The Company may waive all or any portion of the notice period and notify the Executive that his resignation has been accepted as of an earlier date.

4.3.4Definition of Termination Date.  The date upon which the Executive’s employment and the Term terminate pursuant to this Section 4 shall be the Executive’s “Termination Date” for purposes of this Agreement. In the event that the termination of the Executive’s employment does not constitute a “separation from service” as defined in section 409A of the Code, the Executive’s rights to the applicable payments and benefits described in this Section 4 shall vest upon the Termination Date, but no payment to the Executive that is subject to section 409A of the Code shall be paid until the Executive incurs such a separation from service (or, if required under Section 8.1, until six months after such separation if the Executive is a “specified employee” as defined in Treasury Regulation 1.409A-1(i)(1)).

4.3.5Deemed Resignation.  Upon termination of Executive’s employment for any reason or no reason, including with or without Cause or for Good Reason, whether by the Company or by Executive, and unless the Board otherwise expressly determines, Executive agrees that he automatically shall have been deemed to have resigned from all positions as an officer, director and employee of the Company or any subsidiaries or affiliates thereof without any further action on the part of the Executive or the Company.

4.4.Payments Upon a Termination Event.  

4.4.1Entitlements Upon Termination for Cause or Resignation without Good Reason.  Following any termination of the Executive’s employment for Cause or without Good Reason, the Company shall pay or provide to the Executive, or the Executive’s estate or beneficiary, as the case may be, the following amounts (the “Accrued Obligations”): 

(i)        Base Salary earned through the Termination Date;

(ii)       a payment representing the Executive’s accrued but unused vacation;

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(iii)      reimbursement of all unpaid business expenses properly incurred by the Executive in connection with the performance of services to the Company or its Affiliates prior to the Termination Date;

(iv)      The Executive’s Annual Bonus for the fiscal year prior to the year in which the Termination Date occurs if not paid prior to the Termination Date, paid when Annual Bonuses are paid to active employees; and

(v)       any vested and/or earned, but not forfeited, amounts or benefits on the Termination Date under the Company’s employee benefit plans, programs, policies or practices in accordance with the terms thereof, including any benefit continuation or conversion rights (collectively, the “Company Arrangements”).

4.4.2Payments Upon Termination by Reason of Death or Disability.  In the event that the Executive’s employment is terminated by reason of his death or Disability, the Company shall pay or provide the Accrued Obligations to the Executive or the Executive’s estate.

4.4.3Payments Upon Termination without Cause; or Resignation for Good Reason.  In the event that the Executive’s employment is terminated by the Company without Cause or the Executive resigns for Good Reason, then the Company shall pay or provide to the Executive or the Executive’s estate:

(i)        the Accrued Obligations;

(ii)       salary continuation during one year severance period beginning on the Termination Date (or such later date as required by Section 4.5) in accordance with the Company’s normal payroll practices;

(iii)      subject to Executive’s election to receive and continuing eligibility for COBRA continuation coverage, the Company shall pay, on an after-tax basis, for up to 12 months of COBRA continuation premiums for group health and dental coverage; and

(iv)      payment of an amount equal to the greater of (i) Annual Bonus earned in the prior fiscal year or (ii) the target annual bonus for Executive under the Company’s annual bonus plan.

4.4.4Payments Upon Termination in Connection with a Change in Control.  In the event the Executive’s employment is terminated without Cause or for Good Reason in the three (3) months prior to or in the 12 months following a Change in Control (as defined in the Company’s 2014 Equity Incentive Plan), then the Company shall pay or provide to the Executive or the Executive’s estate:

(i)        the Accrued Obligations;

(ii)       a lump sum payment equal to 18 months of Base Salary within  30 days of the  Termination Date (or such later date as required by Section 4.5); 

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(iii)      subject to the Executive’s election to receive  COBRA continuation coverage, the Company shall pay a lump-sum payment, on an after-tax basis, for  18 months of COBRA continuation premiums for group health and dental coverage;

(iv)      payment of an amount equal to the greater of (i) Annual Bonus earned in the prior fiscal year or (ii) the target annual bonus for Executive under the Company’s annual bonus plan; and

(v)       all outstanding equity awards shall be fully vested and non-forfeitable.

4.4.5Sections Mutually Exclusive.  Sections 4.4.1, 4.4.2, 4.4.3 and 4.4.4 are mutually exclusive, and the Executive shall not be entitled to receive payments or benefits upon a termination of employment under more than one such Section.

4.5.Payments Conditioned Upon Release.  Anything else contained herein to the contrary notwithstanding, in no event shall the Executive be entitled to any payment or benefit pursuant to this Section 4, or otherwise as a result of any termination of employment except for his death, other than the Accrued Obligations, unless and until the Executive executes and does not revoke within the applicable revocation period an enforceable waiver and release of all claims against the Company and its officers and directors in a form provided by the Company (the “Release”). Such Release shall be executed and returned to the Company within the period of time specified in the Release; provided, however, if the Termination Date occurs in one calendar year and the period for considering such Release under applicable law expires during the following calendar year, then notwithstanding anything herein to the contrary other than Section 8.1 herein, the payments of severance hereunder will be paid by the Company to the Executive beginning on the first regular payroll date of the Company in the second calendar year following expiration of the applicable consideration and revocation period provided for under the Release. Any amounts that otherwise would have been paid to the Executive prior to the date on which the revocation period expires shall be paid at the expiration of the revocation period, without interest. If the Executive fails to execute the Release within the specified period, or revokes the Release after executing it, all payments and benefits provided under this Section 4, other than the Accrued Obligations, shall be forfeited.

4.6.Tax.  The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

4.7.No Mitigation.  Upon termination of the Executive’s employment with the Company, the Executive shall be under no obligation to seek other employment or otherwise mitigate the obligations of the Company under this Agreement or any other agreement with the Company.

5.Indemnification.

The Company shall indemnify the Executive for all claims or losses arising from or related to the discharge of his duties under this Agreement to the fullest extent permitted by Delaware general corporate law.

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6.Notices.

6.1.Form and Address for Notices.  All notices, requests, consents and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, one (1) day after having been sent by overnight courier or three (3) days after having been mailed first class, e-mail, postage prepaid, by registered or certified mail, as follows (or to such other address as either party shall designate by notice in writing to the other in accordance herewith):

If to the Company, to:

Attention:  General Counsel

Vitae Pharmaceuticals, Inc.

502 West Office Center Drive

Fort Washington, PA 19034

If to the Executive, to the Executive’s principal residence as reflected in the records of the Company.

7.General.

7.1.Governing Law; Jurisdiction and Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania (without regard to conflicts of laws) applicable to agreements made between residents thereof and to be performed entirely in Pennsylvania.  Any action brought by either party with respect to this Agreement, shall be brought and maintained only in the state or federal courts located in the Commonwealth of Pennsylvania. Each party consents to personal jurisdiction and venue in such courts, waives any right to file a motion based on forum non conveniens or any similar doctrine and agrees not to oppose any motion to transfer any such case to such courts.

7.2.Headings.  The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

7.3.Entire Agreement; Amendment.  This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof; provided, however, that the Proprietary Information and Inventions Agreement, and any outstanding option or other equity award agreements by and between the Company and Executive shall be governed in accordance with the terms therein.

7.4.Assignability.  

7.4.1Nonassignability by Executive.  This Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive, nor may the Executive pledge, encumber or anticipate any payments or benefits due hereunder, by operation of law or otherwise.

7.4.2Assignability by Company.  The Company may only assign its rights, together with its obligations, hereunder to a third party in connection with any sale, transfer or other disposition of all or substantially all of any business to which the Executive’s services are

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then principally devoted; provided, however, that no assignment pursuant to this Section 7.4.2 shall relieve the Company from its obligations hereunder to the extent the same are not timely discharged by such assignee.

7.4.3Assumption of Agreement by Successors.  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 

7.5.Survival.  The respective rights and obligations of the parties hereunder, including under Sections 4, 5 and 7, shall survive any termination of this Agreement or the expiration of the Term to the extent necessary to the intended preservation of such rights and obligations.

7.6.Severability.  The provisions of this Agreement are severable and the invalidity of any provision shall not affect the validity of any other provision.  In the event that any arbitrator or court of competent jurisdiction and venue shall determine that any provision of this Agreement or the application thereof is unenforceable, then the parties hereto agree that said arbitrator or court in making such determination shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable, and that the Agreement in its reduced form shall be valid and enforceable to the fullest extent provided by law.

7.7.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, and all of which together will constitute one and the same instrument. The parties hereto agree to accept a signed facsimile or “PDF” copy of this Agreement as a fully binding original.

8.Code Section 409A Legal Requirement.

8.1.Six Month Delay in Payment.  Notwithstanding anything to the contrary in this Agreement, if the Executive is a “specified employee” as defined and applied in section 409A of the Code as of the Executive’s Termination Date, then, to the extent any payment under this Agreement or any Company Arrangement constitutes deferred compensation (after taking into account any applicable exemptions from section 409A of the Code, including those specified in Section 8.2) and to the extent required by section 409A of the Code, no payments due under this Agreement or any Company Arrangement may be made until the earlier of: (i) the first day

following the sixth month anniversary of the Executive’s Termination Date and (ii) the Executive’s date of death.

8.2.Application of Exemptions.  For purposes of section 409A of the Code, each “payment” (as defined by section 409A of the Code) made under this Agreement shall be considered a “separate payment.” In addition, for purposes of section 409A of the Code, each such payment shall be deemed exempt from section 409A of the Code to the fullest extent possible under the “short-term deferral” exemption of Treasury Regulation § 1.409A-1(b)(4), as well as any other applicable exemptions.

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8.3.Reimbursement and Offset Provisions.  Reimbursement payments shall generally be made in accordance with applicable Company policies; however, in no event will reimbursement payments be made later than the end of the year following the year in which the expense was incurred.  The amounts eligible for reimbursement provided in one taxable year will not affect the amounts eligible for reimbursement provided in any other taxable year, and the right to reimbursement will not be subject to liquidation or exchange for another benefit.  Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment that constitutes “non-qualified deferred compensation” under section 409A of the Code be subject to offset by any other amount unless otherwise permitted by section 409A.

8.4.Interpretation and Administration of Agreement.  To the maximum extent permitted by law, this Agreement shall be interpreted and administered in such a manner that the payments to the Executive are either exempt from, or comply with, the requirements of section 409A of the Code.

[Signature page follows]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

VITAE PHARMACEUTICALS, INC.
By:	/s/ Donald Hayden
	Donald Hayden
	Chairman of its Board of Directors
EXECUTIVE
	/s/ Jeffrey Hatfield
	Jeffrey Hatfield

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Exhibit A

Board Seats

None.

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Exhibit B

PIIA

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EX-10.35

Exhibit 10.35

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (“Agreement”) dated as of August 3, 2016, by and between Vitae Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Richard Gregg, M.D. (the “Executive”).

WHEREAS, the Company wishes to continue to employ the Executive to serve as the Company’s Chief Science Officer, and the Executive is willing to continue to be employed and to serve in such capacity;

WHEREAS, the Company and Executive previously entered into an offer letter dated January 28, 2008 and subsequently amended on July 21, 2008 (together, the “Offer Letter”), whereby the Executive was employed as the Company’s Chief Science Officer; and

WHEREAS, the Company and the Executive wish to supersede the Offer Letter and set forth terms of the Executive’s employment by the Company as set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto, each intending to be legally bound, do hereby agree as follows:

1.Employment, Duties and Acceptance.

1.1.Employment; Duties.  The Executive shall serve as Chief Science Officer, and to perform such other duties consistent with such positions as may be assigned by the Company’s Chief Executive Officer or its Board of Directors (the “Board”) from time to time.

1.2.Acceptance.  The Executive hereby accepts such employment and agrees to render the services described above on an exclusive basis to the Company. During the Term, and consistent with Section 1.1, the Executive agrees to serve the Company faithfully and to the best of the Executive’s ability and to use the Executive’s best efforts, skill and ability to promote the interests of the Company in a manner consistent with the Executive’s position. The Executive may not serve on the board of directors of any other for-profit business or organization without the prior consent of the Board. In consideration for the substantial consideration provided for herein and as a condition to this Agreement, the Executive agrees to be bound by the terms of the Proprietary Information and Inventions Agreement attached hereto as Exhibit A.

1.3.Compliance with Policies.  The Executive shall comply with all duly adopted Company policies and codes of conduct and ethics in the performance of the Executive’s duties, as such policies may be in effect from time to time and which have been previously provided to the Executive in writing or otherwise made available to him.

1.4.Location.  The duties to be performed by the Executive hereunder shall be performed primarily at the Company’s offices in Fort Washington, Pennsylvania, subject to reasonable travel requirements consistent with the nature of the Executive’s duties from time to time on behalf of the Company.

2.Term of Employment.

The term of the Executive’s employment under this Agreement (the “Term”) shall commence on the Effective Date, and shall end when terminated in accordance with Section 4.1.

3.Compensation and Benefits.

3.1.Salary.  During the Term, the Company agrees to pay to the Executive a base salary, payable in arrears in accordance with the Company’s standard payroll practices, at the initial annual rate of $365,650.00 (as adjusted in accordance with this Section 3.1, the “Base Salary”). The Executive’s Base Salary may be increased as determined by the Compensation Committee of the Board (the “Committee”). All payments of Base Salary or other compensation hereunder shall be less such deductions or withholdings as are required by applicable law and regulations.

3.2.Annual Bonus.  For each calendar year that ends during the Term, the Executive shall be entitled to participate in the Company’s annual bonus plan as may be adopted by the Company for senior executives of the Company (the “Bonus Program”). The Executive’s annual bonus under the Bonus Program for any year is herein referred to as the “Annual Bonus” and, except for any applicable Company and individual goals, shall otherwise only be conditioned upon the Executive remaining employed by the Company through the last business day of the fiscal year in which the award was earned; provided that nothing contained herein shall be construed to limit the Committee’s authority to adjust the Annual Bonus in accordance with the Bonus Program.

3.3.Business Expenses.  The Company shall pay or reimburse the Executive for all reasonable expenses actually incurred or paid by the Executive in the performance of the Executive’s services to the Company or its Affiliates, subject to and in accordance with applicable expense reimbursement and related policies and procedures as in effect from time to time. 

3.4.Vacation.  The Executive shall be entitled to an annual paid vacation in accordance with the applicable vacation policy, as in effect from time to time. Under the Company’s vacation policy in effect as of the Effective Date, the Executive is entitled to take up to twenty (20) days per calendar year.

3.5.Employee Savings, Health and Welfare Plans; Perquisites.  The Executive (and, to the extent eligible, the Executive’s dependents and beneficiaries) shall be entitled to participate in all employee benefit plans of the Company, including its savings, health and welfare benefit plans and executive perquisites, as in effect from time to time, and on a basis no less favorable than any other senior executive (or the dependents and beneficiaries of other senior executives, as applicable).

3.6.Clawback.  The Executive agrees that any amount payable to him pursuant to annual bonus plan or any of Company equity plan or any other similar performance-based compensation may be subject to repayment in accordance with the Company’s written policy on recoupment of performance-based compensation, as may be adopted and revised by the

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Board from time to time, and/or subject to recoupment as required by any other provisions of any law (including, without limitation, Section 10D of the Securities Exchange Act of 1934, as amended), governmental regulation or stock exchange listing requirement and that such repayment obligation will apply notwithstanding any contrary provision of this Agreement.

4.Termination.

4.1.Employment at Will.  It is expressly acknowledged and agreed by the parties that the Executive’s employment by the Company constitutes employment at will and that, to the maximum extent permitted by law, either the Company or the Executive has the right to terminate the Executive’s employment at any time and for any reason, or without stated reason. Termination of the Executive’s employment, whether by the Company or the Executive, shall not be considered a breach of this Agreement, and the duties of the parties to each other upon and following a termination of employment shall be governed exclusively by this Agreement, or by the terms of any applicable benefit plan. 

4.2.Certain Definitions.  For all purposes related to the Executive’s employment by the Company during the Term, the following capitalized terms shall have the meanings set forth below:

4.2.1Cause.  A termination for “Cause” shall mean termination by the Company of the Executive’s employment by reason of the occurrence of any one or more of the following:

(i)        an act or acts of personal dishonesty taken by the Executive and intended to result in substantial personal enrichment of the Executive at the expense of the Company;

(ii)       repeated violations by the Executive of the Executive’s obligations under Section 1 of this Agreement (other than as a result of incapacity due to physical or mental illness) which are demonstrably willful and deliberate on the Executive’s part, which are committed in bad faith or without reasonable belief that such violations are in the best interests of the Company and which are not remedied in a reasonable period of time after receipt of written notice from the Company;

(iii)      indictment or plea of nolo contendere of Executive of a felony involving moral turpitude; or

(iv)      the material breach of the Executive’s Proprietary Information and Inventions Agreement.

The Company shall provide the Executive with thirty (30) days written notice of any determination of Cause and provide the Executive, for a period of thirty (30) days following such notice, to cure such alleged event of “Cause” to the extent that it can be cured. The definition of Cause shall govern all equity award agreements by and between Company and Executive, unless otherwise expressly provided in such equity award agreement.

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4.2.2Disability. “Disability” shall mean Executive’s inability to satisfactorily perform the essential functions and duties of Executive’s position with the Company, with or without reasonable accommodation, for either sixty (60) consecutive days or ninety (90) days in any 6 month period, as a result of any physical or mental impairment, as determined by the Board upon certification thereof by a qualified physician selected by the Board after such physician examines the Executive.  The Executive agrees, upon request by the Board, to submit to such examination and to provide the Board such medical evidence, records and examination data as is reasonably necessary for the Board to evaluate any potential Disability.  The Board agrees to treat such medical information confidentially as required by law.

4.2.3Good Reason.  “Good Reason” shall mean:

(i)A material diminution (30% or more) in the Executive’s base compensation, except in connection with across-the-board salary reductions for all similarly situated senior executives;

(ii)A material diminution in the Executive’s authority, duties and responsibilities;

(iii)Removal from the position set forth in Section 1.1 of this agreement;

(iv)A requirement that the Executive report to a corporate officer or employee instead of reporting directly to the parent company’s chief executive officer;

(v)A relocation of Executive’s principal workplace by more than 50 miles from where Executive performed services prior to the relocation; or

(vi)Any other action or inaction that constitutes a material breach by the Company of this Agreement or any other agreement under which the Executive provides services.

provided, however, that Good Reason shall not exist unless the Executive has given written notice to the Company within ninety (90) days of the initial existence of the Good Reason event or condition(s) giving specific details regarding the event or condition; and unless the Company has had at least thirty (30) days to cure such Good Reason event or condition after the delivery of such written notice and has failed to cure such event or condition within such thirty (30) day cure period.

4.3.Termination Events.  

4.3.1Immediate Termination.  Executive’s employment and the Term shall terminate immediately upon the occurrence of any of the following:

(i)        the death of the Executive;

(ii)       Disability of the Executive; or

(iii)      notice by the Company to the Executive of a termination for Cause.

4.3.2Termination by the Company without Cause.  The Company may terminate the Executive’s employment without Cause upon thirty (30) days prior written notice and, in such event, the Term shall terminate upon expiration of such thirty (30) day period.

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4.3.3Resignation by the Executive.  The Executive may resign the Executive’s position (i) voluntarily, which shall be effective ninety (90) days following written notice to the Company of the Executive’s intent to so resign or (ii) due to Good Reason, effective upon expiration of the Company’s thirty (30) day cure period and provided that the Company has not cured. The Company may waive all or any portion of the notice period and notify the Executive that his resignation has been accepted as of an earlier date.

4.3.4Definition of Termination Date.  The date upon which the Executive’s employment and the Term terminate pursuant to this Section 4 shall be the Executive’s “Termination Date” for purposes of this Agreement. In the event that the termination of the Executive’s employment does not constitute a “separation from service” as defined in section 409A of the Code, the Executive’s rights to the applicable payments and benefits described in this Section 4 shall vest upon the Termination Date, but no payment to the Executive that is subject to section 409A of the Code shall be paid until the Executive incurs such a separation from service (or, if required under Section 8.1, until six months after such separation if the Executive is a “specified employee” as defined in Treasury Regulation 1.409A-1(i)(1)).

4.3.5Deemed Resignation.  Upon termination of Executive’s employment for any reason or no reason, including with or without Cause or for Good Reason, whether by the Company or by Executive, and unless the Board otherwise expressly determines, Executive agrees that he automatically shall have been deemed to have resigned from all positions as an officer and employee of the Company or any subsidiaries or affiliates thereof without any further action on the part of the Executive or the Company.

4.4.Payments Upon a Termination Event.  

4.4.1Entitlements Upon Termination for Cause or Resignation without Good Reason.  Following any termination of the Executive’s employment for Cause or without Good Reason, the Company shall pay or provide to the Executive, or the Executive’s estate or beneficiary, as the case may be, the following amounts (the “Accrued Obligations”): 

(i)        Base Salary earned through the Termination Date;

(ii)       a payment representing the Executive’s accrued but unused vacation;

(iii)      reimbursement of all unpaid business expenses properly incurred by the Executive in connection with the performance of services to the Company or its Affiliates prior to the Termination Date;

(iv)      The Executive’s Annual Bonus for the fiscal year prior to the year in which the Termination Date occurs if not paid prior to the Termination Date, paid when Annual Bonuses are paid to active employees; and

(v)       any vested and/or earned, but not forfeited, amounts or benefits on the Termination Date under the Company’s employee benefit plans, programs, policies or practices in accordance with the terms thereof, including any benefit continuation or conversion rights (collectively, the “Company Arrangements”).

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4.4.2Payments Upon Termination by Reason of Death or Disability.  In the event that the Executive’s employment is terminated by reason of his death or Disability, the Company shall pay or provide the Accrued Obligations to the Executive or the Executive’s estate.

4.4.3Payments Upon Termination without Cause; or Resignation for Good Reason.  In the event that the Executive’s employment is terminated by the Company without Cause or the Executive resigns for Good Reason, then the Company shall pay or provide to the Executive or the Executive’s estate:

(i)        the Accrued Obligations;

(ii)       salary continuation during nine (9) month severance period beginning on the Termination Date (or such later date as required by Section 4.5) in accordance with the Company’s normal payroll practices; and

(iii)      subject to Executive’s election to receive and continuing eligibility for COBRA continuation coverage, the Company shall pay, on an after-tax basis, for up to nine (9) months of COBRA continuation premiums for group health and dental coverage.

4.4.4Payments Upon Termination in Connection with a Change in Control.  In the event the Executive’s employment is terminated without Cause or for Good Reason in the three (3) months prior to or in the 12 months following a Change in Control (as defined in the Company’s 2014 Equity Incentive Plan), then the Company shall pay or provide to the Executive or the Executive’s estate:

(i)        the Accrued Obligations;

(ii)       a lump sum payment equal to 12 months of Base Salary within 30 days of the Termination Date (or such later date as required by Section 4.5); 

(iii)      payment of a prorated Annual Bonus for the fiscal year in which the Termination Date occurs based on target Annual Bonus in accordance with the Bonus Program (without the exercise of any negative discretion) with such proration to be equal to the fraction the numerator of which is equal to the number of days the Executive worked from the beginning of the Company’s then current fiscal year through the Termination Date and the denominator of which is three hundred sixty-five (365);

(iv)      subject to the Executive’s election to receive COBRA continuation coverage, the Company shall pay a lump-sum payment, on an after-tax basis, for 12 months of COBRA continuation premiums for group health and dental coverage; and

(v)      all outstanding equity awards shall be fully vested and non-forfeitable.

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4.4.5Sections Mutually Exclusive.  Sections 4.4.1, 4.4.2, 4.4.3 and 4.4.4 are mutually exclusive, and the Executive shall not be entitled to receive payments or benefits upon a termination of employment under more than one such Section.

4.5.Payments Conditioned Upon Release.  Anything else contained herein to the contrary notwithstanding, in no event shall the Executive be entitled to any payment or benefit pursuant to this Section 4, or otherwise as a result of any termination of employment except for his death, other than the Accrued Obligations, unless and until the Executive executes and does not revoke within the applicable revocation period an enforceable waiver and release of all claims against the Company and its officers and directors in a form provided by the Company (the “Release”). Such Release shall be executed and returned to the Company within the period of time specified in the Release; provided, however, if the Termination Date occurs in one calendar year and the period for considering such Release under applicable law expires during the following calendar year, then notwithstanding anything herein to the contrary other than Section 8.1 herein, the payments of severance hereunder will be paid by the Company to the Executive beginning on the first regular payroll date of the Company in the second calendar year following expiration of the applicable consideration and revocation period provided for under the Release. Any amounts that otherwise would have been paid to the Executive prior to the date on which the revocation period expires shall be paid at the expiration of the revocation period, without interest. If the Executive fails to execute the Release within the specified period, or revokes the Release after executing it, all payments and benefits provided under this Section 4, other than the Accrued Obligations, shall be forfeited.

4.6.Tax.  The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

4.7.No Mitigation.  Upon termination of the Executive’s employment with the Company, the Executive shall be under no obligation to seek other employment or otherwise mitigate the obligations of the Company under this Agreement or any other agreement with the Company.

5.Indemnification.

The Company shall indemnify the Executive for all claims or losses arising from or related to the discharge of his duties under this Agreement to the fullest extent permitted by Delaware general corporate law.

6.Notices.

6.1.Form and Address for Notices.  All notices, requests, consents and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, one (1) day after having been sent by overnight courier or three (3) days after having been mailed first class, e-mail, postage prepaid, by registered or certified mail, as follows (or to such other address as either party shall designate by notice in writing to the other in accordance herewith):

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If to the Company, to:

Attention:  General Counsel

Vitae Pharmaceuticals, Inc.

502 West Office Center Drive

Fort Washington, PA 19034

If to the Executive, to the Executive’s principal residence as reflected in the records of the Company.

7.General.

7.1.Governing Law; Jurisdiction and Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania (without regard to conflicts of laws) applicable to agreements made between residents thereof and to be performed entirely in Pennsylvania.  Any action brought by either party with respect to this Agreement, shall be brought and maintained only in the state or federal courts located in the Commonwealth of Pennsylvania. Each party consents to personal jurisdiction and venue in such courts, waives any right to file a motion based on forum non conveniens or any similar doctrine and agrees not to oppose any motion to transfer any such case to such courts.

7.2.Headings.  The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

7.3.Entire Agreement; Amendment.  This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof; provided, however, that the Proprietary Information and Inventions Agreement, and any outstanding option or other equity award agreements by and between the Company and Executive shall be governed in accordance with the terms therein.

7.4.Assignability.  

7.4.1Nonassignability by Executive.  This Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive, nor may the Executive pledge, encumber or anticipate any payments or benefits due hereunder, by operation of law or otherwise.

7.4.2Assignability by Company.  The Company may only assign its rights, together with its obligations, hereunder to a third party in connection with any sale, transfer or other disposition of all or substantially all of any business to which the Executive’s services are then principally devoted; provided, however, that no assignment pursuant to this Section 7.4.2 shall relieve the Company from its obligations hereunder to the extent the same are not timely discharged by such assignee.

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7.4.3Assumption of Agreement by Successors.  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 

7.5.Survival.  The respective rights and obligations of the parties hereunder, including under Sections 4, 5 and 7, shall survive any termination of this Agreement or the expiration of the Term to the extent necessary to the intended preservation of such rights and obligations.

7.6.Severability.  The provisions of this Agreement are severable and the invalidity of any provision shall not affect the validity of any other provision.  In the event that any arbitrator or court of competent jurisdiction and venue shall determine that any provision of this Agreement or the application thereof is unenforceable, then the parties hereto agree that said arbitrator or court in making such determination shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable, and that the Agreement in its reduced form shall be valid and enforceable to the fullest extent provided by law.

7.7.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, and all of which together will constitute one and the same instrument. The parties hereto agree to accept a signed facsimile or “PDF” copy of this Agreement as a fully binding original.

8.Code Section 409A Legal Requirement.

8.1.Six Month Delay in Payment.  Notwithstanding anything to the contrary in this Agreement, if the Executive is a “specified employee” as defined and applied in section 409A of the Code as of the Executive’s Termination Date, then, to the extent any payment under this Agreement or any Company Arrangement constitutes deferred compensation (after taking into account any applicable exemptions from section 409A of the Code, including those specified in Section 8.2) and to the extent required by section 409A of the Code, no payments due under this Agreement or any Company Arrangement may be made until the earlier of: (i) the first day following the sixth month anniversary of the Executive’s Termination Date and (ii) the Executive’s date of death.

8.2.Application of Exemptions.  For purposes of section 409A of the Code, each “payment” (as defined by section 409A of the Code) made under this Agreement shall be considered a “separate payment.” In addition, for purposes of section 409A of the Code, each such payment shall be deemed exempt from section 409A of the Code to the fullest extent possible under the “short-term deferral” exemption of Treasury Regulation § 1.409A-1(b)(4), as well as any other applicable exemptions.

8.3.Reimbursement and Offset Provisions.  Reimbursement payments shall generally be made in accordance with applicable Company policies; however, in no event will reimbursement payments be made later than the end of the year following the year in which the expense was incurred.  The amounts eligible for reimbursement provided in one taxable year will

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not affect the amounts eligible for reimbursement provided in any other taxable year, and the right to reimbursement will not be subject to liquidation or exchange for another benefit.  Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment that constitutes “non-qualified deferred compensation” under section 409A of the Code be subject to offset by any other amount unless otherwise permitted by section 409A.

8.4.Interpretation and Administration of Agreement.  To the maximum extent permitted by law, this Agreement shall be interpreted and administered in such a manner that the payments to the Executive are either exempt from, or comply with, the requirements of section 409A of the Code.

[Signature page follows]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

VITAE PHARMACEUTICALS, INC.
By:	/s/ Jeffrey Hatfield
	Jeffrey Hatfield
	Chief Executive Officer and President
EXECUTIVE
	/s/ Richard Gregg, M.D.
	Richard Gregg, M.D.

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Exhibit A

PIIA

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EX-10.36

Exhibit 10.36

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (“Agreement”) dated as of August 3, 2016, by and between Vitae Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Arthur Fratamico, R.Ph. (the “Executive”).

WHEREAS, the Company wishes to continue to employ the Executive to serve as the Company’s Chief Business Officer, and the Executive is willing to continue to be employed and to serve in such capacity;

WHEREAS, the Company and Executive previously entered into an offer letter dated May 7, 2014 (the “Offer Letter”), whereby the Executive was employed as the Company’s Chief Business Officer; and

WHEREAS, the Company and the Executive wish to supersede the Offer Letter and set forth terms of the Executive’s employment by the Company as set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto, each intending to be legally bound, do hereby agree as follows:

1.Employment, Duties and Acceptance.

1.1.Employment; Duties.  The Executive shall serve as Chief Business Officer, and to perform such other duties consistent with such positions as may be assigned by the Company’s Chief Executive Officer or its Board of Directors (the “Board”) from time to time.

1.2.Acceptance.  The Executive hereby accepts such employment and agrees to render the services described above on an exclusive basis to the Company. During the Term, and consistent with Section 1.1, the Executive agrees to serve the Company faithfully and to the best of the Executive’s ability and to use the Executive’s best efforts, skill and ability to promote the interests of the Company in a manner consistent with the Executive’s position. The Executive may not serve on the board of directors of any other for-profit business or organization without the prior consent of the Board. In consideration for the substantial consideration provided for herein and as a condition to this Agreement, the Executive agrees to be bound by the terms of the Proprietary Information and Inventions Agreement attached hereto as Exhibit A.

1.3.Compliance with Policies.  The Executive shall comply with all duly adopted Company policies and codes of conduct and ethics in the performance of the Executive’s duties, as such policies may be in effect from time to time and which have been previously provided to the Executive in writing or otherwise made available to him.

1.4.Location.  The duties to be performed by the Executive hereunder shall be performed primarily at the Company’s offices in Fort Washington, Pennsylvania, subject to reasonable travel requirements consistent with the nature of the Executive’s duties from time to time on behalf of the Company.

2.Term of Employment.

The term of the Executive’s employment under this Agreement (the “Term”) shall commence on the Effective Date, and shall end when terminated in accordance with Section 4.1.

3.Compensation and Benefits.

3.1.Salary.  During the Term, the Company agrees to pay to the Executive a base salary, payable in arrears in accordance with the Company’s standard payroll practices, at the initial annual rate of $318,270.00 (as adjusted in accordance with this Section 3.1, the “Base Salary”). The Executive’s Base Salary may be increased as determined by the Compensation Committee of the Board (the “Committee”). All payments of Base Salary or other compensation hereunder shall be less such deductions or withholdings as are required by applicable law and regulations.

3.2.Annual Bonus.  For each calendar year that ends during the Term, the Executive shall be entitled to participate in the Company’s annual bonus plan as may be adopted by the Company for senior executives of the Company (the “Bonus Program”). The Executive’s annual bonus under the Bonus Program for any year is herein referred to as the “Annual Bonus” and, except for any applicable Company and individual goals, shall otherwise only be conditioned upon the Executive remaining employed by the Company through the last business day of the fiscal year in which the award was earned; provided that nothing contained herein shall be construed to limit the Committee’s authority to adjust the Annual Bonus in accordance with the Bonus Program.

3.3.Business Expenses.  The Company shall pay or reimburse the Executive for all reasonable expenses actually incurred or paid by the Executive in the performance of the Executive’s services to the Company or its Affiliates, subject to and in accordance with applicable expense reimbursement and related policies and procedures as in effect from time to time. 

3.4.Vacation.  The Executive shall be entitled to an annual paid vacation in accordance with the applicable vacation policy, as in effect from time to time. Under the Company’s vacation policy in effect as of the Effective Date, the Executive is entitled to take up to twenty (20) days per calendar year.

3.5.Employee Savings, Health and Welfare Plans; Perquisites.  The Executive (and, to the extent eligible, the Executive’s dependents and beneficiaries) shall be entitled to participate in all employee benefit plans of the Company, including its savings, health and welfare benefit plans and executive perquisites, as in effect from time to time, and on a basis no less favorable than any other senior executive (or the dependents and beneficiaries of other senior executives, as applicable).

3.6.Clawback.  The Executive agrees that any amount payable to him pursuant to annual bonus plan or any of Company equity plan or any other similar performance-based compensation may be subject to repayment in accordance with the Company’s written policy on recoupment of performance-based compensation, as may be adopted and revised by the

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Board from time to time, and/or subject to recoupment as required by any other provisions of any law (including, without limitation, Section 10D of the Securities Exchange Act of 1934, as amended), governmental regulation or stock exchange listing requirement and that such repayment obligation will apply notwithstanding any contrary provision of this Agreement.

4.Termination.

4.1.Employment at Will.  It is expressly acknowledged and agreed by the parties that the Executive’s employment by the Company constitutes employment at will and that, to the maximum extent permitted by law, either the Company or the Executive has the right to terminate the Executive’s employment at any time and for any reason, or without stated reason. Termination of the Executive’s employment, whether by the Company or the Executive, shall not be considered a breach of this Agreement, and the duties of the parties to each other upon and following a termination of employment shall be governed exclusively by this Agreement, or by the terms of any applicable benefit plan. 

4.2.Certain Definitions.  For all purposes related to the Executive’s employment by the Company during the Term, the following capitalized terms shall have the meanings set forth below:

4.2.1Cause.  A termination for “Cause” shall mean termination by the Company of the Executive’s employment by reason of the occurrence of any one or more of the following:

(i)        an act or acts of personal dishonesty taken by the Executive and intended to result in substantial personal enrichment of the Executive at the expense of the Company;

(ii)       repeated violations by the Executive of the Executive’s obligations under Section 1 of this Agreement (other than as a result of incapacity due to physical or mental illness) which are demonstrably willful and deliberate on the Executive’s part, which are committed in bad faith or without reasonable belief that such violations are in the best interests of the Company and which are not remedied in a reasonable period of time after receipt of written notice from the Company;

(iii)      indictment or plea of nolo contendere of Executive of a felony involving moral turpitude; or

(iv)      the material breach of the Executive’s Proprietary Information and Inventions Agreement.

The Company shall provide the Executive with thirty (30) days written notice of any determination of Cause and provide the Executive, for a period of thirty (30) days following such notice, to cure such alleged event of “Cause” to the extent that it can be cured. The definition of Cause shall govern all equity award agreements by and between Company and Executive, unless otherwise expressly provided in such equity award agreement.

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4.2.2Disability. “Disability” shall mean Executive’s inability to satisfactorily perform the essential functions and duties of Executive’s position with the Company, with or without reasonable accommodation, for either sixty (60) consecutive days or ninety (90) days in any 6 month period, as a result of any physical or mental impairment, as determined by the Board upon certification thereof by a qualified physician selected by the Board after such physician examines the Executive.  The Executive agrees, upon request by the Board, to submit to such examination and to provide the Board such medical evidence, records and examination data as is reasonably necessary for the Board to evaluate any potential Disability.  The Board agrees to treat such medical information confidentially as required by law.

4.2.3Good Reason.  “Good Reason” shall mean:

(i)A material diminution (30% or more) in the Executive’s base compensation, except in connection with across-the-board salary reductions for all similarly situated senior executives;

(ii)A material diminution in the Executive’s authority, duties and responsibilities;

(iii)Removal from the position set forth in Section 1.1 of this agreement;

(iv)A requirement that the Executive report to a corporate officer or employee instead of reporting directly to the parent company’s chief executive officer;

(v)A relocation of Executive’s principal workplace by more than 50 miles from where Executive performed services prior to the relocation; or

(vi)Any other action or inaction that constitutes a material breach by the Company of this Agreement or any other agreement under which the Executive provides services.

provided, however, that Good Reason shall not exist unless the Executive has given written notice to the Company within ninety (90) days of the initial existence of the Good Reason event or condition(s) giving specific details regarding the event or condition; and unless the Company has had at least thirty (30) days to cure such Good Reason event or condition after the delivery of such written notice and has failed to cure such event or condition within such thirty (30) day cure period.

4.3.Termination Events.  

4.3.1Immediate Termination.  Executive’s employment and the Term shall terminate immediately upon the occurrence of any of the following:

(i)        the death of the Executive;

(ii)       Disability of the Executive; or

(iii)      notice by the Company to the Executive of a termination for Cause.

4.3.2Termination by the Company without Cause.  The Company may terminate the Executive’s employment without Cause upon thirty (30) days prior written notice and, in such event, the Term shall terminate upon expiration of such thirty (30) day period.

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4.3.3Resignation by the Executive.  The Executive may resign the Executive’s position (i) voluntarily, which shall be effective ninety (90) days following written notice to the Company of the Executive’s intent to so resign or (ii) due to Good Reason, effective upon expiration of the Company’s thirty (30) day cure period and provided that the Company has not cured. The Company may waive all or any portion of the notice period and notify the Executive that his resignation has been accepted as of an earlier date.

4.3.4Definition of Termination Date.  The date upon which the Executive’s employment and the Term terminate pursuant to this Section 4 shall be the Executive’s “Termination Date” for purposes of this Agreement. In the event that the termination of the Executive’s employment does not constitute a “separation from service” as defined in section 409A of the Code, the Executive’s rights to the applicable payments and benefits described in this Section 4 shall vest upon the Termination Date, but no payment to the Executive that is subject to section 409A of the Code shall be paid until the Executive incurs such a separation from service (or, if required under Section 8.1, until six months after such separation if the Executive is a “specified employee” as defined in Treasury Regulation 1.409A-1(i)(1)).

4.3.5Deemed Resignation.  Upon termination of Executive’s employment for any reason or no reason, including with or without Cause or for Good Reason, whether by the Company or by Executive, and unless the Board otherwise expressly determines, Executive agrees that he automatically shall have been deemed to have resigned from all positions as an officer and employee of the Company or any subsidiaries or affiliates thereof without any further action on the part of the Executive or the Company.

4.4.Payments Upon a Termination Event.  

4.4.1Entitlements Upon Termination for Cause or Resignation without Good Reason.  Following any termination of the Executive’s employment for Cause or without Good Reason, the Company shall pay or provide to the Executive, or the Executive’s estate or beneficiary, as the case may be, the following amounts (the “Accrued Obligations”): 

(i)        Base Salary earned through the Termination Date;

(ii)       a payment representing the Executive’s accrued but unused vacation;

(iii)      reimbursement of all unpaid business expenses properly incurred by the Executive in connection with the performance of services to the Company or its Affiliates prior to the Termination Date;

(iv)      The Executive’s Annual Bonus for the fiscal year prior to the year in which the Termination Date occurs if not paid prior to the Termination Date, paid when Annual Bonuses are paid to active employees; and

(v)       any vested and/or earned, but not forfeited, amounts or benefits on the Termination Date under the Company’s employee benefit plans, programs, policies or practices in accordance with the terms thereof, including any benefit continuation or conversion rights (collectively, the “Company Arrangements”).

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4.4.2Payments Upon Termination by Reason of Death or Disability.  In the event that the Executive’s employment is terminated by reason of his death or Disability, the Company shall pay or provide the Accrued Obligations to the Executive or the Executive’s estate.

4.4.3Payments Upon Termination without Cause; or Resignation for Good Reason.  In the event that the Executive’s employment is terminated by the Company without Cause or the Executive resigns for Good Reason, then the Company shall pay or provide to the Executive or the Executive’s estate:

(i)        the Accrued Obligations;

(ii)       salary continuation during  nine (9) month severance period beginning on the Termination Date (or such later date as required by Section 4.5) in accordance with the Company’s normal payroll practices; and

(iii)      subject to Executive’s election to receive and continuing eligibility for COBRA continuation coverage, the Company shall pay, on an after-tax basis, for up to nine (9) months of COBRA continuation premiums for group health and dental coverage.

4.4.4Payments Upon Termination in Connection with a Change in Control.  In the event the Executive’s employment is terminated without Cause or for Good Reason in the three (3) months prior to or in the 12 months following a Change in Control (as defined in the Company’s 2014 Equity Incentive Plan), then the Company shall pay or provide to the Executive or the Executive’s estate:

(i)        the Accrued Obligations;

(ii)       a lump sum payment equal to 12 months of Base Salary within 30 days of the Termination Date (or such later date as required by Section 4.5); 

(iii)      payment of a prorated Annual Bonus for the fiscal year in which the Termination Date occurs based on target Annual Bonus in accordance with the Bonus Program (without the exercise of any negative discretion) with such proration to be equal to the fraction the numerator of which is equal to the number of days the Executive worked from the beginning of the Company’s then current fiscal year through the Termination Date and the denominator of which is three hundred sixty-five (365);

(iv)      subject to the Executive’s election to receive COBRA continuation coverage, the Company shall pay a lump-sum payment, on an after-tax basis, for 12 months of COBRA continuation premiums for group health and dental coverage; and

(v)       all outstanding equity awards shall be fully vested and non-forfeitable.

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4.4.5Sections Mutually Exclusive.  Sections 4.4.1, 4.4.2, 4.4.3 and 4.4.4 are mutually exclusive, and the Executive shall not be entitled to receive payments or benefits upon a termination of employment under more than one such Section.

4.5.Payments Conditioned Upon Release.  Anything else contained herein to the contrary notwithstanding, in no event shall the Executive be entitled to any payment or benefit pursuant to this Section 4, or otherwise as a result of any termination of employment except for his death, other than the Accrued Obligations, unless and until the Executive executes and does not revoke within the applicable revocation period an enforceable waiver and release of all claims against the Company and its officers and directors in a form provided by the Company (the “Release”). Such Release shall be executed and returned to the Company within the period of time specified in the Release; provided, however, if the Termination Date occurs in one calendar year and the period for considering such Release under applicable law expires during the following calendar year, then notwithstanding anything herein to the contrary other than Section 8.1 herein, the payments of severance hereunder will be paid by the Company to the Executive beginning on the first regular payroll date of the Company in the second calendar year following expiration of the applicable consideration and revocation period provided for under the Release. Any amounts that otherwise would have been paid to the Executive prior to the date on which the revocation period expires shall be paid at the expiration of the revocation period, without interest. If the Executive fails to execute the Release within the specified period, or revokes the Release after executing it, all payments and benefits provided under this Section 4, other than the Accrued Obligations, shall be forfeited.

4.6.Tax.  The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

4.7.No Mitigation.  Upon termination of the Executive’s employment with the Company, the Executive shall be under no obligation to seek other employment or otherwise mitigate the obligations of the Company under this Agreement or any other agreement with the Company.

5.Indemnification.

The Company shall indemnify the Executive for all claims or losses arising from or related to the discharge of his duties under this Agreement to the fullest extent permitted by Delaware general corporate law.

6.Notices.

6.1.Form and Address for Notices.  All notices, requests, consents and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, one (1) day after having been sent by overnight courier or three (3) days after having been mailed first class, e-mail, postage prepaid, by registered or certified mail, as follows (or to such other address as either party shall designate by notice in writing to the other in accordance herewith):

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If to the Company, to:

Attention:  General Counsel

Vitae Pharmaceuticals, Inc.

502 West Office Center Drive

Fort Washington, PA 19034

If to the Executive, to the Executive’s principal residence as reflected in the records of the Company.

7.General.

7.1.Governing Law; Jurisdiction and Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania (without regard to conflicts of laws) applicable to agreements made between residents thereof and to be performed entirely in Pennsylvania.  Any action brought by either party with respect to this Agreement, shall be brought and maintained only in the state or federal courts located in the Commonwealth of Pennsylvania. Each party consents to personal jurisdiction and venue in such courts, waives any right to file a motion based on forum non conveniens or any similar doctrine and agrees not to oppose any motion to transfer any such case to such courts.

7.2.Headings.  The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

7.3.Entire Agreement; Amendment.  This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof; provided, however, that the Proprietary Information and Inventions Agreement, and any outstanding option or other equity award agreements by and between the Company and Executive shall be governed in accordance with the terms therein.

7.4.Assignability.  

7.4.1Nonassignability by Executive.  This Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive, nor may the Executive pledge, encumber or anticipate any payments or benefits due hereunder, by operation of law or otherwise.

7.4.2Assignability by Company.  The Company may only assign its rights, together with its obligations, hereunder to a third party in connection with any sale, transfer or other disposition of all or substantially all of any business to which the Executive’s services are then principally devoted; provided, however, that no assignment pursuant to this Section 7.4.2 shall relieve the Company from its obligations hereunder to the extent the same are not timely discharged by such assignee.

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7.4.3Assumption of Agreement by Successors.  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 

7.5.Survival.  The respective rights and obligations of the parties hereunder, including under Sections 4, 5 and 7, shall survive any termination of this Agreement or the expiration of the Term to the extent necessary to the intended preservation of such rights and obligations.

7.6.Severability.  The provisions of this Agreement are severable and the invalidity of any provision shall not affect the validity of any other provision.  In the event that any arbitrator or court of competent jurisdiction and venue shall determine that any provision of this Agreement or the application thereof is unenforceable, then the parties hereto agree that said arbitrator or court in making such determination shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable, and that the Agreement in its reduced form shall be valid and enforceable to the fullest extent provided by law.

7.7.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, and all of which together will constitute one and the same instrument. The parties hereto agree to accept a signed facsimile or “PDF” copy of this Agreement as a fully binding original.

8.Code Section 409A Legal Requirement.

8.1.Six Month Delay in Payment.  Notwithstanding anything to the contrary in this Agreement, if the Executive is a “specified employee” as defined and applied in section 409A of the Code as of the Executive’s Termination Date, then, to the extent any payment under this Agreement or any Company Arrangement constitutes deferred compensation (after taking into account any applicable exemptions from section 409A of the Code, including those specified in Section 8.2) and to the extent required by section 409A of the Code, no payments due under this Agreement or any Company Arrangement may be made until the earlier of: (i) the first day following the sixth month anniversary of the Executive’s Termination Date and (ii) the Executive’s date of death.

8.2.Application of Exemptions.  For purposes of section 409A of the Code, each “payment” (as defined by section 409A of the Code) made under this Agreement shall be considered a “separate payment.” In addition, for purposes of section 409A of the Code, each such payment shall be deemed exempt from section 409A of the Code to the fullest extent possible under the “short-term deferral” exemption of Treasury Regulation § 1.409A-1(b)(4), as well as any other applicable exemptions.

8.3.Reimbursement and Offset Provisions.  Reimbursement payments shall generally be made in accordance with applicable Company policies; however, in no event will reimbursement payments be made later than the end of the year following the year in which the expense was incurred.  The amounts eligible for reimbursement provided in one taxable year will

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not affect the amounts eligible for reimbursement provided in any other taxable year, and the right to reimbursement will not be subject to liquidation or exchange for another benefit.  Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment that constitutes “non-qualified deferred compensation” under section 409A of the Code be subject to offset by any other amount unless otherwise permitted by section 409A.

8.4.Interpretation and Administration of Agreement.  To the maximum extent permitted by law, this Agreement shall be interpreted and administered in such a manner that the payments to the Executive are either exempt from, or comply with, the requirements of section 409A of the Code.

[Signature page follows]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

VITAE PHARMACEUTICALS, INC.
By:	/s/ Jeffrey Hatfield
	Jeffrey Hatfield
	Chief Executive Officer and President
EXECUTIVE
	/s/ Arthur Fratamico, R.Ph.
	Arthur Fratamico, R.Ph.

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Exhibit A

PIIA

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EX-10.37

Exhibit 10.37

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (“Agreement”) dated as of August 3, 2016, by and between Vitae Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Richard Morris (the “Executive”).

WHEREAS, the Company wishes to continue to employ the Executive to serve as the Company’s Chief Financial Officer, and the Executive is willing to continue to be employed and to serve in such capacity;

WHEREAS, the Company and Executive previously entered into an offer letter dated May 15, 2014 (the “Offer Letter”), whereby the Executive was employed as the Company’s Chief Financial Officer; and

WHEREAS, the Company and the Executive wish to supersede the Offer Letter and set forth terms of the Executive’s employment by the Company as set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto, each intending to be legally bound, do hereby agree as follows:

1.Employment, Duties and Acceptance.

1.1.Employment; Duties.  The Executive shall serve as Chief Financial Officer, and to perform such other duties consistent with such positions as may be assigned by the Company’s Chief Executive Officer  or its Board of Directors (the “Board”) from time to time. The Executive’s title shall be Chief Financial Officer. 

1.2.Acceptance.  The Executive hereby accepts such employment and agrees to render the services described above on an exclusive basis to the Company. During the Term, and consistent with Section 1.1, the Executive agrees to serve the Company faithfully and to the best of the Executive’s ability and to use the Executive’s best efforts, skill and ability to promote the interests of the Company in a manner consistent with the Executive’s position. The Executive may not serve on the board of directors of any other for-profit business or organization without the prior consent of the Board. In consideration for the substantial consideration provided for herein and as a condition to this Agreement, the Executive agrees to be bound by the terms of the Proprietary Information and Inventions Agreement attached hereto as Exhibit A.

1.3.Compliance with Policies.  The Executive shall comply with all duly adopted Company policies and codes of conduct and ethics in the performance of the Executive’s duties, as such policies may be in effect from time to time and which have been previously provided to the Executive in writing or otherwise made available to him.

1.4.Location.  The duties to be performed by the Executive hereunder shall be performed primarily at the Company’s offices in Fort Washington, Pennsylvania, subject to reasonable travel requirements consistent with the nature of the Executive’s duties from time to time on behalf of the Company.

2.Term of Employment.

The term of the Executive’s employment under this Agreement (the “Term”) shall commence on the Effective Date, and shall end when terminated in accordance with Section 4.1.

3.Compensation and Benefits.

3.1.Salary.  During the Term, the Company agrees to pay to the Executive a base salary, payable in arrears in accordance with the Company’s standard payroll practices, at the initial annual rate of $325,000.00 (as adjusted in accordance with this Section 3.1, the “Base Salary”). The Executive’s Base Salary may be increased as determined by the Compensation Committee of the Board (the “Committee”). All payments of Base Salary or other compensation hereunder shall be less such deductions or withholdings as are required by applicable law and regulations.

3.2.Annual Bonus.  For each calendar year that ends during the Term, the Executive shall be entitled to participate in the Company’s annual bonus plan as may be adopted by the Company for senior executives of the Company (the “Bonus Program”). The Executive’s annual bonus under the Bonus Program for any year is herein referred to as the “Annual Bonus” and, except for any applicable Company and individual goals, shall otherwise only be conditioned upon the Executive remaining employed by the Company through the last business day of the fiscal year in which the award was earned; provided that nothing contained herein shall be construed to limit the Committee’s authority to adjust the Annual Bonus in accordance with the Bonus Program.

3.3.Business Expenses.  The Company shall pay or reimburse the Executive for all reasonable expenses actually incurred or paid by the Executive in the performance of the Executive’s services to the Company or its Affiliates, subject to and in accordance with applicable expense reimbursement and related policies and procedures as in effect from time to time. 

3.4.Vacation.  The Executive shall be entitled to an annual paid vacation in accordance with the applicable vacation policy, as in effect from time to time. Under the Company’s vacation policy in effect as of the Effective Date, the Executive is entitled to take up to twenty (20) days per calendar year.

3.5.Employee Savings, Health and Welfare Plans; Perquisites.  The Executive (and, to the extent eligible, the Executive’s dependents and beneficiaries) shall be entitled to participate in all employee benefit plans of the Company, including its savings, health and welfare benefit plans and executive perquisites, as in effect from time to time, and on a basis no less favorable than any other senior executive (or the dependents and beneficiaries of other senior executives, as applicable).

3.6.Clawback.  The Executive agrees that any amount payable to him pursuant to annual bonus plan or any of Company equity plan or any other similar performance-based compensation may be subject to repayment in accordance with the Company’s written policy on recoupment of performance-based compensation, as may be adopted and revised by the

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Board from time to time, and/or subject to recoupment as required by any other provisions of any law (including, without limitation, Section 10D of the Securities Exchange Act of 1934, as amended), governmental regulation or stock exchange listing requirement and that such repayment obligation will apply notwithstanding any contrary provision of this Agreement.

4.Termination.

4.1.Employment at Will.  It is expressly acknowledged and agreed by the parties that the Executive’s employment by the Company constitutes employment at will and that, to the maximum extent permitted by law, either the Company or the Executive has the right to terminate the Executive’s employment at any time and for any reason, or without stated reason. Termination of the Executive’s employment, whether by the Company or the Executive, shall not be considered a breach of this Agreement, and the duties of the parties to each other upon and following a termination of employment shall be governed exclusively by this Agreement, or by the terms of any applicable benefit plan. 

4.2.Certain Definitions.  For all purposes related to the Executive’s employment by the Company during the Term, the following capitalized terms shall have the meanings set forth below:

4.2.1Cause.  A termination for “Cause” shall mean termination by the Company of the Executive’s employment by reason of the occurrence of any one or more of the following:

(i)        an act or acts of personal dishonesty taken by the Executive and intended to result in substantial personal enrichment of the Executive at the expense of the Company;

(ii)       repeated violations by the Executive of the Executive’s obligations under Section 1 of this Agreement (other than as a result of incapacity due to physical or mental illness) which are demonstrably willful and deliberate on the Executive’s part, which are committed in bad faith or without reasonable belief that such violations are in the best interests of the Company and which are not remedied in a reasonable period of time after receipt of written notice from the Company;

(iii)      indictment or plea of nolo contendere of Executive of a felony involving moral turpitude; or

(iv)      the material breach of the Executive’s Proprietary Information and Inventions Agreement.

The Company shall provide the Executive with thirty (30) days written notice of any determination of Cause and provide the Executive, for a period of thirty (30) days following such notice, to cure such alleged event of “Cause” to the extent that it can be cured. The definition of Cause shall govern all equity award agreements by and between Company and Executive, unless otherwise expressly provided in such equity award agreement.

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4.2.2Disability. “Disability” shall mean Executive’s inability to satisfactorily perform the essential functions and duties of Executive’s position with the Company, with or without reasonable accommodation, for either sixty (60) consecutive days or ninety (90) days in any 6 month period, as a result of any physical or mental impairment, as determined by the Board upon certification thereof by a qualified physician selected by the Board after such physician examines the Executive.  The Executive agrees, upon request by the Board, to submit to such examination and to provide the Board such medical evidence, records and examination data as is reasonably necessary for the Board to evaluate any potential Disability.  The Board agrees to treat such medical information confidentially as required by law.

4.2.3Good Reason.  “Good Reason” shall mean:

(i)A material diminution (30% or more) in the Executive’s base compensation, except in connection with across-the-board salary reductions for all similarly situated senior executives;

(ii)A material diminution in the Executive’s authority, duties and responsibilities;

(iii)Removal from the position set forth in Section 1.1 of this agreement;

(iv)A requirement that the Executive report to a corporate officer or employee instead of reporting directly to the parent company’s chief executive officer;

(v)A relocation of Executive’s principal workplace by more than 50 miles from where Executive performed services prior to the relocation; or

(vi)Any other action or inaction that constitutes a material breach by the Company of this Agreement or any other agreement under which the Executive provides services.

provided, however, that Good Reason shall not exist unless the Executive has given written notice to the Company within ninety (90) days of the initial existence of the Good Reason event or condition(s) giving specific details regarding the event or condition; and unless the Company has had at least thirty (30) days to cure such Good Reason event or condition after the delivery of such written notice and has failed to cure such event or condition within such thirty (30) day cure period.

4.3.Termination Events.  

4.3.1Immediate Termination.  Executive’s employment and the Term shall terminate immediately upon the occurrence of any of the following:

(i)        the death of the Executive;

(ii)       Disability of the Executive; or

(iii)      notice by the Company to the Executive of a termination for Cause.

4.3.2Termination by the Company without Cause.  The Company may terminate the Executive’s employment without Cause upon thirty (30) days prior written notice and, in such event, the Term shall terminate upon expiration of such thirty (30) day period.

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4.3.3Resignation by the Executive.  The Executive may resign the Executive’s position (i) voluntarily, which shall be effective ninety (90) days following written notice to the Company of the Executive’s intent to so resign or (ii) due to Good Reason, effective upon expiration of the Company’s thirty (30) day cure period and provided that the Company has not cured. The Company may waive all or any portion of the notice period and notify the Executive that his resignation has been accepted as of an earlier date.

4.3.4Definition of Termination Date.  The date upon which the Executive’s employment and the Term terminate pursuant to this Section 4 shall be the Executive’s “Termination Date” for purposes of this Agreement. In the event that the termination of the Executive’s employment does not constitute a “separation from service” as defined in section 409A of the Code, the Executive’s rights to the applicable payments and benefits described in this Section 4 shall vest upon the Termination Date, but no payment to the Executive that is subject to section 409A of the Code shall be paid until the Executive incurs such a separation from service (or, if required under Section 8.1, until six months after such separation if the Executive is a “specified employee” as defined in Treasury Regulation 1.409A-1(i)(1)).

4.3.5Deemed Resignation.  Upon termination of Executive’s employment for any reason or no reason, including with or without Cause or for Good Reason, whether by the Company or by Executive, and unless the Board otherwise expressly determines, Executive agrees that he automatically shall have been deemed to have resigned from all positions as an officer and employee of the Company or any subsidiaries or affiliates thereof without any further action on the part of the Executive or the Company.

4.4.Payments Upon a Termination Event.  

4.4.1Entitlements Upon Termination for Cause or Resignation without Good Reason.  Following any termination of the Executive’s employment for Cause or without Good Reason, the Company shall pay or provide to the Executive, or the Executive’s estate or beneficiary, as the case may be, the following amounts (the “Accrued Obligations”): 

(i)        Base Salary earned through the Termination Date;

(ii)       a payment representing the Executive’s accrued but unused vacation;

(iii)      reimbursement of all unpaid business expenses properly incurred by the Executive in connection with the performance of services to the Company or its Affiliates prior to the Termination Date;

(iv)      The Executive’s Annual Bonus for the fiscal year prior to the year in which the Termination Date occurs if not paid prior to the Termination Date, paid when Annual Bonuses are paid to active employees; and

(v)       any vested and/or earned, but not forfeited, amounts or benefits on the Termination Date under the Company’s employee benefit plans, programs, policies or practices in accordance with the terms thereof, including any benefit continuation or conversion rights (collectively, the “Company Arrangements”).

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4.4.2Payments Upon Termination by Reason of Death or Disability.  In the event that the Executive’s employment is terminated by reason of his death or Disability, the Company shall pay or provide the Accrued Obligations to the Executive or the Executive’s estate.

4.4.3Payments Upon Termination without Cause; or Resignation for Good Reason.  In the event that the Executive’s employment is terminated by the Company without Cause or the Executive resigns for Good Reason, then the Company shall pay or provide to the Executive or the Executive’s estate:

(i)        the Accrued Obligations;

(ii)       salary continuation during nine (9) month severance period beginning on the Termination Date (or such later date as required by Section 4.5) in accordance with the Company’s normal payroll practices; and

(iii)      subject to Executive’s election to receive and continuing eligibility for COBRA continuation coverage, the Company shall pay, on an after-tax basis, for up to nine (9) months of COBRA continuation premiums for group health and dental coverage.

4.4.4Payments Upon Termination in Connection with a Change in Control.  In the event the Executive’s employment is terminated without Cause or for Good Reason in the three (3) months prior to or in the 12 months following a Change in Control (as defined in the Company’s 2014 Equity Incentive Plan), then the Company shall pay or provide to the Executive or the Executive’s estate:

(i)        the Accrued Obligations;

(ii)       a lump sum payment equal to 12 months of Base Salary within 30 days of the Termination Date (or such later date as required by Section 4.5); 

(iii)      payment of a prorated Annual Bonus for the fiscal year in which the Termination Date occurs based on target Annual Bonus in accordance with the Bonus Program (without the exercise of any negative discretion) with such proration to be equal to the fraction the numerator of which is equal to the number of days the Executive worked from the beginning of the Company’s then current fiscal year through the Termination Date and the denominator of which is three hundred sixty-five (365);

(iv)      subject to the Executive’s election to receive COBRA continuation coverage, the Company shall pay a lump-sum payment, on an after-tax basis, for 12 months of COBRA continuation premiums for group health and dental coverage; and

(v)       all outstanding equity awards shall be fully vested and non-forfeitable.

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4.4.5Sections Mutually Exclusive.  Sections 4.4.1, 4.4.2, 4.4.3 and 4.4.4 are mutually exclusive, and the Executive shall not be entitled to receive payments or benefits upon a termination of employment under more than one such Section.

4.5.Payments Conditioned Upon Release.  Anything else contained herein to the contrary notwithstanding, in no event shall the Executive be entitled to any payment or benefit pursuant to this Section 4, or otherwise as a result of any termination of employment except for his death, other than the Accrued Obligations, unless and until the Executive executes and does not revoke within the applicable revocation period an enforceable waiver and release of all claims against the Company and its officers and directors in a form provided by the Company (the “Release”). Such Release shall be executed and returned to the Company within the period of time specified in the Release; provided, however, if the Termination Date occurs in one calendar year and the period for considering such Release under applicable law expires during the following calendar year, then notwithstanding anything herein to the contrary other than Section 8.1 herein, the payments of severance hereunder will be paid by the Company to the Executive beginning on the first regular payroll date of the Company in the second calendar year following expiration of the applicable consideration and revocation period provided for under the Release. Any amounts that otherwise would have been paid to the Executive prior to the date on which the revocation period expires shall be paid at the expiration of the revocation period, without interest. If the Executive fails to execute the Release within the specified period, or revokes the Release after executing it, all payments and benefits provided under this Section 4, other than the Accrued Obligations, shall be forfeited.

4.6.Tax.  The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

4.7.No Mitigation.  Upon termination of the Executive’s employment with the Company, the Executive shall be under no obligation to seek other employment or otherwise mitigate the obligations of the Company under this Agreement or any other agreement with the Company.

5.Indemnification.

The Company shall indemnify the Executive for all claims or losses arising from or related to the discharge of his duties under this Agreement to the fullest extent permitted by Delaware general corporate law.

6.Notices.

6.1.Form and Address for Notices.  All notices, requests, consents and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, one (1) day after having been sent by overnight courier or three (3) days after having been mailed first class, e-mail, postage prepaid, by registered or certified mail, as follows (or to such other address as either party shall designate by notice in writing to the other in accordance herewith):

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If to the Company, to:

Attention:  General Counsel

Vitae Pharmaceuticals, Inc.

502 West Office Center Drive

Fort Washington, PA 19034

If to the Executive, to the Executive’s principal residence as reflected in the records of the Company.

7.General.

7.1.Governing Law; Jurisdiction and Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania (without regard to conflicts of laws) applicable to agreements made between residents thereof and to be performed entirely in Pennsylvania.  Any action brought by either party with respect to this Agreement, shall be brought and maintained only in the state or federal courts located in the Commonwealth of Pennsylvania. Each party consents to personal jurisdiction and venue in such courts, waives any right to file a motion based on forum non conveniens or any similar doctrine and agrees not to oppose any motion to transfer any such case to such courts.

7.2.Headings.  The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

7.3.Entire Agreement; Amendment.  This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof; provided, however, that the Proprietary Information and Inventions Agreement, and any outstanding option or other equity award agreements by and between the Company and Executive shall be governed in accordance with the terms therein.

7.4.Assignability.  

7.4.1Nonassignability by Executive.  This Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive, nor may the Executive pledge, encumber or anticipate any payments or benefits due hereunder, by operation of law or otherwise.

7.4.2Assignability by Company.  The Company may only assign its rights, together with its obligations, hereunder to a third party in connection with any sale, transfer or other disposition of all or substantially all of any business to which the Executive’s services are then principally devoted; provided, however, that no assignment pursuant to this Section 7.4.2 shall relieve the Company from its obligations hereunder to the extent the same are not timely discharged by such assignee.

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7.4.3Assumption of Agreement by Successors.  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 

7.5.Survival.  The respective rights and obligations of the parties hereunder, including under Sections 4, 5 and 7, shall survive any termination of this Agreement or the expiration of the Term to the extent necessary to the intended preservation of such rights and obligations.

7.6.Severability.  The provisions of this Agreement are severable and the invalidity of any provision shall not affect the validity of any other provision.  In the event that any arbitrator or court of competent jurisdiction and venue shall determine that any provision of this Agreement or the application thereof is unenforceable, then the parties hereto agree that said arbitrator or court in making such determination shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable, and that the Agreement in its reduced form shall be valid and enforceable to the fullest extent provided by law.

7.7.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, and all of which together will constitute one and the same instrument. The parties hereto agree to accept a signed facsimile or “PDF” copy of this Agreement as a fully binding original.

8.Code Section 409A Legal Requirement.

8.1.Six Month Delay in Payment.  Notwithstanding anything to the contrary in this Agreement, if the Executive is a “specified employee” as defined and applied in section 409A of the Code as of the Executive’s Termination Date, then, to the extent any payment under this Agreement or any Company Arrangement constitutes deferred compensation (after taking into account any applicable exemptions from section 409A of the Code, including those specified in Section 8.2) and to the extent required by section 409A of the Code, no payments due under this Agreement or any Company Arrangement may be made until the earlier of: (i) the first day following the sixth month anniversary of the Executive’s Termination Date and (ii) the Executive’s date of death.

8.2.Application of Exemptions.  For purposes of section 409A of the Code, each “payment” (as defined by section 409A of the Code) made under this Agreement shall be considered a “separate payment.” In addition, for purposes of section 409A of the Code, each such payment shall be deemed exempt from section 409A of the Code to the fullest extent possible under the “short-term deferral” exemption of Treasury Regulation § 1.409A-1(b)(4), as well as any other applicable exemptions.

8.3.Reimbursement and Offset Provisions.  Reimbursement payments shall generally be made in accordance with applicable Company policies; however, in no event will reimbursement payments be made later than the end of the year following the year in which the expense was incurred.  The amounts eligible for reimbursement provided in one taxable year will

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not affect the amounts eligible for reimbursement provided in any other taxable year, and the right to reimbursement will not be subject to liquidation or exchange for another benefit.  Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment that constitutes “non-qualified deferred compensation” under section 409A of the Code be subject to offset by any other amount unless otherwise permitted by section 409A.

8.4.Interpretation and Administration of Agreement.  To the maximum extent permitted by law, this Agreement shall be interpreted and administered in such a manner that the payments to the Executive are either exempt from, or comply with, the requirements of section 409A of the Code.

[Signature page follows]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

VITAE PHARMACEUTICALS, INC.
By:	/s/ Jeffrey Hatfield
	Jeffrey Hatfield
	Chief Executive Officer and President
EXECUTIVE
	/s/ Richard Morris
	Richard Morris

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Exhibit A

PIIA

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EX-10.38

Exhibit 10.38

EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (“Agreement”) dated as of August 3, 2016, by and between Vitae Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Carole Sable, M.D. (the “Executive”).

WHEREAS, the Company wishes to continue to employ the Executive to serve as the Company’s Chief Medical Officer, and the Executive is willing to continue to be employed and to serve in such capacity;

WHEREAS, the Company and Executive previously entered into an offer letter dated May 17, 2016 (the “Offer Letter”), whereby the Executive was employed as the Company’s Chief Medical Officer; and

WHEREAS, the Company and the Executive wish to supersede the Offer Letter and set forth terms of the Executive’s employment by the Company as set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto, each intending to be legally bound, do hereby agree as follows:

1.Employment, Duties and Acceptance.

1.1.Employment; Duties.  The Executive shall serve as Chief Medical Officer, and to perform such other duties consistent with such positions as may be assigned by the Company’s Chief Executive Officer or its Board of Directors (the “Board”) from time to time.

1.2.Acceptance.  The Executive hereby accepts such employment and agrees to render the services described above on an exclusive basis to the Company. During the Term, and consistent with Section 1.1, the Executive agrees to serve the Company faithfully and to the best of the Executive’s ability and to use the Executive’s best efforts, skill and ability to promote the interests of the Company in a manner consistent with the Executive’s position. The Executive may not serve on the board of directors of any other for-profit business or organization without the prior consent of the Board. In consideration for the substantial consideration provided for herein and as a condition to this Agreement, the Executive agrees to be bound by the terms of the Proprietary Information and Inventions Agreement attached hereto as Exhibit A.

1.3.Compliance with Policies.  The Executive shall comply with all duly adopted Company policies and codes of conduct and ethics in the performance of the Executive’s duties, as such policies may be in effect from time to time and which have been previously provided to the Executive in writing or otherwise made available to her.

1.4.Location.  The duties to be performed by the Executive hereunder shall be performed primarily at the Company’s offices in Fort Washington, Pennsylvania, subject to reasonable travel requirements consistent with the nature of the Executive’s duties from time to time on behalf of the Company.

2.Term of Employment.

The term of the Executive’s employment under this Agreement (the “Term”) shall commence on the Effective Date, and shall end when terminated in accordance with Section 4.1.

3.Compensation and Benefits.

3.1.Salary.  During the Term, the Company agrees to pay to the Executive a base salary, payable in arrears in accordance with the Company’s standard payroll practices, at the initial annual rate of $375,000.00 (as adjusted in accordance with this Section 3.1, the “Base Salary”). The Executive’s Base Salary may be increased as determined by the Compensation Committee of the Board (the “Committee”). All payments of Base Salary or other compensation hereunder shall be less such deductions or withholdings as are required by applicable law and regulations.

3.2.Annual Bonus.  For each calendar year that ends during the Term, the Executive shall be entitled to participate in the Company’s annual bonus plan as may be adopted by the Company for senior executives of the Company (the “Bonus Program”). The Executive’s annual bonus under the Bonus Program for any year is herein referred to as the “Annual Bonus” and, except for any applicable Company and individual goals, shall otherwise only be conditioned upon the Executive remaining employed by the Company through the last business day of the fiscal year in which the award was earned; provided that nothing contained herein shall be construed to limit the Committee’s authority to adjust the Annual Bonus in accordance with the Bonus Program.

3.3.Business Expenses.  The Company shall pay or reimburse the Executive for all reasonable expenses actually incurred or paid by the Executive in the performance of the Executive’s services to the Company or its Affiliates, subject to and in accordance with applicable expense reimbursement and related policies and procedures as in effect from time to time. 

3.4.Vacation.  The Executive shall be entitled to an annual paid vacation in accordance with the applicable vacation policy, as in effect from time to time. Under the Company’s vacation policy in effect as of the Effective Date, the Executive is entitled to take up to twenty (20) days per calendar year.

3.5.Employee Savings, Health and Welfare Plans; Perquisites.  The Executive (and, to the extent eligible, the Executive’s dependents and beneficiaries) shall be entitled to participate in all employee benefit plans of the Company, including its savings, health and welfare benefit plans and executive perquisites, as in effect from time to time, and on a basis no less favorable than any other senior executive (or the dependents and beneficiaries of other senior executives, as applicable).

3.6.Relocation: The Executive will be entitled to the following relocation benefits, providing they occur within six months of the Executive’s start date:

3.6.1Payment for the physical move of the Executive’s household goods up to $15,000. This service will be direct-billed to the Company.

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3.6.2Reimbursement up to $50,000 (net) to cover the payback of relocation costs to the Executive’s previous employer and any costs incurred by terminating the Executive’s lease on the date of the Offer Letter.

3.6.3Reimbursement of up to $5,000 for travel costs incurred during the Executive’s transition from California to Pennsylvania.

Should the Executive voluntarily resign from her employment with the Company without Good Reason (as defined below) within one year of her start date, the full relocation benefit will be considered a loan. Accordingly, the Executive will be required to repay up to 100% of the total relocation benefit. This Agreement is not to be construed as a guarantee of employment during such one year period. The Executive will not be required to repay any portion of the relocation benefit if her employment ends at any time and for any reason other than a resignation without Good Reason.

3.7.Clawback.  The Executive agrees that any amount payable to her pursuant to annual bonus plan or any of Company equity plan or any other similar performance-based compensation may be subject to repayment in accordance with the Company’s written policy on recoupment of performance-based compensation, as may be adopted and revised by the Board from time to time, and/or subject to recoupment as required by any other provisions of any law (including, without limitation, Section 10D of the Securities Exchange Act of 1934, as amended), governmental regulation or stock exchange listing requirement and that such repayment obligation will apply notwithstanding any contrary provision of this Agreement.

4.Termination.

4.1.Employment at Will.  It is expressly acknowledged and agreed by the parties that the Executive’s employment by the Company constitutes employment at will and that, to the maximum extent permitted by law, either the Company or the Executive has the right to terminate the Executive’s employment at any time and for any reason, or without stated reason. Termination of the Executive’s employment, whether by the Company or the Executive, shall not be considered a breach of this Agreement, and the duties of the parties to each other upon and following a termination of employment shall be governed exclusively by this Agreement, or by the terms of any applicable benefit plan. 

4.2.Certain Definitions.  For all purposes related to the Executive’s employment by the Company during the Term, the following capitalized terms shall have the meanings set forth below:

4.2.1Cause.  A termination for “Cause” shall mean termination by the Company of the Executive’s employment by reason of the occurrence of any one or more of the following:

(i)        an act or acts of personal dishonesty taken by the Executive and intended to result in substantial personal enrichment of the Executive at the expense of the Company;

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(ii)       repeated violations by the Executive of the Executive’s obligations under Section 1 of this Agreement (other than as a result of incapacity due to physical or mental illness) which are demonstrably willful and deliberate on the Executive’s part, which are committed in bad faith or without reasonable belief that such violations are in the best interests of the Company and which are not remedied in a reasonable period of time after receipt of written notice from the Company;

(iii)      indictment or plea of nolo contendere of Executive of a felony involving moral turpitude; or

(iv)      the material breach of the Executive’s Proprietary Information and Inventions Agreement.

The Company shall provide the Executive with thirty (30) days written notice of any determination of Cause and provide the Executive, for a period of thirty (30) days following such notice, to cure such alleged event of “Cause” to the extent that it can be cured. The definition of Cause shall govern all equity award agreements by and between Company and Executive, unless otherwise expressly provided in such equity award agreement.

4.2.2Disability. “Disability” shall mean Executive’s inability to satisfactorily perform the essential functions and duties of Executive’s position with the Company, with or without reasonable accommodation, for either sixty (60) consecutive days or ninety (90) days in any 6 month period, as a result of any physical or mental impairment, as determined by the Board upon certification thereof by a qualified physician selected by the Board after such physician examines the Executive.  The Executive agrees, upon request by the Board, to submit to such examination and to provide the Board such medical evidence, records and examination data as is reasonably necessary for the Board to evaluate any potential Disability.  The Board agrees to treat such medical information confidentially as required by law.

4.2.3Good Reason.  “Good Reason” shall mean:

(i)        (i)A material diminution (30% or more) in the Executive’s base compensation, except in connection with across-the-board salary reductions for all similarly situated senior executives;

(ii)A material diminution in the Executive’s authority, duties and responsibilities;

(iii)Removal from the position set forth in Section 1.1 of this agreement;

(iv)A requirement that the Executive report to a corporate officer or employee instead of reporting directly to the parent company’s chief executive officer;

(v)A relocation of Executive’s principal workplace by more than 50 miles from where Executive performed services prior to the relocation; or

(vi)Any other action or inaction that constitutes a material breach by the Company of this Agreement or any other agreement under which the Executive provides services.

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provided, however, that Good Reason shall not exist unless the Executive has given written notice to the Company within ninety (90) days of the initial existence of the Good Reason event or condition(s) giving specific details regarding the event or condition; and unless the Company has had at least thirty (30) days to cure such Good Reason event or condition after the delivery of such written notice and has failed to cure such event or condition within such thirty (30) day cure period.

4.3.Termination Events.  

4.3.1Immediate Termination.  Executive’s employment and the Term shall terminate immediately upon the occurrence of any of the following:

(i)        the death of the Executive;

(ii)       Disability of the Executive; or

(iii)      notice by the Company to the Executive of a termination for Cause.

4.3.2Termination by the Company without Cause.  The Company may terminate the Executive’s employment without Cause upon thirty (30) days prior written notice and, in such event, the Term shall terminate upon expiration of such thirty (30) day period.

4.3.3Resignation by the Executive.  The Executive may resign the Executive’s position (i) voluntarily, which shall be effective ninety (90) days following written notice to the Company of the Executive’s intent to so resign or (ii) due to Good Reason, effective upon expiration of the Company’s thirty (30) day cure period and provided that the Company has not cured. The Company may waive all or any portion of the notice period and notify the Executive that her resignation has been accepted as of an earlier date.

4.3.4Definition of Termination Date.  The date upon which the Executive’s employment and the Term terminate pursuant to this Section 4 shall be the Executive’s “Termination Date” for purposes of this Agreement. In the event that the termination of the Executive’s employment does not constitute a “separation from service” as defined in section 409A of the Code, the Executive’s rights to the applicable payments and benefits described in this Section 4 shall vest upon the Termination Date, but no payment to the Executive that is subject to section 409A of the Code shall be paid until the Executive incurs such a separation from service (or, if required under Section 8.1, until six months after such separation if the Executive is a “specified employee” as defined in Treasury Regulation 1.409A-1(i)(1)).

4.3.5Deemed Resignation.  Upon termination of Executive’s employment for any reason or no reason, including with or without Cause or for Good Reason, whether by the Company or by Executive, and unless the Board otherwise expressly determines, Executive agrees that she automatically shall have been deemed to have resigned from all positions as an officer and employee of the Company or any subsidiaries or affiliates thereof without any further action on the part of the Executive or the Company.

4.4.Payments Upon a Termination Event.  

4.4.1Entitlements Upon Termination for Cause or Resignation without Good Reason.  Following any termination of the Executive’s employment for Cause or without

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Good Reason, the Company shall pay or provide to the Executive, or the Executive’s estate or beneficiary, as the case may be, the following amounts (the “Accrued Obligations”): 

(i)        Base Salary earned through the Termination Date;

(ii)       a payment representing the Executive’s accrued but unused vacation;

(iii)      reimbursement of all unpaid business expenses properly incurred by the Executive in connection with the performance of services to the Company or its Affiliates prior to the Termination Date;

(iv)      the Executive’s Annual Bonus for the fiscal year prior to the year in which the Termination Date occurs if not paid prior to the Termination Date, paid when Annual Bonuses are paid to active employees; and

(v)       any vested and/or earned, but not forfeited, amounts or benefits on the Termination Date under the Company’s employee benefit plans, programs, policies or practices in accordance with the terms thereof, including any benefit continuation or conversion rights (collectively, the “Company Arrangements”).

4.4.2Payments Upon Termination by Reason of Death or Disability.  In the event that the Executive’s employment is terminated by reason of her death or Disability, the Company shall pay or provide the Accrued Obligations to the Executive or the Executive’s estate.

4.4.3Payments Upon Termination without Cause; or Resignation for Good Reason.  In the event that the Executive’s employment is terminated by the Company without Cause or the Executive resigns for Good Reason, then the Company shall pay or provide to the Executive or the Executive’s estate:

(i)        the Accrued Obligations;

(ii)       salary continuation during nine (9) month severance period beginning on the Termination Date (or such later date as required by Section 4.5) in accordance with the Company’s normal payroll practices; and

(iii)      subject to Executive’s election to receive and continuing eligibility for COBRA continuation coverage, the Company shall pay, on an after-tax basis, for up to nine (9) months of COBRA continuation premiums for group health and dental coverage.

4.4.4Payments Upon Termination in Connection with a Change in Control.  In the event the Executive’s employment is terminated without Cause or for Good Reason in the three (3) months prior to or in the 12 months following a Change in Control (as defined in the Company’s 2014 Equity Incentive Plan), then the Company shall pay or provide to the Executive or the Executive’s estate:

(i)        the Accrued Obligations;

(ii)       a lump sum payment equal to 12 months of Base Salary within 30 days of the Termination Date (or such later date as required by Section 4.5); 

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(iii)      payment of a prorated Annual Bonus for the fiscal year in which the Termination Date occurs based on target Annual Bonus in accordance with the Bonus Program (without the exercise of any negative discretion) with such proration to be equal to the fraction the numerator of which is equal to the number of days the Executive worked from the beginning of the Company’s then current fiscal year through the Termination Date and the denominator of which is three hundred sixty-five (365);

(iv)      subject to the Executive’s election to receive COBRA continuation coverage, the Company shall pay a lump-sum payment, on an after-tax basis, for 12 months of COBRA continuation premiums for group health and dental coverage; and

(v)       all outstanding equity awards shall be fully vested and non-forfeitable.

4.4.5Sections Mutually Exclusive.  Sections 4.4.1, 4.4.2, 4.4.3 and 4.4.4 are mutually exclusive, and the Executive shall not be entitled to receive payments or benefits upon a termination of employment under more than one such Section.

4.5.Payments Conditioned Upon Release.  Anything else contained herein to the contrary notwithstanding, in no event shall the Executive be entitled to any payment or benefit pursuant to this Section 4, or otherwise as a result of any termination of employment except for her death, other than the Accrued Obligations, unless and until the Executive executes and does not revoke within the applicable revocation period an enforceable waiver and release of all claims against the Company and its officers and directors in a form provided by the Company (the “Release”). Such Release shall be executed and returned to the Company within the period of time specified in the Release; provided, however, if the Termination Date occurs in one calendar year and the period for considering such Release under applicable law expires during the following calendar year, then notwithstanding anything herein to the contrary other than Section 8.1 herein, the payments of severance hereunder will be paid by the Company to the Executive beginning on the first regular payroll date of the Company in the second calendar year following expiration of the applicable consideration and revocation period provided for under the Release. Any amounts that otherwise would have been paid to the Executive prior to the date on which the revocation period expires shall be paid at the expiration of the revocation period, without interest. If the Executive fails to execute the Release within the specified period, or revokes the Release after executing it, all payments and benefits provided under this Section 4, other than the Accrued Obligations, shall be forfeited.

4.6.Tax.  The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

4.7.No Mitigation.  Upon termination of the Executive’s employment with the Company, the Executive shall be under no obligation to seek other employment or otherwise mitigate the obligations of the Company under this Agreement or any other agreement with the Company.

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5.Indemnification.

The Company shall indemnify the Executive for all claims or losses arising from or related to the discharge of her duties under this Agreement to the fullest extent permitted by Delaware general corporate law.

6.Notices.

6.1.Form and Address for Notices.  All notices, requests, consents and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, one (1) day after having been sent by overnight courier or three (3) days after having been mailed first class, e-mail, postage prepaid, by registered or certified mail, as follows (or to such other address as either party shall designate by notice in writing to the other in accordance herewith):

If to the Company, to:

Attention:  General Counsel

Vitae Pharmaceuticals, Inc.

502 West Office Center Drive

Fort Washington, PA 19034

If to the Executive, to the Executive’s principal residence as reflected in the records of the Company.

7.General.

7.1.Governing Law; Jurisdiction and Venue. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania (without regard to conflicts of laws) applicable to agreements made between residents thereof and to be performed entirely in Pennsylvania.  Any action brought by either party with respect to this Agreement, shall be brought and maintained only in the state or federal courts located in the Commonwealth of Pennsylvania. Each party consents to personal jurisdiction and venue in such courts, waives any right to file a motion based on forum non conveniens or any similar doctrine and agrees not to oppose any motion to transfer any such case to such courts.

7.2.Headings.  The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

7.3.Entire Agreement; Amendment.  This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject

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matter hereof; provided, however, that the Proprietary Information and Inventions Agreement, and any outstanding option or other equity award agreements by and between the Company and Executive shall be governed in accordance with the terms therein.

7.4.Assignability.  

7.4.1Nonassignability by Executive.  This Agreement, and the Executive’s rights and obligations hereunder, may not be assigned by the Executive, nor may the Executive pledge, encumber or anticipate any payments or benefits due hereunder, by operation of law or otherwise.

7.4.2Assignability by Company.  The Company may only assign its rights, together with its obligations, hereunder to a third party in connection with any sale, transfer or other disposition of all or substantially all of any business to which the Executive’s services are then principally devoted; provided, however, that no assignment pursuant to this Section 7.4.2 shall relieve the Company from its obligations hereunder to the extent the same are not timely discharged by such assignee.

7.4.3Assumption of Agreement by Successors.  The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 

7.5.Survival.  The respective rights and obligations of the parties hereunder, including under Sections 4, 5 and 7, shall survive any termination of this Agreement or the expiration of the Term to the extent necessary to the intended preservation of such rights and obligations.

7.6.Severability.  The provisions of this Agreement are severable and the invalidity of any provision shall not affect the validity of any other provision.  In the event that any arbitrator or court of competent jurisdiction and venue shall determine that any provision of this Agreement or the application thereof is unenforceable, then the parties hereto agree that said arbitrator or court in making such determination shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable, and that the Agreement in its reduced form shall be valid and enforceable to the fullest extent provided by law.

7.7.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, and all of which together will constitute one and the same instrument. The parties hereto agree to accept a signed facsimile or “PDF” copy of this Agreement as a fully binding original.

8.Code Section 409A Legal Requirement.

8.1.Six Month Delay in Payment.  Notwithstanding anything to the contrary in this Agreement, if the Executive is a “specified employee” as defined and applied in section 409A of the Code as of the Executive’s Termination Date, then, to the extent any payment under this Agreement or any Company Arrangement constitutes deferred compensation (after taking

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into account any applicable exemptions from section 409A of the Code, including those specified in Section 8.2) and to the extent required by section 409A of the Code, no payments due under this Agreement or any Company Arrangement may be made until the earlier of: (i) the first day following the sixth month anniversary of the Executive’s Termination Date and (ii) the Executive’s date of death.

8.2.Application of Exemptions.  For purposes of section 409A of the Code, each “payment” (as defined by section 409A of the Code) made under this Agreement shall be considered a “separate payment.” In addition, for purposes of section 409A of the Code, each such payment shall be deemed exempt from section 409A of the Code to the fullest extent possible under the “short-term deferral” exemption of Treasury Regulation § 1.409A-1(b)(4), as well as any other applicable exemptions.

8.3.Reimbursement and Offset Provisions.  Reimbursement payments shall generally be made in accordance with applicable Company policies; however, in no event will reimbursement payments be made later than the end of the year following the year in which the expense was incurred.  The amounts eligible for reimbursement provided in one taxable year will not affect the amounts eligible for reimbursement provided in any other taxable year, and the right to reimbursement will not be subject to liquidation or exchange for another benefit.  Notwithstanding any other provision of this Agreement to the contrary, in no event shall any payment that constitutes “non-qualified deferred compensation” under section 409A of the Code be subject to offset by any other amount unless otherwise permitted by section 409A.

8.4.Interpretation and Administration of Agreement.  To the maximum extent permitted by law, this Agreement shall be interpreted and administered in such a manner that the payments to the Executive are either exempt from, or comply with, the requirements of section 409A of the Code.

[Signature page follows]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

VITAE PHARMACEUTICALS, INC.
By:	/s/ Jeffrey Hatfield
	Jeffrey Hatfield
	Chief Executive Officer and President
EXECUTIVE
	/s/ Carole Sable, M.D.
	Carole Sable, M.D.

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Exhibit A

PIIA

-12-

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Jeffrey S. Hatfield, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Vitae Pharmaceuticals, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.     designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.     evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.     disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.     The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.     all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August
Date: August 4, 2016	/s/ Jeffrey S. Hatfield
	Jeffrey S. Hatfield
	Chief Executive Officer and Director
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Richard Morris, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Vitae Pharmaceuticals, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August4, 2016	/s/ Richard Morris
	Richard Morris
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION

Pursuant to Section 1350 of Title 18 of the United States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Vitae Pharmaceuticals, Inc. (the “Company”) do hereby certify, to the best of such officer’s knowledge, that:

(1)         The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 4, 2016	/s/ Jeffrey S. Hatfield
	Jeffrey S. Hatfield
	Chief Executive Officer and Director
	(Principal Executive Officer)
Date: August 4, 2016	/s/ Richard Morris
	Richard Morris
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

This certification is made solely for the purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the United States Securities and Exchange Commission or its staff upon request.

This certification “accompanies” the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company 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 the Form 10-Q), irrespective of any general incorporation language contained in such filing.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Jul. 29, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	Vitae Pharmaceuticals, Inc
Entity Central Index Key	0001157602
Document Type	10-Q
Document Period End Date	Jun. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		28,841,067
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2

XML

Balance Sheets - USD ($)	Jun. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 24,145,996	$ 11,773,692
Marketable securities, available-for-sale	53,295,696	47,596,144
Prepaid expenses and other current assets	1,059,415	1,767,167
Total current assets	78,501,107	61,137,003
Cash-restricted	200,000	200,000
Property and equipment, net	485,972	509,340
Total assets	79,187,079	61,846,343
Current liabilities:
Accounts payable	1,569,905	2,991,186
Accrued expenses	4,558,076	4,338,568
Total current liabilities	6,127,981	7,329,754
Deferred rent and lease incentives	27,022	48,839
Total liabilities	6,155,003	7,378,593
Stockholders' equity:
Preferred stock, $0.0001 par value, 15,000,000 shares authorized at June 30, 2016 and December 31, 2015 no shares issued and outstanding at June 30, 2016 and December 31, 2015
Common stock, $0.0001 par value, 150,000,000 shares authorized at June 30, 2016 and December 31, 2015 28,841,278 and 22,066,224 shares issued and 28,841,067 and 22,066,013 shares outstanding at June 30, 2016 and December 31, 2015 respectively	2,884	2,207
Additional paid in capital	267,402,079	228,460,955
Treasury stock	(2,324)	(2,324)
Accumulated other comprehensive income (loss)	10,784	(29,515)
Accumulated deficit	(194,381,347)	(173,963,573)
Total stockholders' equity	73,032,076	54,467,750
Total liabilities and stockholders’ equity	$ 79,187,079	$ 61,846,343

XML

Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2016	Dec. 31, 2015
Preferred Stock
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	15,000,000	15,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common Stock
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	28,841,278	22,066,224
Common stock, shares outstanding	28,841,067	22,066,013

XML

Statements of Operations - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Statements of Operations
Collaborative revenues	$ 3,274	$ 161,588	$ 54,627	$ 311,827
Operating expenses:
Research and development	7,878,900	7,772,822	15,515,195	15,278,738
General and administrative	2,659,908	2,259,358	5,157,230	4,370,414
Total operating expenses	10,538,808	10,032,180	20,672,425	19,649,152
Loss from operations	(10,535,534)	(9,870,592)	(20,617,798)	(19,337,325)
Other income (expenses):
Other income		1,430		1,430
Interest income	125,487	107,820	200,024	182,013
Interest expense				(107,864)
Loss on debt extinguishment				(206,678)
Total other income (expenses)	125,487	109,250	200,024	(131,099)
Net loss	$ (10,410,047)	$ (9,761,342)	$ (20,417,774)	$ (19,468,424)
Net loss per common share
Basic (in dollars per share)	$ (0.36)	$ (0.45)	$ (0.79)	$ (0.91)
Diluted (in dollars per share)	$ (0.36)	$ (0.45)	$ (0.79)	$ (0.91)
Weighted-average number of common shares:
Basic (in shares)	28,829,553	21,837,676	25,686,529	21,315,094
Diluted (in shares)	28,829,553	21,837,676	25,686,529	21,315,094

XML

Statements of Comprehensive Loss - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Statements of Comprehensive Loss
Net loss	$ (10,410,047)	$ (9,761,342)	$ (20,417,774)	$ (19,468,424)
Other comprehensive income (loss):
Unrealized gains (losses) on marketable securities	3,988	(20,521)	40,299	(10,120)
Comprehensive loss	$ (10,406,059)	$ (9,781,863)	$ (20,377,475)	$ (19,478,544)

XML

Statements of Cash Flows - USD ($)	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Operating activities:
Net loss	$ (20,417,774)	$ (19,468,424)
Adjustment to reconcile net loss to net cash used in operating activities
Depreciation	111,145	104,723
Stock-based compensation expense	1,491,446	869,313
Deferred rent and lease incentives	(13,775)	(5,891)
Amortization of deferred financing fees		35,821
Noncash portion of loss on early extinguishment of debt		122,225
Changes in assets and liabilities:
Prepaid expenses and other current assets	707,752	(822,107)
Accounts payable and accrued expenses	(1,205,292)	3,213,764
Interest payable		(278,620)
Net cash used in operating activities	(19,326,498)	(16,229,196)
Investing activities:
Purchases of property and equipment	(92,301)	(130,515)
Purchases of investments	(41,389,253)	(55,053,651)
Sales of investments	35,730,000	19,988,571
Net cash used in investing activities	(5,751,554)	(35,195,595)
Financing activities:
Principal payments under debt facilities		(4,935,260)
Payment of offering costs	(578,092)	(620,218)
Settlement of restricted stock		(1,910,101)
Proceeds from the issuance of common stock, net of repurchases	38,028,448	38,855,130
Net cash provided by financing activities	37,450,356	31,389,551
Net increase (decrease) in cash and cash equivalents	12,372,304	(20,035,240)
Cash and cash equivalents at beginning of period	11,773,692	29,494,755
Cash and cash equivalents at end of period	$ 24,145,996	9,459,515
Supplemental disclosures of cash flow information:
Cash paid for interest		$ 395,346

XML

Organization

6 Months Ended

Jun. 30, 2016

Organization

Organization

1. Organization

Vitae Pharmaceuticals, Inc. (“Vitae” or the “Company”) is a clinical-stage biotechnology company focused on discovering and developing novel, small molecule drugs for diseases in which there are significant unmet medical needs. The Company is developing a robust and growing portfolio of novel product candidates internally generated by Contour®, its proprietary structure-based drug discovery platform. The Company has a portfolio that includes several wholly-owned product candidates in various stages of development.

The Company’s most advanced, wholly-owned product candidate is VTP-43742, a first in class oral small molecule, which is being developed for the treatment of psoriasis as well as multiple autoimmune disorders, and for which the Company announced positive top-line clinical and biomarker results from its Phase 2a proof-of-concept trial in March 2016. The Company’s second most advanced wholly-owned product candidate is VTP-38543 for the treatment of atopic dermatitis, which is in Phase 2a clinical development. The Company is also advancing a second RORγt clinical candidate, VTP-45489, which is a chemically distinct compound from VTP-43742. A clinical trial of VTP-45489 is expected to initiate in the fourth quarter of 2016.  The Company intends to advance and retain rights to these and other programs and product candidates that the Company believes it can develop and commercialize, and to strategically partner where doing so can accelerate the program and generate non-dilutive capital for Vitae.

The Company also has a product candidate, VTP-36951, in pre-clinical development for the treatment and prevention of Alzheimer’s disease, or Alzheimer’s. VTP-36951 was being developed exclusively by Boehringer Ingelheim GmbH (“BI”) as BI 1147560 pursuant to a Research Collaboration and License Agreement with BI that was entered into in June 2009 (the “BACE Agreement”). In July 2015, BI notified the Company that it was terminating the BACE Agreement, effective as of October 21, 2015, for strategic business reasons. In connection with the termination of the BACE Agreement, the Company received the rights to the BACE program, including VTP-36951, which includes, among other rights, certain exclusive rights to develop and commercialize the terminated products for the treatment of Alzheimer’s, diabetes and the other indications covered by the BACE Agreement. The Company has decided not to make additional investments into this program at this time and will assess the program following the disclosure of other companies’ BACE program clinical trial results.  However, the Company will continue to assess strategic options relating to this program during such time.

The Company was also developing BI187004/VTP-34072 (“BI187004”), which was in a Phase 2 clinical trial for the treatment of type 2 diabetes, and was being developed under a Research Collaboration and License Agreement with BI that was entered into in October 2007 (the “11β Agreement”). In December 2015, the Company announced that BI187004 did not achieve the predefined primary efficacy endpoint criteria of the trial. As a result, BI informed the Company of its intention to terminate the program and the 11β Agreement effective as of March 9, 2016. The Company has no current plans to continue the program independently, but will continue to assess strategic options relating to this program.

The collaborations with BI, including the BACE Agreement, have provided the Company with an aggregate of $158 million in funding as of June 30, 2016, including $30 million from sales of the Company’s equity securities and $128 million in upfront license fees, research funding and success-based milestones.

Vitae is currently pursuing the following strategies: advance its growing portfolio of product candidates, establish late-stage development and commercialization capabilities for certain of the Company’s product candidates in the U.S. and potentially other markets, selectively collaborate with large biotechnology and pharmaceutical companies to maximize the value of the Company’s product candidates, leverage Contour to rapidly discover novel small molecule product candidates for additional validated, difficult-to-drug targets, and continue investing in technology, people and intellectual property.

As of June 30, 2016, the Company had cash, cash equivalents and marketable securities of approximately $77.4 million. Based on the Company’s current operating plan, the Company believes that its existing cash, cash equivalents and marketable securities will be sufficient to fund its currently anticipated operating expenses and capital expenditure requirements into the second half of 2018, which is expected to be approximately 12 months  after its currently planned announcement of top-line data from the anticipated 16 week Phase 2 clinical trial for VTP-43742 in psoriasis patients. The Company will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all of the Company’s planned research and development activities. The future success of the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain profitable operations. The Company is subject to a number of risks similar to other life sciences companies, including, but not limited to, successful discovery and development of its drug candidates, raising additional capital, development by its competitors of new technological innovations, protection of proprietary technology and market acceptance of the Company’s products.

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Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2016

Basis of Presentation and summary of Significant Accounting Policies

Basis of Presentation and summary of Significant Accounting Policies

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and are unaudited. The interim unaudited financial statements have been prepared on the same basis as the financial statements as of and for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (“Annual Report on Form 10-K”). In the opinion of management, the accompanying financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2016 and the results of its operations, comprehensive loss and cash flows for the three and six months ended June 30, 2016 and 2015. The results for the three and six months ended June 30, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016, any other interim periods, or any future year or period.  The information contained in the accompanying financial statements and the notes thereto should be read in conjunction with the financial statements and notes thereto as of and for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 4, 2016.

Fair Value of Financial Instruments

At June 30, 2016 and December 31, 2015, the Company’s financial instruments included cash and cash equivalents, restricted cash, marketable securities, accounts payable, and accrued expenses. The carrying amounts reported in the Company’s financial statements for cash and cash equivalents, restricted cash, accounts payable and accrued expenses approximates their respective fair values because of the short-term nature of these instruments. The Company’s marketable securities are carried at fair value based on quoted market prices and other observable inputs. The Company determines the estimated fair value of financial instruments using available market information and management’s estimates. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.

Net Income (Loss) Per Common Share

Basic net income (loss) per share is determined by using the weighted average number of shares of common stock outstanding during each period. Diluted net income (loss) per common share is computed by using the weighted-average number of shares of common stock outstanding, plus, for periods with net income attributable to common stock, the dilutive effects of stock options, restricted stock units, and warrants. Potential dilutive shares consist of incremental common stock issuable upon the exercise of stock options and warrants. Basic and dilutive computations are the same in periods with net losses attributable to common stockholders as the dilutive effects of stock options, restricted stock units and warrants would be antidilutive.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) and subsequently issued additional updates amending the guidance contained in Topic 606 thereby affecting the guidance contained in ASU 2014-09. ASU 2014-09 and the subsequent Topic 606 updates will supersede and replace nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, and are effective for annual reporting periods beginning after December 15, 2017, including interim periods therein. The Company is evaluating the guidance in ASU 2014-09 and the subsequent Topic 606 updates and has not yet determined what, if any, effect this guidance will have on its results of operations or financial condition.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern. ASU 2014-15 requires management of all entities to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued, and to make certain disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 is effective for the Company for annual reporting periods beginning in 2016 and for interim reporting periods starting in the first quarter of 2017. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on its financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the balance sheet classification of deferred taxes and requires that all deferred taxes be presented as noncurrent. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. The adoption of this update is not expected to have a material effect on the Company’s financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. ASU 2016-02 is effective beginning after December 15, 2018 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company has not yet determined what the effects of adopting this ASU will be on its financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation, which simplifies the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company's payments for tax withholdings should be classified. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. The Company has not yet determined what the effects of adopting this ASU will be on its financial statements.

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Net Loss Per Common Share

6 Months Ended

Jun. 30, 2016

Net (Loss) Income Per Common Share

Net (Loss) Income Per Common Share

3. Net Loss Per Common Share

The following table sets forth the computation of basic and diluted net loss per common share for the periods indicated:

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Basic and diluted net loss per common share calculation:
Net loss	$	(10,410,047)	$	(9,761,342)	$	(20,417,774)	$	(19,468,424)
Weighted average number of common shares:
Basic and diluted		28,829,553		21,837,676		25,686,529		21,315,094
Net loss per common share
Basic and diluted	$	(0.36)	$	(0.45)	$	(0.79)	$	(0.91)

The following outstanding securities at June 30, 2016 and 2015 have been excluded from the computation of diluted weighted shares outstanding, as their effects on net loss per share would have been anti-dilutive:

	June 30,
	2016	2015
Stock options	2,244,925	1,794,027
Employee stock purchase plan	9,401	15,397
Warrants	45,468	45,468
Total	2,299,794	1,854,892

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Accrued Expenses

6 Months Ended

Jun. 30, 2016

Accrued Expenses

Accrued Expenses

4. Accrued Expenses

At June 30, 2016 and December 31, 2015, accrued expenses consisted of the following:

	June 30,		December 31,
	2016		2015
Payroll and related costs	$	1,243,619	$	1,926,213
Research and development related costs		2,657,346		1,914,336
Legal and accounting related costs		399,211		256,708
Other		257,900		241,311
Total	$	4,558,076	$	4,338,568

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Fair Value Measurements

6 Months Ended

Jun. 30, 2016

Fair Value Measurements

Fair Value Measurements

5. Fair Value Measurements

The Company measures certain assets and liabilities at fair value in accordance with Accounting Standards

Codification (ASC) 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The guidance in ASC 820 outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, the Company maximizes the use of quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. 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.

· Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

· Level 3—Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

The Company’s Level 1 assets included money market funds and certificates of deposit (“CD”). Level 2 assets included U.S. government agency securities and corporate debt securities. The following fair value hierarchy tables present information about each major category of financial assets measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015:

	Fair Value Measurements as of  June 30, 2016 Using
							Balance as of
	Level 1		Level 2		Level 3		June 30, 2016
Assets
Money market funds	$	23,271,553	$	—	$	—	$	23,271,553
Cash-restricted, CD		200,000		—		—		200,000
Marketable securities, available-for-sale		—		53,295,696		—		53,295,696
Total assets	$	23,471,553	$	53,295,696	$	—	$	76,767,249

	Fair Value Measurements as of  December 31, 2015 Using
							Balance as of
	Level 1		Level 2		Level 3		December 31, 2015
Assets
Money market funds	$	7,925,684	$	—	$	—	$	7,925,684
Other cash equivalents		—		2,752,930		—		2,752,930
Cash-restricted, CD		200,000		—		—		200,000
Marketable securities, available-for-sale		—		47,596,144		—		47,596,144
Total assets	$	8,125,684	$	50,349,074	$	—	$	58,474,758

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Investments

6 Months Ended

Jun. 30, 2016

Investments.

Investments

6. Investments

Marketable Securities

Marketable securities consisted of the following as of June 30, 2016 and December 31, 2015:

	Cost		Unrealized		Unrealized		Fair
	Basis		Gains		Losses		Value
June 30, 2016
Corporate notes and bonds	$	53,284,912	$	22,333	$	(11,549)	$	53,295,696
Total marketable securities	$	53,284,912	$	22,333	$	(11,549)	$	53,295,696
December 31, 2015
Corporate notes and bonds	$	47,625,609	$	2,591	$	(32,056)	$	47,596,144
Total marketable securities	$	47,625,609	$	2,591	$	(32,056)	$	47,596,144

As of June 30, 2016, the Company’s marketable securities had maturities that were less than one year.

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Debt Extinguishment

6 Months Ended

Jun. 30, 2016

Debt Extinguishment

Debt Extinguishment

7. Debt Extinguishment

On February 27, 2015, the Company repaid the outstanding balance due under a credit facility with Silicon Valley Bank and Oxford Finance LLC. The total payoff was $4,342,855, which included prepayment and other additional fees of $84,453. The Company had $20,852 of deferred financing fees and $101,373 of unamortized debt discount as of the payoff date. The debt repayment was accounted for as an extinguishment as per ASC 470-50, Debt: Modifications and Extinguishments, and a loss on extinguishment of debt totaling $206,678 was recorded in the six months ended June 30, 2015, consisting of the unamortized deferred financing, unamortized debt discount and prepayment and other additional fees.

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Stockholders’ Equity

6 Months Ended

Jun. 30, 2016

Stockholders’ Equity

Stockholders’ Equity

8. Stockholders’ Equity

Common Stock

On June 30, 2016, the Company entered into a sales agreement with Cantor Fitzgerald & Co. (“Cantor”), pursuant to which the Company may offer and sell shares of the Company’s common stock from time to time through Cantor having an aggregate offering price of up to $40.0 million. The Company is not obligated to make any sales of the shares under the sales agreement. As of June 30, 2016, the Company has not sold any shares of common stock pursuant to the sales agreement with Cantor.

On March 24, 2016, the Company issued and sold a total of 5,833,333 shares of its common stock at $6.00 per share in an underwritten public offering, for gross proceeds of $35.0 million. On March 31, 2016, the underwriters of the Company’s public offering exercised their option to purchase additional shares and the Company issued and sold an additional 815,000 shares of common stock at $6.00 per share for aggregate gross proceeds of $4.9 million. Net proceeds from the offering, including the sale of the additional shares, was approximately $36.9 million, after deducting underwriting discounts and commissions and other offering expenses.

On January 28, 2015, the Company issued and sold a total of 3,450,000 shares of its common stock at $11.90 per share in an underwritten public offering, including 450,000 shares of common stock sold pursuant to the exercise in full of the underwriters’ option to purchase additional shares. Net proceeds from the offering, including the sale of the additional shares, was approximately $38.0 million, after deducting underwriting discounts and commissions and other offering expenses.

Preferred Stock

As of June 30, 2016, the Company had authorized15,000,000shares of preferred stock at $0.0001par value. There were noshares of preferred stock issued or outstanding as of June 30, 2016.

Treasury Stock

In connection with cashless employee stock option exercises for the six months ended June 30, 2015 employees tendered 211 shares of common stock with a fair value of $2,324 to the Company as consideration for the exercise price. Treasury stock is recorded using the cost method. Treasury stock retirements are recorded by deducting the par value from common stock and charging the remaining excess of cost over par to accumulated deficit.

Warrants

As of June 30, 2016, the Company had warrants outstanding for the purchase of 45,468 shares of common stock at exercise prices ranging from $20.70 to $27.60 per share.  The following table summarizes the warrants outstanding and exercisable as of June 30, 2016:

		Exercise		Expiration
Warrants to Purchase	Shares	Price		Date
Common stock	1,449	$	20.70	07/12/2016
Common stock	14,130	$	27.60	08/28/2018
Common stock	29,889	$	27.60	12/21/2021

On July 12, 2016, warrants to purchase 1,449 common shares with an exercise price of $20.70 per share expired unexercised.

Shares Reserved for Future Issuance

At June 30, 2016, the Company has reserved the following shares of common stock for issuance:

Common stock options outstanding	2,244,925
Shares available for future grant under employee compensation plans	2,434,639
Shares available through employee stock purchase plan	375,896
Warrants	45,468
	5,100,928

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Employee Compensation Plans

6 Months Ended

Jun. 30, 2016

Employee Compensation Plans

Employee Compensation Plans

9. Employee Compensation Plans

In July 2014, the Company’s board of directors approved the 2014 Stock Plan (the “2014 Plan”) and reserved to be authorized for issuance under the 2014 Plan the sum of (1) 1,782,500 shares of the Company’s common stock, (2) the number of shares of the Company’s common stock reserved under the Predecessor Plans (as defined below) that are not issued or subject to outstanding awards under the Predecessor Plans as of the closing of the Company’s initial public offering on September 24, 2014 (IPO) and (3) any shares of the Company’s common stock which are subject to outstanding options under the Predecessor Plans as of the closing of the Company’s IPO that subsequently expire or lapse unexercised or are subsequently forfeited to or repurchased by the Company, provided that the shares reserved under clauses (2) and (3) above shall include no more than 1,070,687 shares of the Company’s common stock. As of June 30, 2016, there are 2,434,639 shares available for grant without restriction.

Under the 2014 Plan, options to purchase common stock, restricted stock and restricted stock units may be granted to the Company’s employees, nonemployee directors, and consultants providing services to the Company. The aggregate number of shares of the Company’s common stock reserved for issuance under the 2014 Plan shall automatically be increased on the first business day of each of the Company’s fiscal years by a number equal to the smallest of (i) 4% of the total number of shares of the Company’s common stock actually issued and outstanding on the last business day of the prior fiscal year (excluding any rights to purchase shares of the Company’s common stock that may be outstanding, such as options or warrants), (ii) 1,426,000 shares of the Company’s common stock or (iii) a number of shares of Common Stock determined by the Company’s board of directors. As of January 1, 2016, the number of shares of common stock that may be issued under the 2014 Plan was automatically increased by 882,640 shares, increasing the number of shares of common stock available for issuance under the 2014 Plan to 3,756,092 shares.

The Company has three additional share-based compensation plans pursuant to which outstanding awards have been made, but from which no further awards can or will be made: (i) the 2001 Stock Plan (the “2001 Plan”); (ii) the 2004 Stock Plan (the “2004 Plan”); and the 2013 Stock Plan (the “2013 Plan”, and collectively with the 2001 Plan and the 2004 Plan, the “Predecessor Plans”).

The cost of stock-based compensation awards are determined based on the grant-date fair value, net of the effects of estimated forfeitures of the awards, and is recognized into expense over the award’s service period. Stock-based compensation expense for the three and six months ended June 30, 2016 and 2015 was recognized as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Research and development	$	324,221	$	235,819	$	664,219	$	373,577
General and administrative		428,341		303,856		827,227		495,736
Total stock-based compensation expense	$	752,562	$	539,675	$	1,491,446	$	869,313

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Stock options	$	711,683	$	488,328	$	1,337,842	$	783,422
Employee stock purchase plan		40,879		51,347		153,604		85,891
Total stock-based compensation expense	$	752,562	$	539,675	$	1,491,446	$	869,313

Stock Options

All options granted under the Plans were granted with exercise prices equal to or above the fair market value of the Company’s common stock on the date of grant. Options granted under the Plans vest over a time period or based on performance milestones established at the sole discretion of the Company’s board of directors or its compensation committee. Vesting for time-based options generally occurs over a period of not greater than four years. All stock options expire no later than ten years from the grant date. Under the terms of the Plans, employees may use shares to exercise a portion of these options. Shares tendered for this purpose are valued at the fair market value as of the date the options are exercised.

The following table summarizes stock option activity under the Plans from January 1, 2016 through June 30, 2016:

		Weighted-		Weighted-
		Average		Average	Aggregate
	Number	Exercise		Contractual	Intrinsic
	of Shares	Price		Life (in Years)	Value
Outstanding, January 1, 2016	1,865,316	$	8.1159
Granted	491,625	$	9.3169
Exercised	(95,071)	$	3.5602
Expired	—	$	—
Forfeited	(16,945)	$	10.0491
Outstanding, June 30, 2016	2,244,925	$	8.5698	7.41	$	6,583,575
Exercisable, June 30, 2016	881,618	$	6.9236	5.31	$	3,845,186
Vested and Expected to Vest, June 30, 2016	2,206,412	$	8.5462

The total intrinsic value of options exercised during the six months ended June 30, 2016 and 2015 was $326,124 and $1,752,314, respectively.

The Company granted 303,559 performance-based stock options to employees in March 2011. These performance options have a 10-year life and exercise prices equal to the fair value of the Company’s stock at the grant date. Vesting of no more than 60% of these performance options is dependent on (i) meeting certain performance conditions, which relate to the Company’s research and development progress, which were established by the Company’s board of directors and (ii) the passage of time subsequent to the achievement of such performance conditions. Vesting of no more than 40% of these performance options is dependent on (i) meeting certain performance conditions, which relate to a deemed liquidation of the Company, an IPO or consummation of a strategic transaction, which were established by the Company’s board of directors and (ii) the passage of time subsequent to the achievement of such performance conditions. The Company’s board of directors determines if the performance conditions have been met. Stock-based compensation expense for these options is recorded when management estimates that the vesting of these options is probable based on the status of the Company’s research and development programs and other relevant factors and stock-based compensation expense was recorded ratably over the service period associated with the performance condition. As of June 30, 2016, the vesting of 165,883 performance-based stock options had been deemed probable. Any change in these estimates will result in a cumulative adjustment in the period in which the estimate is changed, so that as of the end of a period, the cumulative compensation expense recognized for an award or grant equals the amount that would be recognized on a straight-line basis as if the current estimates had been utilized since the beginning of the service period.

The Company uses the Black-Scholes valuation model to estimate the fair value of stock options at the grant date. The Black-Scholes valuation model requires the Company to make certain estimates and assumptions, including assumptions related to the expected price volatility of the Company’s stock, the period during which the options will be outstanding, the rate of return on risk- free investments, and the expected dividend yield for the Company’s stock.

The fair values of stock options granted during the six months ended June 30, 2016 and 2015 were calculated using the following weighted-average assumptions:

	Six Months Ended
	June 30,
	2016	2015
Weighted-average risk-free interest rate	1.40%	1.69%
Expected term of options (in years)	6.12	6.13
Expected stock price volatility	73%	81%
Expected dividend yield	0%	0%

The weighted average fair value of options granted during the six months ended June 30, 2016 and 2015 was $6.04 and $9.83 per share, respectively. The fair values of stock options granted were calculated using the following weighted-average assumptions:

· Risk-free interest rate: The Company bases the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term.

· Expected term of options: The expected term of options represents the period of time options are expected to be outstanding. The expected term of the options granted is derived using the “simplified” method, as prescribed by the SEC Staff Accounting Bulletin No. 107, Share‑Based Payment.

· Expected stock price volatility: The expected volatility is based on historical stock price volatilities of similar entities within the Company’s industry over the period that is commensurate with the expected term of the option.

· Expected dividend yield: The estimate for annual dividends is $0.00, because the Company has not historically paid, and does not expect for the foreseeable future to pay, a dividend.

The total cash received from employees as a result of employee stock option exercises during the six months ended June 30, 2016 and 2015 was $338,468 and $263,430, respectively.

As of June 30, 2016, excluding performance-based stock options that have not been deemed probable, the aggregate unrecognized stock-based compensation expense related to unvested options granted under the Stock Plans that were expected to vest was $7,305,404. That expense is expected to be recognized as follows:

Year ending December 31,
2016	$	1,476,869
2017		2,608,487
2018		2,107,329
2019		955,881
2020		156,838
	$	7,305,404

The aggregate estimated fair value of options for which the satisfaction of the related-performance conditions have not been deemed probable is $546,951 as of June 30, 2016.

Restricted Stock Units (“RSU”)

Under settlement procedures applicable to a fully vested performance-based RSU, which was held by the Company’s chief executive officer, the Company was required to deliver the underlying common shares on March 13, 2015. On the settlement date, the Company net settled the award by delivering approximately 220,148 shares of its common stock to its chief executive officer and withholding approximately 171,156 shares of common stock to satisfy income taxes at the applicable minimum statutory rate. In connection with the net settlement, the Company remitted the $1,910,101 tax liability on behalf of its chief executive officer to the relevant tax authorities in cash.

Employee Stock Purchase Plan

In July 2014, the Company established an Employee Stock Purchase Plan (the “Purchase Plan”). Under the Company’s Purchase Plan, eligible employees can purchase common stock through accumulated payroll deductions at such times as are established by the administrator.  The Purchase Plan is administered by the compensation committee of the Company’s board of directors. Under the Purchase Plan, eligible employees may purchase stock at 85% of the lower of the fair market value of a share of the Company’s common stock on the first day of an offering period or on the purchase date. Eligible employees may contribute up to 15% of their eligible compensation. A participant may purchase a maximum of 2,100 shares of common stock per purchase period. Under the Purchase Plan, a participant may not accrue rights to purchase more than $25,000 worth of the Company’s common stock for each calendar year in which such right is outstanding.

As of the Company’s first business day of each fiscal year, the aggregate number of shares that may be issued under the Purchase Plan shall automatically increase by a number equal to the least of (i) 1% of the total number of shares of the Company’s common stock actually issued and outstanding on the last business day of the prior fiscal year (excluding any rights to purchase shares of the Company’s common stock that may be outstanding, such as options or warrants), (ii) 356,500 shares of the Company’s common stock, or (iii) a number of shares of the Company’s common stock determined by the Company’s board of directors.  The Company’s board of directors determined not to increase the number of shares available for issuance under the Purchase Plan in 2016. As of June 30, 2016,  375,896 shares remained available for issuance.

In accordance with the guidance in ASC 718-50, the ability to purchase shares of the Company’s common stock at the lower of the offering date price or the purchase date price represents an option and, therefore, the Purchase Plan is a compensatory plan under this guidance. Accordingly, stock-based compensation cost is determined based on the option’s grant-date fair value and is recognized over the requisite service period of the option.The Company used the Black-Scholes valuation model and recognized stock-based compensation expense of $40,879 and $51,347 for the three months ended June 30, 2016 and 2015, respectively, and $153,604 and $85,891 for the six months ended June 30, 2016 and 2015, respectively.

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Collaborative Research Agreements

6 Months Ended

Jun. 30, 2016

Collaborative Research Agreements

Collaborative Research Agreements

10. Collaborative Research Agreements

Boehringer Ingelheim

11β HSD1 Inhibitors

In October 2007, the Company entered into the 11β Agreement with BI pursuant to which BI was responsible for the development and commercialization of 11β HSD1 inhibitors for certain indications, including type 2 diabetes.

In December 2015, BI notified the Company that it was terminating the 11β Agreement effective as of March 9, 2016. Under the 11β Agreement, no material payments were required to be made by or to the Company in connection with the termination of the agreement.

Beta-site Amyloid Precursor Protein-cleaving Enzyme 1 (BACE) Inhibitors

In June 2009, the Company entered into the BACE Agreement with BI pursuant to which BI was responsible for the development and commercialization of BACE inhibitors for the treatment of Alzheimer’s disease and other forms of dementia.

In July 2015, BI notified the Company that it was terminating the BACE Agreement, effective as of October 21, 2015, for strategic business reasons.  In connection with the termination of the BACE Agreement, the Company received the rights to the BACE program, including VTP-36951, which  includes, among other rights, certain exclusive rights to develop and commercialize the terminated products for the treatment of Alzheimer’s, diabetes and the other indications covered by the BACE Agreement.  Under the BACE Agreement, no material payments were required to be made by or to the Company in connection with the termination of the agreement.

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Income Taxes

6 Months Ended

Jun. 30, 2016

Income Taxes

Income Taxes

11. Income Taxes

For the three and six months ended June 30, 2016 and 2015, the Company did not record a current or deferred income tax expense or benefit. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company’s history of operating losses, the Company has concluded that it is not more likely than not that the benefit of its deferred tax assets will be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of June 30, 2016 and December 31, 2015.

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Related Party Transactions

6 Months Ended

Jun. 30, 2016

Related Party Transactions

Related Party Transactions

12. Related Party Transactions

A member of the Company’s board of directors is a partner/founder of a law firm that provided various legal services to the Company. The Company has incurred costs of $180,000 and $60,000 for the three months ended June 30, 2016 and 2015, respectively, and $519,000 and $293,000 for the six months ended June 30, 2016 and 2015, respectively. Additionally, $88,000 and $27,000 was due to the related party as of June 30, 2016 and December 31, 2015, respectively.

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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2016

Basis of Presentation and summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and are unaudited. The interim unaudited financial statements have been prepared on the same basis as the financial statements as of and for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (“Annual Report on Form 10-K”). In the opinion of management, the accompanying financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2016 and the results of its operations, comprehensive loss and cash flows for the three and six months ended June 30, 2016 and 2015. The results for the three and six months ended June 30, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016, any other interim periods, or any future year or period.  The information contained in the accompanying financial statements and the notes thereto should be read in conjunction with the financial statements and notes thereto as of and for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 4, 2016.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

At June 30, 2016 and December 31, 2015, the Company’s financial instruments included cash and cash equivalents, restricted cash, marketable securities, accounts payable, and accrued expenses. The carrying amounts reported in the Company’s financial statements for cash and cash equivalents, restricted cash, accounts payable and accrued expenses approximates their respective fair values because of the short-term nature of these instruments. The Company’s marketable securities are carried at fair value based on quoted market prices and other observable inputs. The Company determines the estimated fair value of financial instruments using available market information and management’s estimates. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.

Net Income (Loss) Per Common Share

Net Income (Loss) Per Common Share

Basic net income (loss) per share is determined by using the weighted average number of shares of common stock outstanding during each period. Diluted net income (loss) per common share is computed by using the weighted-average number of shares of common stock outstanding, plus, for periods with net income attributable to common stock, the dilutive effects of stock options, restricted stock units, and warrants. Potential dilutive shares consist of incremental common stock issuable upon the exercise of stock options and warrants. Basic and dilutive computations are the same in periods with net losses attributable to common stockholders as the dilutive effects of stock options, restricted stock units and warrants would be antidilutive.

Significant Accounting Policies

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) and subsequently issued additional updates amending the guidance contained in Topic 606 thereby affecting the guidance contained in ASU 2014-09. ASU 2014-09 and the subsequent Topic 606 updates will supersede and replace nearly all existing U.S. GAAP revenue recognition guidance, including industry-specific guidance, and are effective for annual reporting periods beginning after December 15, 2017, including interim periods therein. The Company is evaluating the guidance in ASU 2014-09 and the subsequent Topic 606 updates and has not yet determined what, if any, effect this guidance will have on its results of operations or financial condition.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern. ASU 2014-15 requires management of all entities to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued, and to make certain disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 is effective for the Company for annual reporting periods beginning in 2016 and for interim reporting periods starting in the first quarter of 2017. The Company is currently evaluating the impact of the adoption of ASU 2014-15 on its financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the balance sheet classification of deferred taxes and requires that all deferred taxes be presented as noncurrent. ASU 2015-17 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. The adoption of this update is not expected to have a material effect on the Company’s financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. ASU 2016-02 is effective beginning after December 15, 2018 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company has not yet determined what the effects of adopting this ASU will be on its financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation, which simplifies the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company's payments for tax withholdings should be classified. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 with early adoption permitted. The Company has not yet determined what the effects of adopting this ASU will be on its financial statements.

Employee Stock Purchase Plan

In accordance with the guidance in ASC 718-50, the ability to purchase shares of the Company’s common stock at the lower of the offering date price or the purchase date price represents an option and, therefore, the Purchase Plan is a compensatory plan under this guidance. Accordingly, stock-based compensation cost is determined based on the option’s grant-date fair value and is recognized over the requisite service period of the option.

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Net Loss Per Common Share (Tables)

6 Months Ended

Jun. 30, 2016

Net (Loss) Income Per Common Share

Schedule of computation of basic and diluted net loss per common share

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Basic and diluted net loss per common share calculation:
Net loss	$	(10,410,047)	$	(9,761,342)	$	(20,417,774)	$	(19,468,424)
Weighted average number of common shares:
Basic and diluted		28,829,553		21,837,676		25,686,529		21,315,094
Net loss per common share
Basic and diluted	$	(0.36)	$	(0.45)	$	(0.79)	$	(0.91)

Schedule of outstanding securities excluded from the computation of diluted weighted shares outstanding, as their effects on net loss per share would have been anti dilutive

	June 30,
	2016	2015
Stock options	2,244,925	1,794,027
Employee stock purchase plan	9,401	15,397
Warrants	45,468	45,468
Total	2,299,794	1,854,892

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Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2016

Accrued Expenses

Schedule of accrued expenses

	June 30,		December 31,
	2016		2015
Payroll and related costs	$	1,243,619	$	1,926,213
Research and development related costs		2,657,346		1,914,336
Legal and accounting related costs		399,211		256,708
Other		257,900		241,311
Total	$	4,558,076	$	4,338,568

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2016

Fair Value Measurements

Schedule of major category of financial assets and liabilities measured at fair value on a recurring basis

	Fair Value Measurements as of  June 30, 2016 Using
							Balance as of
	Level 1		Level 2		Level 3		June 30, 2016
Assets
Money market funds	$	23,271,553	$	—	$	—	$	23,271,553
Cash-restricted, CD		200,000		—		—		200,000
Marketable securities, available-for-sale		—		53,295,696		—		53,295,696
Total assets	$	23,471,553	$	53,295,696	$	—	$	76,767,249

	Fair Value Measurements as of  December 31, 2015 Using
							Balance as of
	Level 1		Level 2		Level 3		December 31, 2015
Assets
Money market funds	$	7,925,684	$	—	$	—	$	7,925,684
Other cash equivalents		—		2,752,930		—		2,752,930
Cash-restricted, CD		200,000		—		—		200,000
Marketable securities, available-for-sale		—		47,596,144		—		47,596,144
Total assets	$	8,125,684	$	50,349,074	$	—	$	58,474,758

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Investments (Tables)

6 Months Ended

Jun. 30, 2016

Investments.

Schedule of marketable securities

	Cost		Unrealized		Unrealized		Fair
	Basis		Gains		Losses		Value
June 30, 2016
Corporate notes and bonds	$	53,284,912	$	22,333	$	(11,549)	$	53,295,696
Total marketable securities	$	53,284,912	$	22,333	$	(11,549)	$	53,295,696
December 31, 2015
Corporate notes and bonds	$	47,625,609	$	2,591	$	(32,056)	$	47,596,144
Total marketable securities	$	47,625,609	$	2,591	$	(32,056)	$	47,596,144

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Stockholders’ Equity (Tables)

6 Months Ended

Jun. 30, 2016

Stockholders’ Equity

Summary of warrants outstanding and exercisable

The following table summarizes the warrants outstanding and exercisable as of June 30, 2016:

		Exercise		Expiration
Warrants to Purchase	Shares	Price		Date
Common stock	1,449	$	20.70	07/12/2016
Common stock	14,130	$	27.60	08/28/2018
Common stock	29,889	$	27.60	12/21/2021

On July 12, 2016, warrants to purchase 1,449 common shares with an exercise price of $20.70 per share expired unexercised.

Schedule of shares of common stock reserved for future issuance

At June 30, 2016, the Company has reserved the following shares of common stock for issuance:

Common stock options outstanding	2,244,925
Shares available for future grant under employee compensation plans	2,434,639
Shares available through employee stock purchase plan	375,896
Warrants	45,468
	5,100,928

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Employee Compensation Plans (Tables)

6 Months Ended

Jun. 30, 2016

Employee Compensation Plans

Schedule of stock-based compensation expense recognized

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Research and development	$	324,221	$	235,819	$	664,219	$	373,577
General and administrative		428,341		303,856		827,227		495,736
Total stock-based compensation expense	$	752,562	$	539,675	$	1,491,446	$	869,313

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Stock options	$	711,683	$	488,328	$	1,337,842	$	783,422
Employee stock purchase plan		40,879		51,347		153,604		85,891
Total stock-based compensation expense	$	752,562	$	539,675	$	1,491,446	$	869,313

Summary of stock option activity under the Plans

		Weighted-		Weighted-
		Average		Average	Aggregate
	Number	Exercise		Contractual	Intrinsic
	of Shares	Price		Life (in Years)	Value
Outstanding, January 1, 2016	1,865,316	$	8.1159
Granted	491,625	$	9.3169
Exercised	(95,071)	$	3.5602
Expired	—	$	—
Forfeited	(16,945)	$	10.0491
Outstanding, June 30, 2016	2,244,925	$	8.5698	7.41	$	6,583,575
Exercisable, June 30, 2016	881,618	$	6.9236	5.31	$	3,845,186
Vested and Expected to Vest, June 30, 2016	2,206,412	$	8.5462

Schedule of weighted-average assumptions used for calculating fair values of stock options granted

	Six Months Ended
	June 30,
	2016	2015
Weighted-average risk-free interest rate	1.40%	1.69%
Expected term of options (in years)	6.12	6.13
Expected stock price volatility	73%	81%
Expected dividend yield	0%	0%

Schedule of total unrecognized compensation expense, excluding performance based stock options that have not been deemed probable, net of estimated forfeitures, related to unvested options granted under the Stock Plans expected to be recognized

Year ending December 31,
2016	$	1,476,869
2017		2,608,487
2018		2,107,329
2019		955,881
2020		156,838
	$	7,305,404

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Organization - Collaborations (Details) - BI $ in Millions	Jun. 30, 2016 USD ($)
Collaborative research agreements
Funding provided by counterparty including sale of the Company's equity securities and upfront license fees, research funding and success based milestone payments	$ 158
Funding provided by the counterparty from sale of the Company's equity securities	30
Funding provided by counterparty from upfront license fees, research funding and success based milestone payments	$ 128

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Organization - Cash, Cash Equivalents and Marketable Securities (Details) $ in Millions	6 Months Ended
	Jun. 30, 2016 USD ($)
Organization
Cash, cash equivalents and marketable securities	$ 77.4
Anticipated operating expenses and capital expenditure period	12 months
Length of the Phase 2 clinical trial	112 days

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Net Loss Per Common Share - Computation of Basic and Diluted Net Income (Loss) Per Common Share (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Basic and diluted net loss per common share calculation:
Net loss	$ (10,410,047)	$ (9,761,342)	$ (20,417,774)	$ (19,468,424)
Weighted-average number of common shares:
Basic and diluted	28,829,553	21,837,676	25,686,529	21,315,094
Net loss per common share
Basic and diluted	$ (0.36)	$ (0.45)	$ (0.79)	$ (0.91)

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Net Loss Per Common Share - Anti-dilutive Securities (Details) - shares	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Net Income (Loss) Per Common Share
Potential common shares not reflected in diluted net loss per share as the effect would be anti-dilutive	2,299,794	1,854,892
Stock options
Net Income (Loss) Per Common Share
Potential common shares not reflected in diluted net loss per share as the effect would be anti-dilutive	2,244,925	1,794,027
Employee stock purchase plan
Net Income (Loss) Per Common Share
Potential common shares not reflected in diluted net loss per share as the effect would be anti-dilutive	9,401	15,397
Warrants
Net Income (Loss) Per Common Share
Potential common shares not reflected in diluted net loss per share as the effect would be anti-dilutive	45,468	45,468

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Accrued Expenses (Details) - USD ($)	Jun. 30, 2016	Dec. 31, 2015
Accrued Expenses
Payroll and related costs	$ 1,243,619	$ 1,926,213
Research and development related costs	2,657,346	1,914,336
Legal and accounting related costs	399,211	256,708
Other	257,900	241,311
Total	$ 4,558,076	$ 4,338,568

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Fair Value Measurements (Details) - USD ($)	Jun. 30, 2016	Dec. 31, 2015
Assets
Marketable securities, available-for-sale	$ 53,295,696	$ 47,596,144
Recurring
Assets
Total Assets	76,767,249	58,474,758
Recurring | Cash and cash equivalents | Money market funds
Assets
Cash and cash equivalents	23,271,553	7,925,684
Recurring | Cash and cash equivalents | Other cash equivalents
Assets
Cash and cash equivalents		2,752,930
Recurring | Cash and cash equivalents | CD
Assets
Cash-restricted, CD	200,000	200,000
Recurring | Investments
Assets
Marketable securities, available-for-sale	53,295,696	47,596,144
Recurring | Level 1
Assets
Total Assets	23,471,553	8,125,684
Recurring | Level 1 | Cash and cash equivalents | Money market funds
Assets
Cash and cash equivalents	23,271,553	7,925,684
Recurring | Level 1 | Cash and cash equivalents | CD
Assets
Cash-restricted, CD	200,000	200,000
Recurring | Level 2
Assets
Total Assets	53,295,696	50,349,074
Recurring | Level 2 | Cash and cash equivalents | Other cash equivalents
Assets
Cash and cash equivalents		2,752,930
Recurring | Level 2 | Investments
Assets
Marketable securities, available-for-sale	$ 53,295,696	$ 47,596,144

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Investments - Marketable Securities Tabular Disclosure (Details) - USD ($)	Jun. 30, 2016	Dec. 31, 2015
Marketable Securities
Cost Basis	$ 53,284,912	$ 47,625,609
Unrealized Gains	22,333	2,591
Unrealized Losses	(11,549)	(32,056)
Fair Value	53,295,696	47,596,144
Corporate notes and bonds
Marketable Securities
Cost Basis	53,284,912	47,625,609
Unrealized Gains	22,333	2,591
Unrealized Losses	(11,549)	(32,056)
Fair Value	$ 53,295,696	$ 47,596,144

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Debt Extinguishment (Details) - USD ($)		6 Months Ended
	Feb. 27, 2015	Jun. 30, 2015
Debt extinguishment
Loss on debt extinguishment		$ 206,678
2011 Credit Facility
Debt extinguishment
Total payoff	$ 4,342,855
Prepayment and other additional fees	84,453
Deferred financing fees	20,852
Unamortized debt discount	$ 101,373
Loss on debt extinguishment		$ 206,678

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Stockholders' Equity - Common Stock (Details) - USD ($) $ / shares in Units, $ in Millions				6 Months Ended
	Mar. 31, 2016	Mar. 24, 2016	Jan. 28, 2015	Jun. 30, 2016
At-the-market offering
Common Stock
Maximum aggregate offering price of at-the-market offering				$ 40.0
Common stock
Common Stock
Issuance of common stock (in shares)		5,833,333	3,450,000
Share price (in dollars per share)		$ 6.00	$ 11.90
Gross proceeds from issuance		$ 35.0
Net proceeds from issuance	$ 36.9		$ 38.0
Common stock | Underwriters option
Common Stock
Issuance of common stock (in shares)	815,000		450,000
Share price (in dollars per share)	$ 6.00
Gross proceeds from issuance	$ 4.9

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Stockholders' Equity - Preferred Stock (Details) - $ / shares	Jun. 30, 2016	Dec. 31, 2015
Preferred Stock
Preferred stock, shares authorized	15,000,000	15,000,000
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0

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Stockholders' Equity - Treasury Stock (Details)	6 Months Ended
	Jun. 30, 2016 USD ($) shares
Treasury Stock
Treasury shares acquired as consideration for exercise price in cashless exercise of options (in shares) | shares	211
Fair value of common stock | $	$ 2,324

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Stockholders' Equity - Warrants (Details) - $ / shares	Jul. 12, 2016	Jun. 30, 2016
Warrants to purchase common stock | Minimum
Warrants
Exercise price of warrants (in dollars per share)		$ 20.70
Warrants to purchase common stock | Maximum
Warrants
Exercise price of warrants (in dollars per share)		$ 27.60
Warrant to purchase common stock, expiring on 07/12/2016
Warrants
Number of shares of common stock that can be purchased by warrants		1,449
Exercise price of warrants (in dollars per share)		$ 20.70
Warrant to purchase common stock, expiring on 07/12/2016 | Common stock
Warrants
Number of common stock under warrants that expired	1,449
Warrant to purchase common stock, expiring on 08/28/2018
Warrants
Number of shares of common stock that can be purchased by warrants		14,130
Exercise price of warrants (in dollars per share)		$ 27.60
Warrant to purchase common stock, expiring on 12/21/2021
Warrants
Number of shares of common stock that can be purchased by warrants		29,889
Exercise price of warrants (in dollars per share)		$ 27.60

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Stockholders' Equity - Shares Reserved for Future Issuance (Details)	Jun. 30, 2016 shares
Common Stock
Common stock options outstanding	2,244,925
Shares available for future grant under employee compensation plans	2,434,639
Shares available through employee stock purchase plan	375,896
Warrants	45,468
Common stock reserved for issuance	5,100,928

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Employee Compensation Plans - General Disclosures (Details)		1 Months Ended	6 Months Ended
	Jan. 01, 2016 shares	Jul. 31, 2014 shares	Jun. 30, 2016 plan shares
Employee Compensation Plans
Shares available for grant			2,434,639
Number of additional share-based compensation plans | plan			3
2014 Stock Plan
Employee Compensation Plans
Number of shares reserved in July 2014 under clause (1) (in shares)		1,782,500
Maximum number of additional shares reserved in July 2014 under clauses (2) and (3) (in shares)		1,070,687
Shares available for grant			2,434,639
Automatic increase in shares reserved for issuance on first business day of each of fiscal year as a percentage of shares actually issued and outstanding on last business day of prior fiscal year (as a percent)		4.00%
Automatic increase in shares reserved for issuance on first business day of each of fiscal year (in shares)		1,426,000
Increase in shares authorized	882,640
Common stock authorized for issuance (in shares)	3,756,092

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Employee Compensation Plans - Stock-based Compensation Expense by Operations Statement Location (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Stock-based compensation
Total stock-based compensation expense	$ 752,562	$ 539,675	$ 1,491,446	$ 869,313
Research and development
Stock-based compensation
Total stock-based compensation expense	324,221	235,819	664,219	373,577
General and administrative
Stock-based compensation
Total stock-based compensation expense	$ 428,341	$ 303,856	$ 827,227	$ 495,736

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Employee Compensation Plans - Stock-based Compensation Expense by Award (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Stock-based compensation
Total stock-based compensation expense	$ 752,562	$ 539,675	$ 1,491,446	$ 869,313
Stock options
Stock-based compensation
Total stock-based compensation expense	711,683	488,328	1,337,842	783,422
Employee stock purchase plan
Stock-based compensation
Total stock-based compensation expense	$ 40,879	$ 51,347	$ 153,604	$ 85,891

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Employee Compensation Plans - Stock Option Activity (Details) - Stock options - USD ($)	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Number of Shares
Balance at the beginning of the period	1,865,316
Granted	491,625
Exercised	(95,071)
Forfeited	(16,945)
Balance at the end of the period	2,244,925
Exercisable, at the end of the period	881,618
Vested and Expected to Vest, at the end of the period	2,206,412
Weighted Average Exercise Price
Balance at the beginning of the period	$ 8.1159
Granted	9.3169
Exercised	3.5602
Forfeited	10.0491
Balance at the end of the period	8.5698
Exercisable, at the end of the period	6.9236
Vested and Expected to Vest, at the end of the period	$ 8.5462
Additional disclosures
Weighted Average Contractual Life (in years) - Outstanding	7 years 4 months 28 days
Weighted Average Contractual Life (in Years) - Exercisable (in years)	5 years 3 months 22 days
Aggregate Intrinsic Value - Outstanding	$ 6,583,575
Aggregate Intrinsic Value - Exercisable	3,845,186
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value	$ 326,124	$ 1,752,314
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years
Expiration period	10 years

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Employee Compensation Plans - Performance-based Stock Options (Details) - Performance-based stock options granted to employees - shares	1 Months Ended	6 Months Ended
	Mar. 31, 2011	Jun. 30, 2016
Employee Compensation Plans
Awards granted (in shares)	303,559
Expiration period	10 years
Stock option vesting deemed probable (in shares)		165,883
Performance conditions, which relate to the Company's research and development progress | Maximum
Employee Compensation Plans
Vesting percentage		60.00%
Performance conditions, which relate to deemed liquidation of the Company, an IPO or consummation of a strategic transaction | Maximum
Employee Compensation Plans
Vesting percentage		40.00%

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Employee Compensation Plans - Weighted Average Assumptions to Determine Fair Value (Details) - Stock options - USD ($)	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Weighted average fair value assumptions used to calculate fair values of stock options granted
Weighted-average risk-free interest rate	1.40%	1.69%
Expected term of options (in years)	6 years 1 month 13 days	6 years 1 month 17 days
Expected stock price volatility	73.00%	81.00%
Expected dividend yield	0.00%	0.00%
Estimate for annual dividends	$ 0.00	$ 0.00
Stock Options
Weighted average fair value of options granted	$ 6.04	$ 9.83
Total cash received from employees as a result of employee stock option exercises	$ 338,468	$ 263,430

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Employee Compensation Plans - Aggregate Unrecognized Stock-based Compensation Expense (Details)	Jun. 30, 2016 USD ($)
Stock options
Recognition schedule of aggregate unrecognized stock-based compensation expense, excluding performance-based options not deemed probable, related to unvested options granted
2016	$ 1,476,869
2017	2,608,487
2018	2,107,329
2019	955,881
2020	156,838
Total unrecognized compensation expense	7,305,404
Performance-based stock options granted to employees
Stock Options
Aggregate estimated fair value of options for which the satisfaction of the related performance conditions have not been deemed probable	$ 546,951

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Employee Compensation Plans - Restricted Stock Units (Details) - USD ($)		3 Months Ended		6 Months Ended
	Mar. 13, 2015	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Restricted Stock Units
Total stock-based compensation expense		$ 752,562	$ 539,675	$ 1,491,446	$ 869,313
Tax liability remitted					$ 1,910,101
Chief executive officer | Restricted stock units | 2013 Plan
Restricted Stock Units
Awards settled and delivered (in shares)	220,148
Shares withheld to satisfy income taxes on award settlement	171,156
Tax liability remitted	$ 1,910,101

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Employee Compensation Plans - Employee Stock Purchase Plan (Details) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended
	Jul. 31, 2014	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Employee Compensation Plans
Proceeds from the issuance of common stock, net of repurchases				$ 38,028,448	$ 38,855,130
Shares available for grant		2,434,639		2,434,639
Stock-based compensation expense		$ 752,562	$ 539,675	$ 1,491,446	869,313
Research and development
Employee Compensation Plans
Stock-based compensation expense		324,221	235,819	664,219	373,577
General and administrative
Employee Compensation Plans
Stock-based compensation expense		$ 428,341	303,856	$ 827,227	495,736
Employee stock purchase plan
Employee Compensation Plans
Purchase price of common stock (as a percent)	85.00%
Maximum percentage of eligible compensation that eligible employee may contribute	15.00%
Maximum number of shares of common stock that participants may purchase	2,100
The maximum value a participant can purchase in any calendar year	$ 25,000
Minimum percentage of total number of shares of the Company's common stock actually issued and outstanding on the last business day of the prior fiscal year that may automatically increase under the plan				1.00%
Minimum number of shares of Company's common stock that may automatically increase under the plan				356,500
Shares available for grant		375,896		375,896
Stock-based compensation expense		$ 40,879	$ 51,347	$ 153,604	$ 85,891

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Income Taxes (Details) 10Q - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Income Taxes
Current income tax expense (benefit)	$ 0	$ 0	$ 0	$ 0
Deferred income tax expense (benefit)	$ 0	$ 0	$ 0	$ 0

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Related Party Transactions (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Related Party Transactions
Costs incurred from related party	$ 180,000	$ 60,000	$ 519,000	$ 293,000
Due to the related party	$ 88,000		$ 88,000		$ 27,000