DRS/A

As submitted confidentially to the Securities and Exchange Commission on August 24, 2018

Registration No. 333-                    

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Metacrine, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	2834	47-2297384
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

3985 Sorrento Valley Blvd., Suite C

San Diego, CA 92121

(858) 369-7800

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Ken Song, M.D.

President and Chief Executive Officer

Metacrine, Inc.

3985 Sorrento Valley Blvd., Suite C

San Diego, CA 92121

(858) 369-7800

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

Thomas A. Coll, Esq. Karen E. Anderson, Esq. Carlos Ramirez, Esq. Cooley LLP 4401 Eastgate Mall San Diego, California 92121 (858) 550-6000 Cheston J. Larson, Esq. Matthew T. Bush, Esq. Latham & Watkins LLP 12670 High Bluff Drive San Diego, California 92130 (858) 523-5400

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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

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

If an emerging growth company, indicate by check mark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards provided in Section 7(a)(2)(B) of the Securities Act.  ☒

CALCULATION OF REGISTRATION FEE

TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED	PROPOSED MAXIMUM AGGREGATE OFFERING PRICE (1)	AMOUNT OF REGISTRATION FEE (2)
Common Stock, $0.0001 par value per share	$	$

⁽¹⁾  Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act. Includes the offering price of shares that the underwriters have the option to purchase.

⁽²⁾  Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum offering price.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

EXPLANATORY NOTE

Pursuant to the applicable provisions of the Fixing America’s Surface Transportation Act, we are omitting our financial statements for the six months ended June 30, 2018 because they relate to historical periods that we believe will not be required to be included in the prospectus at the time of the contemplated offering. We intend to amend the registration statement to include all financial information required by Regulation S-X at the date of such amendment before distributing a preliminary prospectus to investors.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED                 , 2018

PRELIMINARY PROSPECTUS

            Shares

Common Stock

This is the initial public offering of Metacrine, Inc. We are offering            shares of our common stock. Prior to this offering, there has been no public market for our common stock. We estimate that the initial public offering price of our common stock will be between $            and $            per share.

We intend to apply to list our common stock on The Nasdaq Global Market under the symbol “MTCR.”

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 10.

	PER SHARE	TOTAL
Initial Public Offering Price	$	$
Underwriting Discounts and Commissions (1)	$	$
Proceeds to Metacrine (before expenses)	$	$

⁽¹⁾  We have agreed to reimburse the underwriters for certain expenses. See “Underwriting.”

We have granted the underwriters a 30-day option to purchase up to a total of            additional shares of common stock from us at the initial public offering price less the underwriting discounts and commissions.

The underwriters expect to deliver the shares of common stock to purchasers on or about                 , 2018 through the book-entry facilities of The Depository Trust Company.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Joint Book-Running Managers

Jefferies Evercore ISI RBC Capital Markets

Co-Manager

Roth Capital Partners

The date of this prospectus is                    , 2018

TABLE OF CONTENTS

	PAGE
PROSPECTUS SUMMARY		1
RISK FACTORS		10
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		53
USE OF PROCEEDS		55
DIVIDEND POLICY		56
CAPITALIZATION		57
DILUTION		59
SELECTED FINANCIAL DATA		62
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		64
BUSINESS		75
MANAGEMENT		106
EXECUTIVE AND DIRECTOR COMPENSATION		114
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS		128
PRINCIPAL STOCKHOLDERS		132
DESCRIPTION OF CAPITAL STOCK		135
SHARES ELIGIBLE FOR FUTURE SALE		139
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK		141
UNDERWRITING		145
LEGAL MATTERS		153
EXPERTS		153
WHERE YOU CAN FIND ADDITIONAL INFORMATION		153
INDEX TO FINANCIAL STATEMENTS		F-1

We have not, and the underwriters have not, authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

Through and including                , 2018 (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.

PROSPECTUS SUMMARY

This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in shares of our common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read the entire prospectus carefully, especially “Risk Factors” and our financial statements and the related notes, before deciding to buy shares of our common stock. Unless the context requires otherwise, references in this prospectus to “Metacrine,” “the Company,” “we,” “us” and “our” refer to Metacrine, Inc.

Overview

Company Overview

We are a clinical-stage biopharmaceutical company focused on building an innovative pipeline of best-in-class drugs to treat liver and gastrointestinal, or GI, diseases. Our most advanced program is focused on the farnesoid X receptor, or FXR, an important drug target in multiple liver and GI diseases. We have leveraged our chemistry and biology expertise to internally discover a proprietary portfolio of non-bile acid FXR agonists. We purposefully designed MET409, our lead product candidate, to be an optimized, next-generation FXR agonist that we are initially developing as a potentially differentiated and best-in-class treatment for nonalcoholic steatohepatitis, or NASH. In addition, we plan to evaluate MET409 as a potential first-in-class treatment for irritable bowel syndrome with diarrhea, or IBS-D, and inflammatory bowel diseases, or IBD, such as ulcerative colitis, or UC, and Crohn’s disease, or Crohn’s. Beyond our FXR program, we are building a pipeline of novel drug candidates against other drug targets by taking advantage of our drug discovery and development capabilities. MET409 is currently in Phase 1 clinical development and our other research and development programs are in discovery stage.

We are currently conducting a Phase 1 clinical trial of MET409 in healthy volunteers. In addition to monitoring safety and pharmacokinetics, we are assessing FXR target engagement in this trial via blood-based biomarkers. Following completion of the Phase 1 clinical trial, we plan to evaluate MET409 as a treatment for three liver and GI diseases in parallel, beginning with NASH. We plan to submit an investigational new drug application, or IND, and following acceptance, initiate a Phase 1b clinical trial in NASH before the end of 2018 and Phase 2 clinical trials in NASH, IBS-D and UC in the first half of 2019.

NASH is a liver disease that exists along a continuum of progressive liver deterioration and is characterized by fatty deposits, inflammation and cellular damage, referred to as ballooning. Globally, an estimated 6% of the population has NASH with approximately 16 million patients in the United States as of 2015. Over time, individuals with NASH may develop scarring or fibrosis of the liver which can progress to loss of liver cells and irreversible scarring, or cirrhosis, and ultimately require liver transplant. There is an increased risk of liver cancer in NASH patients as well as a higher risk of death from cardiovascular disease. Today, there are no approved therapies for NASH, and the disease, therefore, represents a significant unmet medical need.

While numerous drug targets are being explored to treat NASH, it has been challenging to demonstrate significant clinical benefit across the key disease characteristics of inflammation, ballooning and fibrosis. Targeting FXR has been shown clinically to improve each of these three characteristics of NASH. The FXR agonist class for the treatment of NASH has evolved over time as drug developers have sought to harness its potential; however, each iteration to date has had limitations. The first generation of FXR agonists are derived from a bile acid chemical structure which has demonstrated dose-limiting side effects, including pruritus (itching). However, a first generation FXR agonist with sustained FXR engagement has been shown to improve NASH in clinical trials. The second generation of FXR agonists are based on non-bile acid chemical structures but have shown transient engagement with FXR with once-daily dosing, which may limit efficacy. MET409 was purposefully designed to be an optimized next-generation FXR agonist with features of a non-bile acid chemical structure and sustained FXR engagement. With this profile, we believe MET409 has the potential to be a best-in-class NASH drug, differentiated from other FXR agonists in development.

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We also plan to develop MET409 as a potential first-in-class FXR agonist for GI diseases affecting large patient populations with high unmet needs. IBS-D is a functional GI disease whereby patients experience diarrhea and abdominal discomfort or pain. IBS-D affects up to an estimated 4% of the adult population in major markets, with an estimated nine million patients in the United States as of 2013. Prior clinical studies have shown that up to 30% of IBS-D patients have evidence of bile acid malabsorption, or BAM, which could account for their symptoms. As one key role of FXR is bile acid regulation, drugs that target FXR could reduce the bile acid pool and, in turn, reduce diarrheal symptoms in IBS-D patients with BAM. As there are several modalities to diagnose BAM, we believe it will be possible to use a precision medicine approach to identify and treat this subset of IBS-D patients.

In addition to IBS-D, we intend to develop MET409 for the treatment of IBD, including UC and Crohn’s, as we believe FXR plays a key role in the disease process. Patients with IBD can suffer from abdominal pain and bloody diarrhea and have increased risk of colorectal cancer. The global incidence of IBD is increasing and as of 2015, it was estimated that there were 3.1 million people in the United States with IBD. Global drug sales for IBD are approximately $9.0 billion annually, with injectable biologics commonly used to treat patients with moderate-to-severe IBD. While these biologic agents can be effective initially, they increase the risk of opportunistic infections and can be cumbersome to administer. In preclinical studies of our FXR agonists, we have observed improvement in colon inflammation on a level similar to that of biologics. We believe an oral once-daily drug, such as our FXR agonists, could be an attractive treatment option for IBD patients.

In addition to our FXR program, we have continued to invest in drug discovery on other drug targets, particularly in NASH. We have sought to identify drug targets that have effects on inflammation and/or fibrosis for which we believe we could develop proprietary small molecule drugs.

Our Approach

Since our founding in 2014, we invested in building a foundation of chemistry and biology expertise to drive innovative drug discovery and development. We believe these internal capabilities give us insight into disease targets and mechanisms and enable us to quickly and purposefully design drug candidates with characteristics that we view as key to safety and efficacy. With this systematic approach, we have designed MET409, currently our only drug candidate in clinical development, as a novel FXR agonist and have identified a potential role for it in the treatment of NASH, IBS-D and IBD. MET409 was purposefully designed to be a non-bile acid, sustained engagement FXR agonist with high potency that could be dosed orally once-daily.

MET409 DESIGN FEATURE	POTENTIAL BENEFIT
No bile acid or steroidal elements (non-bile acid)	Safety
Sustained FXR engagement	Efficacy
Selective and potent for FXR	Safety and Efficacy
Oral, once-daily dosing	Compliance and Convenience

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Below is a summary of our MET409 clinical development program:

Strategy

Our goal is to become a leading biopharmaceutical company discovering, developing and commercializing innovative drugs that materially benefit patients with liver and GI diseases. To achieve our goal, we plan to:

∎ rapidly evaluate safety and clinical efficacy of MET409 in NASH;

∎ advance MET409 through full clinical development in NASH;

∎ establish clinical proof-of-concept for MET409 in IBS-D and IBD;

∎ establish commercial capabilities to market MET409 and opportunistically seek partnerships; and

∎ continue to leverage our expertise in drug discovery and development to expand our pipeline in FXR and other drug targets.

Risks Associated with Our Business

Our business and our ability to implement our business strategy are subject to numerous risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. You should read these risks before you invest in our common stock. We may be unable, for many reasons, including those that are beyond our control, to implement our business strategy. In particular, risks associated with our business include:

∎ We are an early stage biopharmaceutical company with a very limited operating history. We have incurred net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We have never generated any revenue from product sales and may never be profitable.

∎ We are highly dependent on the success of our lead product candidate, MET409, which is in early stage clinical development, and we may not be able to successfully obtain regulatory or marketing approval for, or successfully commercialize, this product candidate in any of the indications for which we plan to develop it.

∎ MET409 is an FXR agonist, a class of drugs from which there are no approved therapies in the diseases for which we are currently pursuing clinical trials, and our initial target indication is NASH, for which there are no approved therapies. This makes it difficult to predict the timing and costs of clinical development for this product candidate.

∎ Even if this offering is successful, we will need to obtain substantial additional funding to complete the development and any commercialization of MET409 and any future product candidates. If we are unable to raise this capital when needed, we may be forced to delay, reduce or eliminate our research and development programs or other operations.

∎ We are very early in our development efforts. We only recently began our first clinical trial to evaluate MET409 in humans and, as a company, we have limited experience in this area.

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∎ The development and commercialization of drug products is subject to extensive regulation, and we may not obtain regulatory approvals for MET409 in any of the indications for which we plan to develop it, or any future product candidates.

∎ Any delays in the commencement or completion, or termination or suspension, of our clinical trials could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.

∎ Adverse side effects or other safety risks associated with our product candidates could delay or preclude approval, cause us to suspend or discontinue clinical trials, abandon product candidates, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

∎ We face substantial competition, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If their product candidates are shown to be safer or more effective than ours, then our commercial opportunity will be reduced or eliminated.

∎ If we are unable to obtain and maintain sufficient intellectual property protection for MET409 or other product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be adversely affected.

∎ There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the initial public offering price.

Corporate and Other Information

We were incorporated in Delaware in September 2014. Our principal executive offices are located at 3985 Sorrento Valley Blvd., Suite C, San Diego, CA 92121, and our telephone number is (858) 369-7800. Our corporate website address is www.metacrine.com. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

This prospectus contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the ^® or TM symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, as amended, or JOBS Act, enacted in April 2012. An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

∎ being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus;

∎ not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley;

∎ reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

∎ exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved.

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We may use these provisions until the last day of our fiscal year following the fifth anniversary of the completion of this offering. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.

We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

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THE OFFERING

Common stock offered by us             shares

Common stock to be outstanding after this offering             shares

Option to purchase additional shares The underwriters have a 30-day option to purchase up to a total of              additional shares of common stock.

Use of proceeds We intend to use the net proceeds from this offering to             and for working capital and other general corporate purposes, including costs and expenses associated with being a public company. See “Use of Proceeds.”

Risk factors You should read the “Risk Factors” section of this prospectus for a discussion of certain of the factors to consider carefully before deciding to purchase any shares of our common stock.

Proposed Nasdaq Global Market symbol “MTCR”

Directed share program At our request, the underwriters have reserved up to              shares of our common stock offered by this prospectus for sale, at the initial public offering price, to our directors and officers and certain other parties associated with us. Shares purchased by our directors and officers will be subject to the 180-day lock-up restriction described in the “Underwriting” section of this prospectus. The number of shares of common stock available for sale to the general public will be reduced to the extent these individuals purchase such directed shares. Any directed shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus.

The number of shares of our common stock to be outstanding after this offering is based on 68,004,370 shares of common stock outstanding as of March 31, 2018, after giving effect to the conversion of our outstanding shares of convertible preferred stock into 54,433,311 shares of common stock and including 3,353,020 shares of restricted common stock which are subject to a right of repurchase by us, and excludes:

∎ 1,897,071 shares of common stock issuable upon the exercise of outstanding stock options as of March 31, 2018, at a weighted-average exercise price of $0.16 per share;

∎             shares of common stock reserved for future issuance under our 2018 equity incentive plan, or the 2018 Plan, which will become effective upon the execution and delivery of the underwriting agreement for this offering (including shares of common stock reserved for issuance under our amended and restated 2015 equity incentive plan, as amended, or the 2015 Plan, which shares will be added to the shares reserved under the 2018 Plan upon its effectiveness);

∎              shares of common stock reserved for future issuance under our 2018 employee stock purchase plan, or the ESPP, which will become effective upon the execution and delivery of the underwriting agreement for this offering; and

∎ 30,660,377 shares of common stock issuable upon the conversion of the shares of Series C convertible preferred stock issued by us in June 2018 to investors in our Series C convertible preferred stock financing.

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Unless otherwise indicated, all information contained in this prospectus assumes or gives effect to:

∎ the conversion of all our outstanding shares of convertible preferred stock as of March 31, 2018, into an aggregate of 54,433,311 shares of common stock in connection with the completion of this offering;

∎ no exercise by the underwriters of their option to purchase up to a total of                 additional shares of our common stock;

∎ the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated bylaws immediately prior to the completion of this offering; and

∎ a one-for-                 reverse stock split of our common stock to be effected prior to the completion of this offering.

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SUMMARY FINANCIAL DATA

The following summary statements of operations data for the years ended December 31, 2016 and 2017 are derived from our audited financial statements appearing elsewhere in this prospectus. The summary statements of operations data for the three months ended March 31, 2017 and 2018 and the balance sheet data as of March 31, 2018 are derived from our unaudited interim financial statements and related notes included elsewhere in this prospectus. In our opinion, these unaudited financial statements have been prepared on a basis consistent with our audited financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such financial data. You should read these data together with our financial statements and related notes appearing elsewhere in this prospectus and the information in “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of the results to be expected in the future, and our operating results for the interim periods are not necessarily indicative of the results that may be expected for any other interim periods or any future year.

	YEARS ENDED DECEMBER 31,						THREE MONTHS ENDED MARCH 31,
	2016			2017			2017			2018
							(unaudited)
	(in thousands, except share and per share data)
Statement of Operations Data:
Collaboration revenues	$	—		$	1,450		$	—		$	725
Operating expenses:
Research and development		7,654			11,466			2,296			4,424
General and administrative		2,758			2,334			568			606
Total operating expenses		10,412			13,800			2,864			5,030
Loss from operations		(10,412	)		(12,350	)		(2,864	)		(4,305	)
Interest income		8			87			5			44
Net loss and comprehensive loss	$	(10,404	)	$	(12,263	)	$	(2,859	)	$	(4,261	)
Net loss per share, basic and diluted (1)	$	(1.99	)	$	(1.46	)	$	(0.38	)	$	(0.42	)
Weighted average shares of common stock outstanding, basic and diluted (1)		5,218,013			8,422,187			7,601,330			10,047,962
Pro forma net loss per share, basic and diluted (unaudited) (2)				$	(0.27	)				$	(0.07	)
Pro forma weighted average shares of common stock outstanding, basic and diluted (unaudited) (2)					46,129,471						64,481,273

(1) See Note 1 to our financial statements appearing elsewhere in this prospectus for an explanation of the method used to calculate the basic and diluted net loss per common share and the number of shares used in the computation of the per share amounts.

(2) The calculations for the unaudited pro forma net loss per common share, basic and diluted, and the pro forma weighted average shares of common stock outstanding, basic and diluted, assume the conversion of all our outstanding shares of convertible preferred stock into shares of our common stock, as if the conversion had occurred at the beginning of the period presented, or the issuance date, if later.

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	AS OF MARCH 31, 2018
	ACTUAL			PRO FORMA (1)	PRO FORMA AS ADJUSTED (2)(3)
	(unaudited, in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	29,125		$	$
Working capital		25,542
Total assets		33,811
Convertible preferred stock		57,600
Accumulated deficit		(32,949	)
Total stockholders’ equity (deficit)		(30,974	)

(1) Pro forma amounts reflect the conversion of all our outstanding shares of convertible preferred stock into an aggregate of                shares of our common stock and the related reclassification of the carrying value of the convertible preferred stock to permanent equity in connection with the completion of this offering.

(2) Pro forma as adjusted amounts reflect the pro forma adjustments described in footnote (1) above, as well as the sale of shares of our common stock in this offering at an assumed initial public offering price of $                per share (the midpoint of the price range set forth on the cover page of the prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

(3) A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ equity by $                , assuming the number of shares offered by us as stated on the cover page of this prospectus remain unchanged and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a one million share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, working capital, total assets and total stockholders’ equity by $                , assuming the assumed initial public offering price of $                per share (the midpoint of the price range set forth on the cover page of this prospectus) remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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RISK FACTORS

Investing in our common stock is speculative and involves a high degree of risk. Before investing in our common stock, you should consider carefully the risks described below, together with the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below. See “Information Regarding Forward-Looking Statements.”

Risks Related to Our Business and to the Discovery, Development and Regulatory Approval of MET409 and Future Product Candidates

We are an early stage biopharmaceutical company with a very limited operating history. We have incurred net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We have never generated any revenue from product sales and may never be profitable.

We are an early stage biopharmaceutical company with a very limited operating history that may make it difficult to evaluate the success of our business to date and to assess our future viability. We were incorporated in 2014 and commenced operations in 2015. To date, our operations have been limited to organizing and staffing our company, business planning, raising capital, researching, discovering and developing our pipeline in FXR and other drug targets, and general and administrative support for these operations. Only our lead product candidate, MET409, is in early clinical development, while our other research and development programs are in the discovery stage. We have not yet demonstrated an ability to successfully complete any Phase 1, Phase 2 or pivotal clinical trials and have never completed the development of any product candidate. We have never generated any revenue from product sales and have incurred net losses each year since we commenced operations. For the years ended December 31, 2016 and 2017, our net losses were $10.4 million and $12.3 million, respectively. As of December 31, 2017, we had an accumulated deficit of $28.7 million. We expect to incur increasing levels of operating losses for the foreseeable future as we execute our plan to continue our discovery, research and development activities, including the ongoing and planned clinical development of MET409, and incur the additional costs of operating as a public company. We expect that it will be several years, if ever, before we have a product candidate ready for potential regulatory approval and commercialization. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ deficit and working capital.

To become and remain profitable, we must develop and eventually commercialize a product with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in these activities and, even if we succeed in obtaining approval for and commercializing one or more of our product candidates, we may never generate revenues that are significant enough to achieve profitability. In addition, as a young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown challenges. Furthermore, because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis and we will continue to incur substantial research and development and other expenditures to develop and market additional product candidates. Our failure to become and remain profitable would decrease the value of the company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

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We are highly dependent on the success of our lead product candidate, MET409, which is in early stage clinical development, and we may not be able to successfully obtain regulatory or marketing approval for, or successfully commercialize, this product candidate in any of the indications for which we plan to develop it.

Our future success will depend almost entirely on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize MET409, in any of the indications for which we plan to develop it, including NASH, IBS-D or IBD, which may never occur. We have no significant product candidates in our pipeline other than MET409. We currently generate no revenues from sales of any drugs and we may never be able to develop or commercialize a marketable drug.

Before we can market and sell MET409 in the United States or foreign jurisdictions, we will need to commence and complete additional clinical trials, manage clinical, preclinical and manufacturing activities, obtain necessary regulatory approvals from the U.S. Food and Drug Administration, or FDA, in the United States and from similar foreign regulatory agencies in other jurisdictions, obtain manufacturing supply, build a commercial organization or enter into a marketing collaboration with a third party, and in some jurisdictions, obtain reimbursement authorization, among other things. We cannot assure you that we will be able to successfully complete the necessary clinical trials and/or obtain regulatory approvals and develop sufficient commercial capabilities for MET409. We have not submitted a New Drug Application, or NDA, to the FDA, or similar drug approval filings to comparable foreign authorities, for any product candidate. Further, MET409 may not receive regulatory approval even if it is successful in clinical trials. If we do not receive regulatory approvals, our business, prospects, financial condition and results of operations will be adversely affected. Even if we obtain regulatory approvals, we may never generate significant revenues from any commercial sales of MET409. If MET409 is approved and we fail to successfully commercialize it, we may be unable to generate sufficient revenues to sustain and grow our business and our business, prospects, financial condition and results of operations will be adversely affected.

MET409 is an FXR agonist, a class of drugs from which there are no approved therapies in the diseases for which we are currently pursuing clinical trials, and our initial target indication is NASH, for which there are no approved therapies. This makes it difficult to predict the timing and costs of clinical development for this product candidate.

We have concentrated our product research and development efforts on our FXR agonists, including MET409, and our future success depends on the successful development of this therapeutic approach to disease. To date, there are no FXR agonists approved for the treatment of the diseases for which we are currently pursuing clinical studies. Additionally, the first indication for which we intend to develop MET409 is NASH, a disease for which there are no approved drugs. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or extensively studied pharmaceutical or other product candidates. While other companies are in later stages of clinical trials for their FXR agonists than we are, there is not a tested and successful approval path for drugs in this class that we can use as an example and we expect that such a path for regulatory approval for NASH treatments may continue to evolve in the near term as these other companies refine their regulatory approval strategies and interact with regulatory authorities. Such evolution may impact our future clinical trial designs, including trial size and approval endpoints, in ways that we cannot predict today. As we advance our product candidates, we will be required to consult with the FDA and equivalent foreign authorities and comply with applicable guidelines. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient revenue to maintain our business.

Even if this offering is successful, we will need to obtain substantial additional funding to complete the development and any commercialization of MET409 and any future product candidates. If we are unable to raise this capital when needed, we may be forced to delay, reduce or eliminate our research and development programs or other operations.

Since our inception, we have used substantial amounts of cash to fund our operations and expect our expenses to increase substantially during the next few years. The development of biopharmaceutical product candidates is capital intensive. As our product candidates enter and advance through preclinical studies and clinical trials, we will need substantial additional funds to expand our clinical, regulatory, quality and manufacturing capabilities. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses for marketing, sales, manufacturing and distribution. Furthermore, upon the completion of this offering, we expect to incur additional costs associated with operating as a public company.

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As of March 31, 2018, we had $29.1 million in cash and cash equivalents. Based on our current operating plan, we believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will enable us to fund our operations for at least the next                 months. In particular, we expect that the net proceeds from this offering will allow us to                . However, changing circumstances or inaccurate estimates by us may cause us to use capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. For example, our planned clinical trials for MET409 may encounter technical, enrollment or other issues that could cause our development costs to increase more than we expect. Even with the expected net proceeds from this offering, we will not have sufficient funds to complete the clinical development of MET409 or any future product candidates through regulatory approval, and we will need to raise substantial additional capital to complete the development and commercialization of MET409 and any future product candidates.

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

∎ the scope, rate of progress and costs of our drug discovery, preclinical development activities, laboratory testing and clinical trials for our product candidates;

∎ the number and scope of clinical programs we decide to pursue;

∎ the scope and costs of manufacturing development and commercial manufacturing activities;

∎ the cost, timing and outcome of regulatory review of our product candidates;

∎ the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

∎ the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;

∎ our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates;

∎ the costs associated with being a public company;

∎ the timing of any milestone and royalty payments to The Salk Institute for Biological Studies, or The Salk, or other future licensors;

∎ the extent to which we acquire or in-license other product candidates and technologies; and

∎ the cost associated with commercializing our product candidates, if they receive marketing approval.

Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.

Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for sale for many years, if at all. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. Adequate additional financing may not be available to us on acceptable terms, or at all. 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. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or other operations.

We are very early in our development efforts. We only recently began our first clinical trial to evaluate MET409 in humans and, as a company, we have limited experience in this area.

We are early in our development efforts and most of our operations to date have been limited to drug discovery and preclinical studies. In June 2018, we initiated a Phase 1 clinical trial of MET409 in the Netherlands. This trial is enrolling healthy volunteers with the primary objectives of evaluating safety and pharmacokinetics, or PK. Because of the early stage of our development efforts, and because the regulatory landscape in NASH is still evolving, we are still in the process of determining the clinical development path forward for MET409 in this indication. MET409 has only been evaluated for safety and toxicology for up to 28 days in animals and its longer term toxicity is unknown. Adverse safety and toxicology findings may emerge as we conduct longer studies. In addition, success in early

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clinical trials does not mean that later clinical trials will be successful, because later-stage clinical trials may be conducted in broader patient populations and involve different study designs. For instance, our Phase 1 clinical trial results may not be predictive of the results of any future clinical trial. Furthermore, our future clinical trials will need to demonstrate sufficient safety and efficacy in larger patient populations for approval by regulatory authorities. Companies frequently suffer significant setbacks in advanced clinical trials, even after earlier clinical trials have shown promising results, and we cannot be certain that we will not face similar setbacks. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. In addition, only a small percentage of drugs under development result in the submission of an NDA to the FDA and even fewer are approved for commercialization.

To date, we have not filed an IND with the FDA and have not had any interactions with the FDA regarding our clinical development plans. We may not learn of certain information or data that the FDA may request until after we begin such interactions. In part because of our limited infrastructure, experience conducting clinical trials as a company and regulatory interactions, we cannot be certain that our clinical trials will be initiated on time, that our planned clinical trials will be completed on time, if at all, that our planned development programs would be acceptable to the FDA or other comparable foreign regulatory authorities, or that, if approval is obtained, such product candidates can be successfully commercialized.

Our ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend heavily on our ability to successfully complete the above activities and any other activities required for the successful development and eventual commercialization of one or more of our product candidates. The success of our product candidates will further depend on factors such as:

∎ completion of preclinical studies, such as longer-term toxicology studies, and our ongoing Phase 1 clinical trial with favorable results;

∎ acceptance of INDs by the FDA or similar regulatory applications by comparable foreign regulatory authorities for our future clinical trials;

∎ successful enrollment in, and completion of, clinical trials with favorable results;

∎ demonstrating safety and efficacy to the satisfaction of applicable regulatory authorities;

∎ receipt of marketing approvals from applicable regulatory authorities;

∎ establishing manufacturing capabilities or arrangements with third-party manufacturers for clinical supply and, if and when approved, for commercial supply;

∎ establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved, whether alone or in combination with others;

∎ acceptance of our products, if and when approved, by patients, the medical community and third-party payors;

∎ effectively competing with other therapies;

∎ obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates; and

∎ maintaining a continued acceptable safety profile of any product following approval.

If we do not achieve one or more of these factors in a timely manner, we could experience significant delays or an inability to successfully obtain marketing approval and commercialize our product candidates, which would materially harm our business.

The development and commercialization of drug products is subject to extensive regulation, and we may not obtain regulatory approvals for MET409 in any of the indications for which we plan to develop it, or any future product candidates.

The clinical development, manufacturing, labeling, packaging, storage, recordkeeping, advertising, promotion, export, import, marketing and distribution and other possible activities relating to MET409 as well as any other product candidate that we may develop in the future, are subject to extensive regulation in the United States and foreign jurisdictions. Marketing approval of drug candidates in the United States requires the submission of an NDA

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to the FDA and we are not permitted to market any product candidate in the United States until we obtain approval from the FDA of an NDA for that product. An NDA must be supported by extensive clinical and preclinical data, as well as extensive information regarding pharmacology, chemistry, manufacturing and controls.

Regulatory approval of an NDA is not guaranteed, and the approval process is an expensive and uncertain process that may take several years. The FDA and foreign regulatory entities also have substantial discretion in the approval process. The number and types of preclinical studies and clinical trials that will be required for NDA approval varies depending on the product candidate, the disease or the condition that the product candidate is designed to treat and the regulations applicable to any particular product candidate. Despite the time and expense associated with preclinical studies and clinical trials, failure can occur at any stage. The results of preclinical and early clinical trials of our product candidates and other products with the same mechanism of action may not be predictive of the results of our later-stage clinical trials. In particular, while we have conducted certain preclinical studies of MET409, we do not know whether MET409 will perform in current and future clinical trials as it has performed in these prior studies. In addition, we have not conducted any preclinical studies of MET409 for the treatment of IBS-D.

Clinical trial failure may result from a multitude of factors including flaws in trial design, dose selection, placebo effect, patient enrollment criteria and failure to demonstrate favorable safety or efficacy traits, and failure in clinical trials can occur at any stage. Companies in the biopharmaceutical industry frequently suffer setbacks in the advancement of clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Based upon negative or inconclusive results, we may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. In addition, data obtained from clinical trials are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may further delay, limit or prevent marketing approval. Furthermore, as more product candidates within a particular class of drugs proceed through clinical development to regulatory review and approval, the amount and type of clinical data that may be required by regulatory authorities may increase or change.

The FDA and similar foreign authorities could delay, limit or deny approval of a product candidate for many reasons, including because they:

∎ may not deem our product candidate to be adequately safe and effective;

∎ may not agree that the data collected from clinical trials of our product candidates are acceptable or sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere, and such authorities may impose requirements for additional preclinical studies or clinical trials;

∎ may determine that adverse events experienced by participants in our clinical trials represents an unacceptable level of risk;

∎ may determine that population studied in the clinical trial may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;

∎ may not accept clinical data from trials which are conducted at clinical facilities or in countries where the standard of care is potentially different from that of the United States;

∎ may disagree regarding the formulation, labeling and/or the specifications of our product candidates;

∎ may not approve the manufacturing processes or facilities associated with our product candidate;

∎ may change approval policies or adopt new regulations; or

∎ may not accept a submission due to, among other reasons, the content or formatting of the submission.

Generally, public concern regarding the safety of drug products could delay or limit our ability to obtain regulatory approval, result in the inclusion of unfavorable information in our labeling, or require us to undertake other activities that may entail additional costs.

If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired which would adversely affect our business, prospects, financial condition and results of operations.

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Even if we obtain FDA approval of any of our product candidates, we may never obtain approval or commercialize such products outside of the United States, which would limit our ability to realize their full market potential.

In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and may require additional preclinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. We do not have any product candidates approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, our ability to realize the full market potential of our products will be harmed.

Any delays in the commencement or completion, or termination or suspension, of our clinical trials could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.

Any delays in the commencement or completion, or termination or suspension, of our clinical trials could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects. Before we can initiate clinical trials for our product candidates, we must submit the results of preclinical studies to the FDA or comparable foreign regulatory authorities along with other information, including information about product candidate chemistry, manufacturing and controls and our proposed clinical trial protocol, as part of an IND or similar regulatory filing.

Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time consuming and uncertain as to outcome. In addition, we may rely in part on preclinical, clinical and quality data generated by clinical research organizations, or CROs, and other third parties for regulatory submissions for our product candidates. While we have or will have agreements governing these third parties’ services, we have limited influence over their actual performance. If these third parties do not make data available to us, or, if applicable, make regulatory submissions in a timely manner, in each case pursuant to our agreements with them, our development programs may be significantly delayed and we may need to conduct additional studies or collect additional data independently. In either case, our development costs would increase. We are conducting our Phase 1 clinical trial in the Netherlands and we will need to submit an IND for acceptance by the FDA prior to initiating any clinical trials in the United States.

The FDA or comparable foreign regulatory authorities may require us to conduct additional preclinical studies for any product candidate before it allows us to initiate clinical trials under any IND or similar regulatory filing, which may lead to additional delays and increase the costs of our preclinical development programs. Any such delays in the commencement or completion of our ongoing and planned clinical trials for our product candidates could significantly affect our product development costs. We do not know whether our planned trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:

∎ the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of our clinical studies;

∎ obtaining regulatory authorizations to commence a trial or reaching a consensus with regulatory authorities on trial design;

∎ any failure or delay in reaching an agreement with CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

∎ obtaining approval from one or more institutional review boards, or IRBs;

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∎ IRBs refusing to approve, suspending or terminating the trial at an investigational site, precluding enrollment of additional subjects, or withdrawing their approval of the trial;

∎ changes to clinical trial protocol;

∎ clinical sites deviating from trial protocol or dropping out of a trial;

∎ manufacturing sufficient quantities of product candidate or obtaining sufficient quantities of combination therapies for use in clinical trials;

∎ subjects failing to enroll or remain in our trial at the rate we expect, or failing to return for post-treatment follow-up;

∎ subjects choosing an alternative treatment for the indication for which we are developing our product candidates, or participating in competing clinical trials;

∎ lack of adequate funding to continue the clinical trial;

∎ subjects experiencing severe or unexpected drug-related adverse effects;

∎ occurrence of serious adverse events in trials of the same class of agents conducted by other companies;

∎ selection of clinical end points that require prolonged periods of clinical observation or analysis of the resulting data;

∎ a facility manufacturing our product candidates or any of their components being ordered by the FDA or comparable foreign regulatory authorities to temporarily or permanently shut down due to violations of current good manufacturing practice, or cGMP, regulations or other applicable requirements, or infections or cross-contaminations of product candidates in the manufacturing process;

∎ any changes to our manufacturing process that may be necessary or desired;

∎ third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, Good Clinical Practices, or GCPs, or other regulatory requirements;

∎ third-party contractors not performing data collection or analysis in a timely or accurate manner; or

∎ third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or all of the data produced by such contractors in support of our marketing applications.

We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by a Data Safety Monitoring Board for such trial or by the FDA or comparable foreign regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or comparable foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. In addition, changes in regulatory requirements and policies may occur, and we may need to amend clinical trial protocols to comply with these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial.

Further, conducting clinical trials in foreign countries, for example our Phase 1 clinical trial of MET409 is currently being conducted in the Netherlands, presents additional risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries. Moreover, certain of our scientific advisors or consultants who receive compensation in connection with such services are likely to be investigators for our future clinical trials. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility

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of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our product candidates. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. Moreover, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval process and jeopardize our ability to commence product sales and generate revenues.

In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. We may make formulation or manufacturing changes to our product candidates, in which case we may need to conduct additional preclinical studies to bridge our modified product candidates to earlier versions. Any delays to our clinical trials that occur as a result could shorten any period during which we may have the exclusive right to commercialize our product candidates and our competitors may be able to bring products to market before we do, and the commercial viability of our product candidates could be significantly reduced. Any of these occurrences may harm our business, financial condition and prospects significantly.

If we experience delays or difficulties in enrolling patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to identify and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or analogous regulatory authorities outside the United States. In addition, some of our competitors may have ongoing clinical trials for product candidates that would treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. This is acutely relevant for our development of MET409 for the treatment of patients with NASH and IBD, diseases for which there are significant competition for clinical trial subjects. Patient enrollment is also affected by other factors, including:

∎ severity of the disease under investigation;

∎ invasive procedures required to obtain evidence of drug performance during the clinical trial;

∎ availability and efficacy of approved medications for the disease under investigation;

∎ eligibility criteria for the trial in question;

∎ perceived risks and benefits of the product candidate under study;

∎ efforts to facilitate timely enrollment in clinical trials;

∎ reluctance of physicians to encourage patient participation in clinical trials;

∎ the ability to monitor patients adequately during and after treatment; and

∎ proximity and availability of clinical trial sites for prospective patients.

Also, we plan to use a commercially-available test to screen patients for our planned clinical trials of MET409 for the treatment of IBS-D, in order to identify patients with BAM. Our plans to only enroll patients with BAM in these trials may make it more difficult to enroll patients, may delay the completion of the clinical trials and may increase our development costs of MET409 in this therapeutic area.

Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.

Adverse side effects or other safety risks associated with our product candidates could delay or preclude approval, cause us to suspend or discontinue clinical trials, abandon product candidates, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

As is the case with pharmaceuticals generally, it is likely that there may be side effects and adverse events associated with the use of our product candidates. Results of our clinical trials could reveal a high and unacceptable

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severity and prevalence of side effects or unexpected characteristics. Undesirable side effects caused by our product candidates could result in the delay, suspension or termination of clinical trials by us, the FDA or other regulatory authorities for a number of reasons. If we elect or are required to delay, suspend or terminate any clinical trial of any product candidates that we develop, the commercial prospects of such product candidates will be harmed and our ability to generate product revenues from any of these product candidates will be delayed or eliminated. Serious adverse events observed in clinical trials could hinder or prevent market acceptance of the product candidate at issue. Any of these occurrences may harm our business, prospects, financial condition and results of operations significantly.

Moreover, if our product candidates are associated with undesirable side effects in clinical trials or have characteristics that are unexpected, we may elect to abandon their development or limit their development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial expectations for the product candidate if approved. We may also be required to modify our study plans based on findings in our ongoing clinical trials. Many compounds that initially showed promise in early stage testing have later been found to cause side effects that prevented further development of the compound. In addition, regulatory authorities may draw different conclusions or require additional testing to confirm these determinations.

It is possible that, as we test our product candidates in larger, longer and more extensive clinical trials including with different dosing regimens, or as the use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by subjects. If such side effects become known later in development or upon approval, if any, such findings may harm our business, financial condition and prospects significantly.

In addition, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

∎ regulatory authorities may withdraw approvals of such product;

∎ we may be required to recall a product or change the way such product is administered to patients;

∎ regulatory authorities may require additional warnings on the label, such as a “black box” warning or a contraindication;

∎ we may be required to implement a Risk Evaluation and Mitigation Strategy, or REMS, or create a medication guide outlining the risks of such side effects for distribution to patients;

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

∎ the product could become less competitive; and

∎ our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm our business, results of operations and prospects.

Interim, topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publicly disclose preliminary or topline or data from our clinical studies, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available. From time to time, we may also disclose interim data from our clinical studies. Interim data from clinical trials that we

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may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock after this offering. See the description of risks under the heading “Risks Related to our Common Stock and this Offering” for more disclosure related to the risk of volatility in our stock price.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug, drug candidate or our business. If the topline data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition.

We are currently conducting a Phase 1 clinical trial for MET409 in the Netherlands, and may conduct additional clinical trials of MET409 and other future product candidates outside of the United States. However, the FDA and other foreign equivalents may not accept data from such trials, in which case our development plans will be delayed, which could materially harm our business.

In June 2018, we initiated a Phase 1 clinical trial of MET409 in healthy male volunteers in the Netherlands. We believe that clinical data generated in the Netherlands will be accepted by the FDA and its foreign equivalents outside of the Netherlands, and therefore will enable us to commence our planned Phase 1b and Phase 2 and possibly registration clinical trials in the United States following submission of an IND, without the need for us to repeat our Phase 1 clinical trials in the United States. We have not yet completed the Phase 1 clinical trial and have not yet received authorization from the FDA to begin our Phase 1b or Phase 2 clinical trials for MET409 and there can be no assurance the FDA or foreign equivalents will accept data from the clinical trial we are conducting in the Netherlands for MET409. If the FDA or other foreign equivalents do not accept any such data, we would likely be required to conduct additional Phase 1 clinical trials, which would be costly and time consuming, and delay aspects of our development plan, which could harm our business.

Although the FDA and foreign equivalents may accept data from clinical trials conducted entirely outside the United States and not under an IND, acceptance of such study data is generally subject to certain conditions. For example, the FDA requires the clinical trial to have been conducted in accordance with GCPs, and the FDA must be able to validate the data from the clinical trial through an onsite inspection if it deems such inspection necessary. In addition, when studies are conducted only at sites outside of the United States, the FDA generally does not provide advance comment on the clinical protocols for the studies, and therefore there is an additional potential risk that the FDA could determine that the study design or protocol for a non-U.S. clinical trial was inadequate, which would likely require us to conduct additional clinical trials. Conducting clinical trials outside the United States also exposes us to additional risks, including risks associated with:

∎ additional foreign regulatory requirements;

∎ foreign exchange fluctuations;

∎ compliance with foreign manufacturing, customs, shipment and storage requirements;

∎ cultural differences in medical practice and clinical research; and

∎ diminished protection of intellectual property in some countries.

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

Because we have limited financial and managerial resources, we must prioritize our research programs and will need to focus our product candidates on the potential treatment of certain indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater

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commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may also relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

We may not be successful in our efforts to identify or discover additional product candidates in the future.

Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:

∎ our inability to design such product candidates with the pharmacological properties that we desire; and

∎ potential product candidates may, on further study, be shown to have harmful side effects, limited to no efficacy or other characteristics that indicate that they are unlikely to be medicines that will receive marketing approval and achieve market acceptance.

Research programs to identify new product candidates require substantial technical, financial and human resources. If we are unable to identify suitable compounds for preclinical and clinical development, we will not be able to obtain product revenues in future periods, which likely would result in significant harm to our financial position and adversely impact our stock price.

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

Any regulatory approvals that we receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA or a comparable foreign regulatory authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export 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 cGMPs and cGCPs, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, undesirable side effects caused by the product, problems encountered by our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, either before or after product approval, may result in, among other things:

∎ restrictions on the marketing or manufacturing of the product;

∎ requirements to include additional warnings on the label;

∎ requirements to create a medication guide outlining the risks to patients;

∎ withdrawal of the product from the market;

∎ voluntary or mandatory product recalls;

∎ requirements to change the way the product is administered or for us to conduct additional clinical trials;

∎ 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 strategic partners, or suspension or revocation of product license approvals;

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

∎ injunctions or the imposition of civil or criminal penalties; and

∎ harm to our reputation.

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Additionally if any of our product candidates receives marketing approval, the FDA could require us to adopt a REMS to ensure that the benefits of the therapy outweigh its risks, which may include, among other things, a medication guide outlining the risks for distribution to patients and a communication plan to health care practitioners. Any of these events could prevent us from achieving or maintaining market acceptance of the product or the particular product candidate at issue and could significantly harm our business, prospects, financial condition and results of operations.

In addition, if any of our product candidates is approved, our product labeling, advertising and promotion will be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If we receive marketing approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.

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 are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.

Even if any of our product candidates receives marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, hospitals, cancer treatment centers, healthcare payors and others in the medical community necessary for commercial success.

If any of our product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and others in the medical community. There are no currently-approved therapies for the treatment of NASH, which may mean that we are required to use more resources to educate the medical community than we are anticipating, if MET409 is approved for the treatment of this disease. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

∎ efficacy and potential advantages compared to alternative treatments;

∎ our ability to offer our medicines for sale at competitive prices;

∎ convenience and ease of administration compared to alternative treatments;

∎ the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

∎ the strength of marketing and distribution support;

∎ potential product liability claims;

∎ the timing of market introduction of our products as well as competitive drugs;

∎ the effectiveness of our or any of our potential future sales and marketing strategies; and

∎ unfavorable publicity relating to the product.

∎ sufficient third-party coverage and adequate reimbursement

∎ the willingness of patients to pay all, or a portion of, out-of-pocket costs associated with our products in the absence of sufficient third-party coverage and adequate reimbursement; and

∎ the prevalence and severity of any side effects.

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We currently have no marketing and sales organization and have no experience as a company in commercializing products, and we may have to invest significant resources to develop these capabilities. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate product revenue.

We have no internal sales, marketing or distribution capabilities, nor have we commercialized a product. If any of our product candidates ultimately receives regulatory approval, we may not be able to effectively market and distribute the product candidate. We may have to seek collaborators, especially for marketing and sales outside of the United States, or 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 our product candidates will be approved, if at all. We may not be able to enter into collaborations or hire consultants or external service providers to assist us in sales, marketing and distribution functions on acceptable financial terms, or at all. In addition, our product revenues and our profitability, if any, may be lower if we rely on third parties for these functions than if we were to market, sell and distribute any products that we develop ourselves. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. 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 revenue generated by our product candidates that we may develop, in-license or acquire; and

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

We face substantial competition, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If their product candidates are shown to be safer or more effective than ours, then our commercial opportunity will be reduced or eliminated.

The development and commercialization of new products is highly competitive. We compete in the segments of the pharmaceutical, biotechnology and other related markets that develop small molecules and biologics for the treatment of liver and GI diseases. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop or that would render any products that we may develop obsolete or non-competitive. Our competitors also may obtain marketing approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

We are aware of both private and public companies with development programs in NASH. These companies include, but are not limited to, Allergan, Inc., Bristol-Myers Squibb Company, Conatus Pharmaceuticals Inc., Eli Lilly and Company, Enanta Pharmaceuticals, Inc., ENYO Pharma SA, Intercept Pharmaceuticals, Inc., Genfit Corp., Gilead Sciences, Inc., Madrigal Pharmaceuticals, Inc., NGM Biopharmaceuticals, Inc., Novartis AG, Novo Nordisk A/S, Pfizer, Inc., Sanofi S.A., Shire plc and Terns Pharmaceuticals, Inc. Several companies, including some of those mentioned above, have active research and development programs on FXR and are further along in development than we are with MET409. Our commercial opportunity could be substantially limited in the event that our competitors develop and commercialize products that are more effective, safer, less toxic, more convenient or cheaper than our comparable products. In geographies that are critical to our commercial success, competitors may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance of our product’s entry. We believe the competitive factors that will determine the success of our programs will be the efficacy, safety, pricing and reimbursement and convenience of our product candidates.

Major, currently-marketed IBD therapies include, but are not limited to, infliximab (marketed as Remicade by Janssen Biotech, Inc.), adalimumab (marketed as Humira by Pfizer, Inc.), vedolizumab (marketed as Entyvio by Takeda Pharmaceuticals, Inc.), ustekinumab (marketed as Stelara by Janssen Biotech, Inc.) and tofacitinib (marketed as Xeljanz by Pfizer, Inc.), and we are aware of several companies with development programs in this indication, including, but not limited to, Abbvie Inc., Janssen Pharmaceuticals, Inc., Pfizer, Inc. and Takeda Pharmaceuticals, Inc.

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Major, currently-marketed IBS-D therapies include, but are not limited to, eluxadoline (marketed as Viberzi by Allergan, Inc.) and rifaximin (marketed as Xifaxan by Salix Pharmaceuticals, Ltd. (acquired by Valeant Pharmaceuticals International, Inc.)) and we are aware of several companies with development programs in this indication, including, but not limited to Ironwood Pharmaceuticals, Inc. and Valeant Pharmaceuticals International, Inc.

As more product candidates within a particular class of drugs proceed through clinical development to regulatory review and approval, the amount and type of clinical data that may be required by regulatory authorities may increase or change. Consequently, the results of our clinical trials for product candidates in those class will likely need to show a risk benefit profile that is competitive with or more favorable than those products and product candidates in order to obtain marketing approval or, if approved, a product label that is favorable for commercialization. If the risk benefit profile is not competitive with those products or product candidates, we may have developed a product that is not commercially viable, that we are not able to sell profitably or that is unable to achieve favorable pricing or reimbursement. In such circumstances, our future product revenues and financial condition would be materially and adversely affected.

Many of our competitors, such as large pharmaceutical and biotechnology companies like Allergan, Bristol-Myers Squibb, Eli Lilly and Company, Gilead, Novartis, Novo Nordisk and Pfizer have longer operating histories and significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and subject enrollment for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

The key competitive factors affecting the success of all of our programs are likely to be their efficacy, safety, convenience and availability of reimbursement. If we are not successful in developing, commercializing and achieving higher levels of reimbursement than our competitors, we will not be able to compete against them and our business would be materially harmed.

If the market opportunities for any product that we or our strategic partners develop are smaller than we believe they are, our revenue may be adversely affected and our business may suffer.

We are focused on the development of treatments for liver and GI diseases. Our projections of addressable patient populations that have the potential to benefit from treatment with our product candidates are based on estimates. These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. If any of our estimates are inaccurate, the market opportunities for any of our product candidates could be significantly diminished and have an adverse material impact on our business.

Risks Related to Manufacturing and Our Reliance on Third Parties

We contract with third parties for the manufacturing and supply of product candidates for use in preclinical testing and clinical trials, which supply may become limited or interrupted or may not be of satisfactory quality and quantity.

We do not have any manufacturing facilities. We produce, in our laboratory, relatively small quantities of compounds for evaluation in our research programs. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial supply if any of our product candidates are approved. We currently do not have long-term agreements with any of our third-party manufacturers and do not have any contractual relationships for the manufacture of commercial supplies of any of our product candidates, if they are approved. This reliance increases the risk that we will not have sufficient quantities of our product candidates or products, if approved, or such quantities at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts. This could be particularly problematic where we rely

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on a single-source supplier, as is currently the case for the manufacture of the drug substance and the drug product for MET409.

Furthermore, all entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for MET409 and future product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in clinical trials must be manufactured in accordance with cGMP requirements. These regulations govern manufacturing processes and procedures, including record keeping, and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants, or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of an NDA on a timely basis and must adhere to the FDA’s Good Laboratory Practice regulations and cGMP regulations enforced by the FDA through its facilities inspection program. Comparable foreign regulatory authorities may require compliance with similar requirements. The facilities and quality systems of our third-party contractor manufacturers must pass a pre-approval inspection for compliance with the applicable regulations as a condition of marketing approval of our product candidates. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMP regulations, but we are nevertheless responsible for their failures to comply with applicable laws and regulations, including cGMP.

In the event that any of our manufacturers fails to comply with such requirements or to perform its obligations to us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or enter into an agreement with another third party, which we may not be able to do so on commercially reasonable terms, if at all. Further, we may be unable to use the product produced by that manufacturer, or if the manufacturer has manufactured product for our commercial sale, if and when we obtain approval, we could be subject to a recall of such product. Any replacement of our manufacturers could require significant effort and expertise because there may be a limited number of qualified replacements. In some cases, the technical skills or technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer and we may have difficulty transferring such skills or technology to another third party and a feasible alternative may not exist. These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third-party manufacture our product candidates. The process of changing manufacturers is extensive and time consuming and could cause delays or interruptions in our drug development. Further, if we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget.

Our or a third party’s failure to execute on our manufacturing requirements, to do so on commercially reasonable terms and comply with cGMP could adversely affect our business in a number of ways, including:

∎ an inability to initiate or continue clinical trials of our product candidates under development;

∎ delay in submitting regulatory applications, or receiving marketing approvals, for our product candidates;

∎ subjecting third-party manufacturing facilities or our manufacturing facilities to additional inspections by regulatory authorities;

∎ requirements to cease development or to recall batches of our product candidates; and

∎ in the event of approval to market and commercialize our product candidates, an inability to meet commercial demands for our product or any other future product candidates.

In order to conduct later-stage clinical trials of our product candidates, we will need to manufacture them in large quantities. We, or our manufacturing partners, may be unable to successfully increase the manufacturing capacity for any of our product candidates in a timely or cost-effective manner, or at all. In addition, quality issues may arise during scale-up activities. If we or our manufacturing partners are unable to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development, testing and clinical trials of that

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product candidate may be delayed or become infeasible, and marketing approval or commercial launch of any resulting product may be delayed or not obtained, which could significantly harm our business.

We rely, and intend to rely, on third parties to conduct our clinical trials and perform some of our research and preclinical studies. If these third parties do not satisfactorily carry out their contractual duties or fail to meet expected deadlines, our development programs may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects.

We do not have the ability to conduct all aspects of our preclinical testing or clinical trials ourselves. As a result, we are, and expect to remain, dependent on third parties to conduct our ongoing Phase 1 clinical trial and planned clinical trials of MET409, and any future preclinical and clinical trials of any other product candidates. The timing of the initiation and completion of these trials will therefore be partially controlled by such third parties and may result in delays to our development programs. Specifically, we expect CROs, clinical investigators, and consultants to play a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, we will not be able to control all aspects of their activities. Nevertheless, we are responsible for ensuring that each clinical trial is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs and other third parties does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for all of our product candidates in clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, clinical trial investigators and clinical trial sites. If we or any of our CROs or clinical trial sites fail to comply with applicable GCP requirements, the data generated in our clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to stop and/or repeat clinical trials, which would delay the marketing approval process.

There is no guarantee that any such CROs, clinical trial investigators or other third parties on which we rely will devote adequate time and resources to our development activities or perform as contractually required. If any of these third parties fail to meet expected deadlines, adhere to our clinical protocols or meet regulatory requirements, otherwise performs in a substandard manner, or terminates its engagement with us, the timelines for our development programs may be extended or delayed or our development activities may be suspended or terminated. If our clinical trial site terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in such clinical trial unless we are able to transfer those subjects to another qualified clinical trial site, which may be difficult or impossible. In addition, clinical trial investigators for our clinical trial may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA or comparable foreign regulatory authorities concludes that the financial relationship may have affected the interpretation of the trial, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of any marketing application we submit by the FDA or any comparable foreign regulatory authority. Any such delay or rejection could prevent us from commercializing our product candidates.

Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors for whom they may also be conducting clinical trials or other drug development activities that could harm our competitive position. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our products.

Even if we receive marketing approval, we may not be able to successfully commercialize our product candidates due to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could make it difficult for us to sell our product candidates profitably.

Obtaining coverage and 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. There may be significant delays in obtaining such coverage and

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reimbursement for newly approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a product will be paid for in all cases or at a rate that covers our costs, including research, development, intellectual property, manufacture, sale and distribution expenses. Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors, by any future laws limiting drug prices and by any future relaxation of laws that presently restrict imports of product from countries where they may be sold at lower prices than in the United States.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting reimbursement policies, but also have their own methods and approval process apart from Medicare coverage and reimbursement determinations.

Coverage and 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:

∎ a covered benefit under its health plan;

∎ safe, effective and medically necessary;

∎ appropriate for the specific patient;

∎ cost-effective; and

∎ neither experimental nor investigational.

We cannot be sure that reimbursement will be available for any product that we commercialize and, if coverage and reimbursement are available, what the level of reimbursement will be. Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated with branded therapeutics and therapeutics administered under the supervision of a physician. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

Reimbursement may impact the demand for, and the price of, any product for which we obtain marketing approval. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with those medications. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new products when more established or lower cost therapeutic alternatives are already available or subsequently become available.

We expect to experience pricing pressures in connection with the sale of any of our product candidates due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription medicines, medical devices and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the successful commercialization of new products. Further, the adoption and implementation of any future governmental cost containment or other health reform initiative may result in additional downward pressure on the price that we may receive for any approved product.

Outside of the United States, many countries require approval of the sale price of a product before it can be marketed and the pricing review period only begins after marketing or product licensing approval is granted. To

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obtain reimbursement or pricing approval in some of these countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues, if any, we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if such product candidates obtain marketing approval.

We may wish to acquire rights to future assets through in-licensing or may attempt to form collaborations in the future with respect to our product candidates, but may not be able to do so, which may cause us to alter or delay our development and commercialization plans.

The development and potential commercialization of our product candidates will require substantial additional capital to fund expenses. We may, in the future, decide to collaborate with biopharmaceutical companies for the development and potential commercialization of product candidates. We will face significant competition in seeking appropriate collaborators. We may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. If and when we collaborate with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the following:

∎ the design or results of clinical trials;

∎ the likelihood of approval by the FDA or comparable foreign regulatory authorities;

∎ the potential market for the product candidate;

∎ the costs and complexities of manufacturing and delivering such product candidate to patients;

∎ the potential of competing products;

∎ the existence of uncertainty with respect to our ownership of technology or other rights, which can exist if there is a challenge to such ownership without regard to the merits of the challenge; and

∎ industry and market conditions generally.

The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under any license agreements from entering into agreements on certain terms or at all with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators and changes to the strategies of the combined company. As a result, we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of such product candidate, reduce or delay one or more of our other development programs, delay the potential commercialization or reduce the scope of any planned sales or marketing activities for such product candidate, or increase our expenditures and undertake development, manufacturing or commercialization activities at our own expense. If we elect to increase our expenditures to fund development, manufacturing or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue. Even if we are successful in our efforts to establish such collaborations, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such collaborations if, for example, development approval of a product candidate is delayed, the safety of a product candidate is questioned or sales of an approved product candidate are unsatisfactory.

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Risks Related to Intellectual Property

If we are unable to obtain and maintain sufficient intellectual property protection for our product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be adversely affected.

Our success depends in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to our proprietary technologies, FXR therapeutic research programs, and product candidates, which include MET409 and others, as well as their respective methods of use, manufacture and formulations thereof. Given that the development of our technology and product candidates is at an early stage, our intellectual property portfolio with respect to certain aspects of our technology and product candidates is also at an early stage. As an example, we do not have any issued patents directed to our FXR therapeutic research program.

We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel discoveries and technologies that are important to our business. Our pending and future patent applications relating to our FXR therapeutic research program may not result in patents being issued which protect our product candidates such as MET409 or others, or their intended uses, methods of manufacture, or formulations thereof, or which effectively prevent others from commercializing competitive technologies, products or product candidates.

Obtaining and enforcing patents is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications, or maintain and/or enforce patents that may issue based on our patent applications, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development results before it is too late to obtain patent protection with respect to our FXR therapeutic research program. Although we enter into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, contract research organizations, contract manufacturers, consultants, independent contractors, advisors and other third parties, any of these parties may breach these agreements and disclose such results before a patent application is filed, thereby jeopardizing our ability to seek patent protection on technology relating to our FXR therapeutic research program.

The patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation, resulting in court decisions, including Supreme Court decisions, that have increased uncertainties as to the ability to enforce patent rights in the future. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States, or vice versa.

Further, we may not be aware of all third-party intellectual property rights potentially relating to our research programs and product candidates such as MET409 and others, or their intended uses, and as a result the impact of such third-party intellectual property rights upon the patentability of our own patents and patent applications, as well as the impact of such third-party intellectual property upon our freedom to operate, is highly uncertain. Patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our patents or pending patent applications may be challenged in the courts or patent offices in the United States and abroad. For example, we may be subject to a third party pre-issuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved in post-grant review procedures, oppositions, derivations, reexaminations, or inter parties review proceedings, in the United States or elsewhere, challenging our patent rights or the patent rights of others. The legal threshold for initiating such proceedings may be low, so that even proceedings with a low probability of success might be initiated. An adverse determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated, or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. In addition,

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given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized.

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 research and develop and to manufacture our product candidates, we must 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 independent 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 will likely expect to be granted rights to publish data arising out of such collaboration and any joint research and development programs 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.

In the future, we may need to obtain additional licenses of third-party technology that may not be available to us or are available only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated.

From time to time, we may be required to license technologies relating to our therapeutic research programs from additional third parties to further develop or commercialize our product candidates such as MET409 and/or others. Should we be required to obtain licenses to any third-party technology, including any such patents required to manufacture, use or sell our product candidates, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop or commercialize any of our product candidates could cause us to abandon any related efforts, which could seriously harm our business and operations.

Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our products.

Any future collaborations that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include that:

∎ collaborators have significant discretion in determining the efforts and resources that they will apply to collaborations;

∎ collaborators may not pursue development and commercialization of our products or may elect not to continue or renew development or commercialization programs based on trial or test results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities;

∎ collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates;

∎ a collaborator with marketing, manufacturing and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;

∎ we could grant exclusive rights to our collaborators that would prevent us from collaborating with others;

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∎ collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;

∎ disputes may arise between us and a collaborator that causes the delay or termination of the research, development or commercialization of our current or future products or that results in costly litigation or arbitration that diverts management attention and resources;

∎ collaborations may be terminated, and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable current or future products;

∎ collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, we would not have the exclusive right to develop or commercialize such intellectual property; and

∎ a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminal proceedings.

We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent which might adversely affect our ability to develop and market our products.

We cannot assure you that our operations do not, or will not in the future, infringe existing or future patents. We cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third-party patent and pending application in the United States and abroad that is relevant to our therapeutic research programs or necessary for the commercialization of our product candidates such as MET409 and/or others in any jurisdiction.

Numerous U.S. and foreign patents and pending patent applications exist in our market that are owned by third parties. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our products. We do not always conduct independent reviews of pending patent applications of and patents issued to third parties. Patent applications in the United States and elsewhere are typically published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Certain U.S. applications that will not be filed outside the U.S. can remain confidential until patents issue. In addition, patent applications in the United States and elsewhere can be pending for many years before issuance, or unintentionally abandoned patents or applications can be revived. Furthermore, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our products or the use of our products. As such, there may be applications of others now pending or recently revived patents of which we are unaware. These applications may later result in issued patents, or the revival of previously abandoned patents, that will prevent, limit or otherwise interfere with our ability to make, use or sell our products.

The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our products. We may incorrectly determine that our products are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products.

We cannot provide any assurances that third-party patents do not exist which might be enforced against our current technology, including our research programs, product candidates, which include MET409 and others, their respective methods of use, manufacture and formulations thereof, and could result in either an injunction prohibiting our manufacture or future sales, or, with respect to our future sales, an obligation on our part to pay royalties and/or other forms of compensation to third parties, which could be significant.

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We cannot ensure that patent rights relating to inventions described and claimed in our pending patent applications will issue or that patents based on our patent applications will not be challenged and rendered invalid and/or unenforceable.

We have pending U.S. and foreign patent applications in our portfolio relating to our FXR research program and product candidates such as MET409 and others, however, we cannot predict:

∎ if and when patents may issue based on our patent applications;

∎ the scope of protection of any patent issuing based on our patent applications;

∎ whether the claims of any patent issuing based on our patent applications will provide protection against competitors,

∎ whether or not third parties will find ways to invalidate or circumvent our patent rights;

∎ whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications;

∎ whether we will need to initiate litigation or administrative proceedings to enforce and/or defend our patent rights which will be costly whether we win or lose; and/or

∎ whether the patent applications that we own or in-license will result in issued patents with claims that cover our product candidates or uses thereof in the United States or in other foreign countries.

We cannot be certain that the claims in our pending patent applications directed to our product candidates such as MET409 and others, as well as technologies relating to our FXR research program will be considered patentable by the USPTO or by patent offices in foreign countries. One aspect of the determination of patentability of our inventions depends on the scope and content of the “prior art,” information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention. There may be prior art of which we are not aware that may affect the patentability of our patent claims or, if issued, affect the validity or enforceability of a patent claim. Even if the patents do issue based on our patent applications, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, patents in our portfolio may not adequately exclude third parties from practicing relevant technology or prevent others from designing around our claims. If the breadth or strength of our intellectual property position with respect to our product candidates is threatened, it could dissuade companies from collaborating with us to develop and threaten our ability to commercialize our product candidates. In the event of litigation or administrative proceedings, we cannot be certain that the claims in any of our issued patents will be considered valid by courts in the United States or foreign countries.

If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.

Our commercial success depends, in part, on our ability to develop, manufacture, market and sell our product candidates such as MET409 and others without infringing the intellectual property and other proprietary rights of third parties. Third parties may allege that we have infringed or misappropriated their intellectual property. Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming and, even if resolved in our favor, is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our products candidates. Third parties may assert infringement claims against us

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based on existing or future intellectual property rights. The pharmaceutical and biotechnology industries have produced a significant number of patents, and it may not always be clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we were sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity may be difficult. For example, in the United States, proving invalidity in court requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on our business and operations. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.

If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

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

Competitors may infringe our patents, trademarks, copyrights or other intellectual property that relate to our research programs and product candidates, including MET409 and others, their respective methods of use, manufacture and formulations thereof. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent that we own or have licensed is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.

Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. 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 litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Moreover, we cannot assure you that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we

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ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings.

Because of the expense and uncertainty of litigation, we may not be in a position to enforce our intellectual property rights against third parties.

Because of the expense and uncertainty of litigation, we may conclude that even if a third party is infringing our issued patent relating to our FXR research program and product candidates, any patents that may be issued as a result of our pending or future patent applications or other intellectual property rights, the risk-adjusted cost of bringing and enforcing such a claim or action may be too high or not in the best interest of our company or our stockholders. In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

We employ individuals who previously worked with other companies, including our competitors or potential competitors. We could in the future be subject to claims that we or our employees, consultants, or independent contractors have inadvertently or otherwise used or disclosed alleged trade secrets or other confidential information of current or former employers or competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may become subject to claims that we caused an individual to breach the terms of his or her non-competition or non-solicitation agreement, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a current or former employer or competitor.

While we may litigate to defend ourselves against these claims, even if we are successful, litigation could result in substantial costs and could be a distraction to management and other employees. If our defenses to these claims fail, in addition to requiring us to pay monetary damages, a court could prohibit us from using technologies or features that are essential to our product candidates such as MET409 or others, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the current or former employers. Moreover, any such litigation or the threat thereof may adversely affect our reputation, our ability to form strategic alliances or sublicense our rights to collaborators, engage with scientific advisors or hire employees or consultants, each of which would have an adverse effect on our business, results of operations and financial condition.

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

Patents are of national or regional effect, and filing, prosecuting and defending patents on all of our research programs and product candidates throughout the world would be prohibitively expensive. As such, 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.

Further, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals or biologics, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. In addition, certain developing countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we may have limited remedies if patents are infringed or if we are compelled to grant a license to a third party, which could materially diminish the value of those patents relating to our research programs and product candidates. This could limit our potential revenue opportunities. 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.

Further, the standards applied by the USPTO and foreign patent offices in granting patents are not always applied uniformly or predictably. As such, we do not know the degree of future protection that we will have on our technologies, products and product candidates. While we will endeavor to try to protect our technologies, products and product candidates with intellectual property rights such as patents, as appropriate, the process of obtaining patents is time-consuming, expensive and sometimes unpredictable.

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Changes in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents relating to our research programs and product candidates. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States or USPTO rules and regulations could increase the uncertainties and costs. Recent patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or the Leahy-Smith Act, signed into law on September 16, 2011, could increase those uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review and derivation proceedings. After March 2013, under the Leahy-Smith Act, the United States transitioned to a first inventor to file system in which, assuming that the other statutory requirements are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications, our ability to obtain future patents, and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submissions, 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 fees, renewal fees, annuities fees and various other governmental fees on patents and/or patent applications are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent and/or patent application. The USPTO and various foreign governmental patent agencies also 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, but are not limited to, 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 fail to maintain the patents and patent applications covering our research programs and product candidates such as MET409 and others as well as their respective methods of use, manufacture and formulations thereof, our competitive position would be adversely affected, as, for example, competitors might be able to enter the market earlier than would otherwise have been the case.

We may rely on trade secret and proprietary know-how which can be difficult to trace and enforce and, if we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patents for some of our technology and product candidates, we may also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position with respect to our research programs and product candidates. Elements of our product candidates, including processes for their preparation and manufacture, may involve proprietary know-how, information, or technology that is not covered by patents, and thus for these aspects we may consider trade secrets and know-how to be our primary intellectual property. Any disclosure, either intentional or unintentional, by our employees, the employees of third

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parties with whom we share our facilities or third-party consultants and vendors that we engage to perform research, clinical trials or manufacturing activities, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

Trade secrets and know-how can be difficult to protect. We require our employees to enter into written employment agreements containing provisions of confidentiality and obligations to assign to us any inventions generated in the course of their employment. We and any third parties with whom we share facilities enter into written agreements that include confidentiality and intellectual property obligations to protect each party’s property, potential trade secrets, proprietary know-how and information. We further seek to protect our potential trade secrets, proprietary know-how and information in part, by entering into non-disclosure and confidentiality agreements with parties who are given access to them, such as our corporate collaborators, outside scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and other third parties. With our consultants, contractors and outside scientific collaborators, these agreements typically include invention assignment obligations. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets.

Trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. Trade secrets will over time be disseminated within the industry through independent development, the publication of journal articles and the movement of personnel skilled in the art from company to company or academic to industry scientific positions. Though our agreements with third parties typically restrict the ability of our advisors, employees, collaborators, licensors, suppliers, third-party contractors and consultants to publish data potentially relating to our trade secrets, our agreements may contain certain limited publication rights. Because from time to time we expect to rely on third parties in the development, manufacture and distribution of our products and provision of our services, we must, at times, share trade secrets with them. Despite employing the contractual and other security precautions described above, the need to share trade secrets 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. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be harmed.

We may become subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

We may be subject to claims that former employees, consultants, independent contractors, collaborators or other third parties have an interest in our patents or other intellectual property as an owner, co-owner, inventor or co-inventor. The failure to name the proper inventors on a patent application can result in the patents issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in developing our product candidates or as a result of questions regarding co-ownership of potential joint inventions. Litigation may be necessary to resolve these and other claims challenging inventorship and/or ownership. Alternatively, or additionally, we may enter into agreements to clarify the scope of our rights in such intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

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Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.

Patent rights are of limited duration. In the United States, the natural expiration of a patent is generally 20 years after its first effective non-provisional filing date. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such product candidates are commercialized. 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 biosimilar or generic products. A patent term extension based on regulatory delay may be available in the United States. However, only a single patent can be extended for each marketing approval, and any patent can be extended only once, for a single product. Moreover, the scope of protection during the period of the patent term extension does not extend to the full scope of the claim, but instead only to the scope of the product as approved. Laws governing analogous patent term extensions in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patents from a single patent family. Additionally, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. 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 will be shortened and our competitors may obtain approval of competing products following our patent expiration, 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.

We currently do not own any registered trademarks. Our current or future trademarks or trade names may be challenged, infringed, circumvented or declared generic or descriptive determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential partners or customers in our markets of interest. During trademark registration proceedings, we may receive rejections. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business may be adversely affected. We may license our trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

∎ others may be able to make product candidates that are similar to ours but that are not covered by the claims of the patents that we own or have exclusively licensed;

∎ we or our future licensors or collaborators might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;

∎ we or our future licensors or collaborators might not have been the first to file patent applications covering certain of our inventions;

∎ others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

∎ it is possible that our pending patent applications will not lead to issued patents;

∎ issued patents that we own or have exclusively licensed may be held invalid or unenforceable, as a result of legal challenges by our competitors;

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∎ our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

∎ we may not develop additional proprietary technologies that are patentable; and

∎ the patents of others may have an adverse effect on our business.

Should any of these events occur, they could significantly harm our business, results of operations and prospects.

Risks Related to Employee Matters and Managing Growth and Other Risks Related to Our Business

We are highly dependent on the services of our key personnel.

We are highly dependent on the services of our key personnel, Ken Song, M.D., who serves as our President and Chief Executive Officer, Patricia Millican, who serves as our Chief Financial Officer, and Nicholas Smith, Ph.D., who serves as our Senior Vice President, Chemistry. Although we have entered into agreements with them regarding their employment, they are not for a specific term and each of them may terminate their employment with us at any time, though we are not aware of any present intention of either of these individuals to leave us.

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

As of March 31, 2018, we had 29 full-time employees. As we advance our research and development programs, we expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of clinical development, quality, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our anticipated future growth, we must:

∎ identify, recruit, integrate, maintain and motivate additional qualified personnel;

∎ manage our development efforts effectively, including the initiation and conduct of clinical trials for our product candidates; and

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

Our future financial performance and our ability to develop, manufacture and commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert financial and other resources, and a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time, to managing these growth activities.

We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain third-party contract organizations, advisors and consultants to provide certain services, including assuming substantial responsibilities for the conduct of our clinical trials and the manufacture of our product candidates. We cannot assure you that the services of such third-party contract organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by our vendors or consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain marketing approval of our product candidates or otherwise advance our business. We cannot assure you that we will be able to properly manage our existing vendors or consultants or find other competent outside vendors and consultants on economically reasonable terms, or at all.

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development and commercialization goals.

Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.

Our industry has experienced a high rate of turnover in recent years. Our ability to compete in the highly competitive biopharmaceuticals industry depends upon our ability to attract, retain and motivate highly skilled and experienced personnel with scientific, medical, regulatory, manufacturing and management skills and experience. We conduct our operations in the greater San Diego area, a region that is home to many other biopharmaceutical companies as

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well as many academic and research institutions, resulting in fierce competition for qualified personnel. We may not be able to attract or retain qualified personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical companies. Many of the other biopharmaceutical companies against which we compete have greater financial and other resources, different risk profiles and a longer history in the industry than we do. Our competitors may provide higher compensation, more diverse opportunities and/or better opportunities for career advancement. Any or all of these competing factors may limit our ability to continue to attract and retain high quality personnel, which could negatively affect our ability to successfully develop and commercialize our product candidates and to grow our business and operations as currently contemplated.

Our employees, clinical trial investigators, CROs, consultants, vendors and any potential commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of fraud or other misconduct by our employees, clinical trial investigators, CROs, consultants, vendors and any potential commercial partners. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (i) U.S. laws and regulations or those of foreign jurisdictions, including those laws that require the reporting of true, complete and accurate information, (ii) manufacturing standards, (iii) federal and state health and data privacy, security, fraud and abuse, government price reporting, transparency reporting requirements, and other healthcare laws and regulations in the United States and abroad or (iv) laws that require the true, complete and accurate reporting of financial information or data. Such misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We intend to adopt a code of conduct applicable to all of our employees prior to completion of this offering, as well as a disclosure program and other applicable policies and procedures, but it is not always possible to identify and deter employee 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 comply with these laws or regulations. 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, fines, disgorgement, individual imprisonment, exclusion from government funded healthcare programs, such as Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional integrity reporting and oversight obligations, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

Our future profitability may depend, in part, on our ability to commercialize our product candidates in foreign markets for which we may rely on collaboration with third parties. We are not permitted to market or promote any of our product candidates before we receive marketing approval from the applicable regulatory authority in that foreign market, and we may never receive such marketing approval for any of our product candidates. To obtain marketing approval in many foreign countries, we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our product candidates, and we cannot predict success in these jurisdictions. If we obtain approval of our product candidates and ultimately commercialize our product candidates in foreign markets, we would be subject to additional risks and uncertainties, including:

∎ our customers’ ability to obtain reimbursement for our product candidates in foreign markets;

∎ our inability to directly control commercial activities because we are relying on third parties;

∎ the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;

∎ different medical practices and customs in foreign countries affecting acceptance in the marketplace;

∎ import or export licensing requirements;

∎ longer accounts receivable collection times;

∎ longer lead times for shipping;

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∎ language barriers for technical training;

∎ reduced protection of intellectual property rights in some foreign countries;

∎ the existence of additional potentially relevant third-party intellectual property rights;

∎ foreign currency exchange rate fluctuations; and

∎ the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

Foreign sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.

Our internal information technology systems, or those of our third-party CROs or other contractors or consultants, may fail or suffer security breaches, loss or leakage of data and other disruptions, which could result in a material disruption of our product candidates’ development programs, compromise sensitive information related to our business or prevent us from accessing critical information, potentially exposing us to liability or otherwise adversely affecting our business.

We are increasingly dependent upon information technology systems, infrastructure and data to operate our business. In the ordinary course of business, we collect, store and transmit confidential information (including but not limited to intellectual property, proprietary business information and personal information). It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We also have outsourced our operations to third parties, and as a result we manage a number of third-party contractors who have access to our confidential information.

Despite the implementation of security measures, given their size and complexity and the increasing amounts of confidential information that they maintain, our internal information technology systems and those of our third-party CROs and other contractors and consultants are potentially vulnerable to breakdown or other damage or interruption from service interruptions, system malfunction, natural disasters, terrorism, war and telecommunication and electrical failures, as well as security breaches from inadvertent or intentional actions by our employees, contractors, consultants, business partners and/or other third parties, or from cyber-attacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information), which may compromise our system infrastructure or lead to data leakage. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and reputational damage and the further development and commercialization of our drug candidates could be delayed.

While we have not experienced any such system failure, accident or security breach to date, we cannot assure you that our data protection efforts and our investment in information technology will prevent significant breakdowns, data leakages, breaches in our systems or other cyber incidents that could have a material adverse effect upon our reputation, business, operations or financial condition. For example, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs and the development of our product candidates could be delayed. In addition, the loss of clinical trial data for our product candidates could result in delays in our marketing approval efforts and significantly increase our costs to recover or reproduce the data. Furthermore, significant disruptions of our internal information technology systems or security breaches could result in the loss, misappropriation and/or unauthorized access, use, or disclosure of, or the prevention of access to, confidential information (including trade secrets or other intellectual property, proprietary business information and personal information), which could result in financial, legal, business and reputational harm to us. For example, any such event that leads to unauthorized access, use, or disclosure of personal information, including personal information regarding our clinical trial subjects or employees, could harm our reputation directly, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information, which could result in significant legal and financial exposure and reputational damages that could potentially have an adverse effect on our business.

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Failure to comply with health and data protection laws and regulations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business.

We and any potential collaborators may be subject to federal, state and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and data security). In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws and federal and state consumer protection laws (e.g., Section 5 of the FTC Act), that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our collaborators. In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH. Depending on the facts and circumstances, we could be subject to criminal penalties if we knowingly obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.

International data protection laws, including Directive 95/46/EC (EU Data Protection Directive) and EU Member State implementing legislation, may also apply to health-related and other personal information obtained outside of the United States. The EU Data Protection Directive and the national implementing legislation of the individual EU Member States impose strict obligations on the ability to process health-related and other personal information of EU data subjects, including in relation to collection, use and transfer. These include several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data. The EU Data Protection Directive prohibits the transfer of personal data to countries outside of the European Economic Area, or EEA, such as the United States, which are not considered by the European Commission to provide an adequate level of data protection. Switzerland has adopted similar restrictions. Although there are legal mechanisms to allow for the transfer of personal data from the EEA and Switzerland to the United States, uncertainty about compliance with EU data protection laws remains and data protection authorities from the different EU Member States may interpret the EU Data Protection Directive and national laws differently, and guidance on implementation and compliance practices are often updated or otherwise revised, which adds to the complexity of processing personal data in the European Union.

Regulation 2016/679, known as the General Data Protection Regulation, or GDPR, replaced the EU Data Protection Directive on May 25, 2018. The GDPR introduced new data protection requirements in the European Union, as well as potential fines for noncompliant companies of up to the greater of €20 million or 4% of annual global revenue. The regulation imposes numerous new requirements for the collection, use and disclosure of personal information, including more stringent requirements relating to consent and the information that must be shared with data subjects about how their personal information is used, the obligation to notify regulators and affected individuals of personal data breaches, extensive new internal privacy governance obligations and obligations to honor expanded rights of individuals in relation to their personal information (e.g., the right to access, correct and delete their data). In addition, the GDPR generally maintains the EU Data Protection Directive’s restrictions on cross-border data transfer. The GDPR will increase our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to ensure compliance with the new EU data protection rules.

Further, the United Kingdom’s vote in favor of exiting the EU, often referred to as Brexit, has created uncertainty with regard to data protection regulation in the United Kingdom. In particular, it is unclear whether the United Kingdom will enact data protection legislation equivalent to the GDPR and how data transfers to and from the United Kingdom will be regulated.

Compliance with U.S. and international data protection laws and regulations could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Failure to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical

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trial subjects about whom we or our potential collaborators obtain information, as well as the providers who share this information with us, may contractually limit our ability to use and disclose the information. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

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

Our headquarters and main research facility are located in the greater San Diego area, which in the past has experienced severe earthquakes and fires. If these earthquakes, fires, other natural disasters, terrorism and similar unforeseen events beyond our control prevented us from using all or a significant portion of our headquarters or research facility, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. We do not have a disaster recovery or business continuity plan in place and may incur substantial expenses as a result of the absence or limited nature of our internal or third party service provider disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business. Furthermore, integral parties in our supply chain are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our ability to conduct our clinical trials, our development plans and business.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

We have incurred substantial losses during our history and do not expect to become profitable in the near future, and we may never achieve profitability. Unused losses for the tax year ended December 31, 2017 and prior tax years will carry forward to offset future taxable income, if any, until such unused losses expire. Unused losses generated after December 31, 2017, under recent U.S. federal tax legislation will not expire and may be carried forward indefinitely but will be only deductible to the extent of 80% of current year taxable income in any given year. It is uncertain if and to what extent various states will conform to the recent U.S. federal tax legislation. In addition, both our current and our future unused losses and other tax attributes may be subject to limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if we undergo an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in our equity ownership by certain stockholders over a three-year period. We have not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future. As a result, if we earn net taxable income our pre-2018 net operating loss carryforwards may expire prior to being used, our net operating loss carryforwards generated in 2018 and thereafter will be subject to a percentage limitation and, if we undergo an ownership change (or if we previously underwent such an ownership change), our ability to use all of our pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset our post-change income or taxes may be limited. As a result, if we earn net taxable income, our ability to use our pre-change NOLs to offset such taxable income may be subject to limitations. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, even if we attain profitability, we may be unable to use all or a material portion of our NOLs and other tax attributes, which could adversely affect our future cash flows.

U.S. federal income tax reform could adversely affect us.

On December 22, 2017, President Trump signed into law new legislation, informally referenced as the Tax Cuts and Jobs Act, that significantly revises the Code. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. We do not expect this tax legislation to have a material

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impact to our current projection of minimal cash taxes for the near future. However, we continue to examine the impact that this tax legislation may have on our business in the longer term. Accordingly, notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this tax legislation on holders of our common stock is also uncertain and could be adverse. We urge prospective investors to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.

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

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

∎ delay or termination of clinical trials;

∎ decreased demand for any product candidates or products that we may develop;

∎ injury to our reputation and significant negative media attention;

∎ withdrawal of clinical trial subjects;

∎ initiation of investigations by regulators;

∎ significant costs to defend the related litigation and diversion of management’s time and our resources;

∎ substantial monetary awards to study subjects or patients;

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

∎ loss of revenue; and

∎ the inability to commercialize any products that we may develop.

We currently hold $10 million in aggregate product liability insurance coverage (and €5 million in the aggregate in the Netherlands), which may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as our product candidates advance through clinical trials and if we successfully commercialize any products. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Changes in healthcare law and implementing regulations, as well as changes in healthcare policy, may impact our business in ways that we cannot currently predict, and may have a significant adverse effect on our business and results of operations.

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval. Among policy makers and payors in the United States and elsewhere, including in the European Union, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the Affordable Care Act, substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. The Affordable Care Act, among other things: (i) introduced a new average manufacturer price definition for drugs and biologics that are inhaled, infused, instilled, implanted or injected and not generally dispensed through retail community pharmacies; (ii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and expanded rebate liability from fee-for-service Medicaid utilization to include the utilization of Medicaid managed care organizations as well; (iii) established a branded prescription drug fee that pharmaceutical manufacturers of branded prescription drugs must pay to the federal government; (iv) expanded the list of covered entities eligible to participate in the 340B drug pricing program by adding new entities to the program; (v) established a new Medicare

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Part D coverage gap discount program, in which manufacturers must agree to offer point-of-sale discounts (which through subsequent legislative amendments, will be increased to 70% from 50% starting in 2019) off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; (vi) extended manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; (vii) expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability; (viii) created a licensure framework for follow on biologic products; and (ix) established a Center for Medicare and Medicaid Innovation at the Centers for Medicare and Medicaid Services (CMS) to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending that began on January 1, 2011.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act. For example, the Tax Cuts and Jobs Act includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. Since the enactment of the Tax Cuts and Jobs Act, there have been additional amendments to certain provisions of the Affordable Care Act, and we expect the current Trump administration and Congress will likely continue to seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the Affordable Care Act. It is uncertain the extent to which any such changes may impact our business or financial condition. Congress may consider other legislation to repeal and replace elements of the Affordable Care Act. We continue to evaluate the effect that the Affordable Care Act and its possible repeal and replacement has on our business. It is uncertain the extent to which any such changes may impact our business or financial condition.

Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget Control Act of 2011 and subsequent laws, which began in 2013 and will remain in effect through 2027, unless additional Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. New laws may result in additional reductions in Medicare and other healthcare funding, which may materially adversely affect customer demand and affordability for our products and, accordingly, the results of our financial operations. Also, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which have resulted in several Congressional inquiries and proposed federal legislation, as well as state efforts, designed to, among other things, bring more transparency to product pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. Most recently, the Trump administration released a “Blueprint”, or plan, to reduce the cost of drugs. The Trump administration’s Blueprint contains certain measures that the U.S. Department of Health and Human Services is already working to implement. At the state level, individual states in the United States are increasingly active in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

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

In the European Union, coverage and reimbursement status of any product candidates for which we obtain regulatory approval are provided for by the national laws of EU Member States. The requirements may differ across the EU Member States. Also at a national level, actions have been taken to enact transparency laws regarding payments between pharmaceutical companies and health care professionals.

We will be subject to applicable fraud and abuse, transparency, government price reporting and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any future product candidates for which we obtain marketing approval. Our arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may affect the business or financial arrangements and relationships through which we would market, sell and distribute our products. Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. The laws that may affect our ability to operate include, but are not limited to:

∎ the federal Anti-Kickback Statute, which prohibits, among other things, any person or entity from knowingly and willfully soliciting, receiving, offering or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of an item or service reimbursable, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration” has been broadly interpreted to include anything of value. The Anti-Kickback Statute has also been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other the other hand. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. Additionally, the intent standard under the Anti-Kickback Statute was amended by the Affordable Care Act such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act, or FCA;

∎ federal civil and criminal false claims laws and civil monetary penalty laws, such as the False Claims Act, or FCA, which imposes significant penalties and can be enforced by private citizens through civil qui tam actions, prohibits individuals or entities from, among other things, knowingly presenting, or causing to be presented, false, fictitious or fraudulent claims for payment or approval by the federal government, and knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim, or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government. For example, pharmaceutical companies have been prosecuted under the FCA in connection with their alleged off-label promotion of drugs, purportedly concealing price concessions in the pricing information submitted to the government for government price reporting purposes, and allegedly providing free product to customers with the expectation that the customers would bill federal health care programs for the product. In addition, 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 FCA. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. In addition, manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent

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claims. Criminal prosecution is also possible for making or presenting a false, fictitious or fraudulent claim to the federal government. Government enforcement agencies and private whistleblowers have investigated pharmaceutical companies for or asserted liability under the FCA for a variety of alleged promotional and marketing activities, such as providing free product to customers with the expectation that the customers would bill federal programs for the product, providing consulting fees and other benefits to physicians to induce them to prescribe products, engaging in promotion for “off-label” uses, and submitting inflated best price information to the Medicaid Rebate Program;

∎ HIPAA, among other things, imposes criminal liability for executing or attempting to execute a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and creates federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items or services. Like the Anti-Kickback Statute, the Affordable Care Act amended the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

HIPAA, as amended by HITECH and its implementing regulations, which imposes privacy, security and breach reporting obligations with respect to individually identifiable health information upon entities subject to the law, such as health plans, healthcare clearinghouses and healthcare providers and their respective business associates that perform services for them that involve individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys; general new authority to file civil actions for damages or injunctions in U.S. federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;

∎ federal and state consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;

∎ the federal transparency requirements under the Physician Payments Sunshine Act, created under the Affordable Care Act, which requires, among other things, certain manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid, or the Children’s Health Insurance Program to annually report to the Department of Health and Human Services information related to payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment interests, including such ownership and investment interests held by a physician’s immediate family members;

∎ state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, that may impose similar or more prohibitive restrictions, and may apply to items or services reimbursed by any non-governmental third-party payors, including private insurers; and

∎ state and foreign laws that require pharmaceutical companies to implement compliance programs, comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, track and report gifts, compensation and other remuneration provided to physicians, other health care providers and other health care entities, and/or ensure the registration and compliance of sales and medical personnel and other federal, state and foreign laws that govern the privacy and security of health information or personally identifiable information in certain circumstances, including state health information privacy and data breach notification laws which govern the collection, use, disclosure and protection of health-related and other personal information, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus requiring additional compliance efforts.

We have entered into consulting and scientific advisory board arrangements with physicians and other healthcare providers, including some who could influence the use of our product candidates, if approved. Because of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to other significant

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penalties. We could be adversely affected if regulatory agencies interpret our financial relationships with providers who may influence the ordering of and use our product candidates, if approved, to be in violation of applicable laws.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies, healthcare providers and other third parties, including charitable foundations, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time- and resource-consuming and can divert management’s attention from the business. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.

Ensuring that our business arrangements with third parties comply with applicable healthcare laws and regulations will likely be costly. If our operations are found to be in violation of any of these laws or any other current or future governmental laws and regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could substantially disrupt our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

We are subject to certain U.S. and certain foreign anti-corruption, anti-money laundering, export control, sanctions and other trade laws and regulations. We can face serious consequences for violations.

U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions and other trade laws and regulations, collectively, Trade Laws, prohibit, among other things, companies and their employees, agents, CROs, legal counsel, accountants, consultants, contractors and other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. We also expect our non-U.S. activities to increase over time. We expect to rely on third parties for research, preclinical studies and clinical trials and/or to obtain necessary permits, licenses, patent registrations and other marketing approvals. We can be held liable for the corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences.

Requirements associated with being a public company will increase our costs significantly, as well as divert significant company resources and management attention.

After the completion of this offering, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or the other rules and regulations of the Securities and Exchange Commission, or the SEC, or any securities exchange relating to public companies. Sarbanes-Oxley, as well as rules subsequently adopted by the SEC, and the Nasdaq Global Market to implement provisions of Sarbanes-Oxley, impose 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 impact the manner in which we operate our business in ways we cannot currently anticipate. Compliance with the various reporting and other requirements applicable to

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public companies requires considerable time and attention of management. We cannot assure you that we will satisfy our obligations as a public company on a timely basis.

We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and 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. In addition, as a public company, it may be more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified personnel to serve on our board of directors, our board committees or as executive officers.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We, and the third parties with whom we share our facilities, are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Each of our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Each of our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. We could be held liable for any resulting damages in the event of contamination or injury resulting from the use of hazardous materials by us or the third parties with whom we share our facilities, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research and development. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Risks Related to our Common Stock and this Offering

There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us and may vary from the market price of our common stock following this offering. If you purchase shares of our common stock in this offering, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock may not develop upon the completion of this offering or, if it does develop, it may not be sustainable. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

∎ our operating performance and the performance of other similar companies;

∎ our ability to enroll subjects in our ongoing and planned clinical trials;

∎ results from our ongoing clinical trials and future clinical trials with our current and future product candidates or of our competitors;

∎ changes in our projected operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock;

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∎ regulatory or legal developments in the United States and other countries;

∎ the level of expenses related to future product candidates or clinical development programs;

∎ our ability to achieve product development goals in the timeframe we announce;

∎ announcements of clinical trial results, regulatory developments, acquisitions, strategic alliances or significant agreements by us or by our competitors;

∎ the success or failure of our efforts to acquire, license or develop additional product candidates;

∎ recruitment or departure of key personnel;

∎ the economy as a whole and market conditions in our industry;

∎ trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock;

∎ the expiration of market standoff or contractual lock-up agreements;

∎ the size of our market float; and

∎ any other factors discussed in this prospectus.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many life sciences companies. Stock prices of many biopharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.

Raising additional capital may cause dilution to our stockholders, including purchasers of common stock in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

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

Substantial amounts of our outstanding shares may be sold into the market when lock-up or market standoff periods end. If there are substantial sales of shares of our common stock, the price of our common stock could decline.

The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, or if there is a large number of shares of our common stock available for sale and the market perceives that sales will occur. After this offering, we will have outstanding shares of our common stock, based on the number of shares outstanding as of December 31, 2017. All of the shares of common stock sold in this offering will be available for sale in the public market. Substantially all of our outstanding shares of common stock are currently restricted from resale as a result of market standoff and “lock-up” agreements, as more fully described in “Shares Eligible for Future Sale.” These shares will become available to be sold 181 days after the date of this prospectus. Shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and various vesting agreements.

After our initial public offering, certain of our stockholders will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders, subject to market standoff and lockup agreements. We also intend to register

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shares of common stock that we have issued and may issue under our employee equity incentive plans. Once we register these shares, they will be able to be sold freely in the public market upon issuance, subject to existing market standoff or lock-up agreements. Jefferies LLC and Evercore Group L.L.C. may, in their discretion, permit our stockholders to sell shares prior to the expiration of the restrictive provisions contained in those lock-up agreements.

The market price of the shares of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution in the pro forma net tangible book value per share of $                per share as of March 31, 2018, based on an assumed initial public offering price of our common stock of $                per share, the midpoint of the price range on the cover page of this prospectus, because the price that you pay will be substantially greater than the pro forma net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution upon exercise of options to purchase common stock under our equity incentive plans, upon vesting of options to purchase common stock under our equity incentive plans, if we issue restricted stock to our employees under our equity incentive plans or if we otherwise issue additional shares of our common stock.

We will have broad discretion in the use of the net proceeds of this offering and may not use them effectively or in ways that increase the value of our share price.

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from this offering, but we currently expect such uses will include                         . We will have broad discretion in the application of the net proceeds, including working capital and other general corporate purposes, and you and other stockholders may disagree with how we spend or invest these proceeds. The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending their use, we may invest the net proceeds from our initial public offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

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

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no or only very few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Upon the completion of this offering, we will become subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. For example, our directors or executive officers could inadvertently fail to disclose a new relationship or arrangement causing us to fail to make any related party transaction disclosures. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

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We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

∎ being permitted to provide 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 in the assessment of our internal control over financial reporting;

∎ not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

∎ reduced disclosure obligations regarding executive compensation; and

∎ not being required to hold a non-binding advisory vote on executive compensation or obtain stockholder approval of any golden parachute payments not previously approved.

In addition, as an “emerging growth company” the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have not elected to use this extended transition period under the JOBS Act.

We cannot predict if investors will find our common stock less attractive because we will 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. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

We do not intend to pay dividends for the foreseeable future.

We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. In addition, the terms of any future debt agreements may preclude us from paying dividends. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

The concentration of our stock ownership will likely limit your ability to influence corporate matters, including the ability to influence the outcome of director elections and other matters requiring stockholder approval.

Based upon shares outstanding as of June 30, 2018, our executive officers, directors and the holders of more than 5% of our outstanding common stock, in the aggregate, beneficially owned approximately 68% of our common stock, and upon the completion of this offering, that same group, in the aggregate, will beneficially own approximately    % of our common stock, assuming that these holders do not purchase any shares in this offering, no exercise by the underwriters of their option to purchase additional shares, no exercise of outstanding options or warrants and after giving effect to the issuance of shares in this offering. As a result, these stockholders, acting together, will have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders, including those who purchase shares in this offering, oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

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Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect at the completion of this offering could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to and upon the completion of this offering, respectively, may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws:

∎ permit our board of directors to issue up to                  shares of preferred stock, with any rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change in our control);

∎ provide that the authorized number of directors may be changed only by resolution of the board of directors;

∎ provide that the board of directors or any individual director may only be removed with cause and the affirmative vote of the holders of at least    % of the voting power of all of our then outstanding common stock;

∎ provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

∎ divide our board of directors into three classes;

∎ require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;

∎ provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a stockholder’s notice;

∎ do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose);

∎ provide that special meetings of our stockholders may be called only by the chairman of the board, our Chief Executive Officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and

∎ provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws or (iv) any action asserting a claim against us governed by the internal affairs doctrine.

The amendment of any of these provisions, with the exception of the ability of our board of directors to issue shares of preferred stock and designate any rights, preferences and privileges thereto, would require approval by the holders of at least                % of our then-outstanding common stock.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law, or Section 203. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.

These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delay or impede a

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merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.

For information regarding these and other provisions, see “Description of Capital Stock.”

Because we have an even number of members of our board of directors, deadlocks may occur in our board of directors’ decision-making process, which may delay or prevent critical decisions from being made.

Since we currently have an even number of directors, deadlocks may occur when such directors disagree on a particular decision or course of action. Our amended and restated certificate of incorporation and amended and restated bylaws, which will be effective upon the closing of this offering, do not contain any mechanisms for resolving potential deadlocks. While our directors are under a duty to act in the best interest of our company, any deadlocks may impede the further development of our business in that such deadlocks may delay or prevent critical decisions regarding our development.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

We could be subject to securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biopharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

∎ our plans to research, develop and commercialize MET409 and any future product candidates;

∎ our ability to obtain and maintain regulatory approval of our product candidates, including MET409, in any of the indications for which we plan to develop them;

∎ our ability to obtain funding for our operations, including funding necessary to complete the clinical trials of any of our product candidates, including MET409;

∎ the success, cost and timing of our product development activities, including our ongoing and planned clinical trials of MET409;

∎ the size of the markets for our product candidates, and our ability to serve those markets;

∎ our ability to successfully commercialize our product candidates, including MET409;

∎ the rate and degree of market acceptance of our product candidates, including MET409;

∎ our ability to develop and maintain sales and marketing capabilities, whether alone or with potential future collaborators;

∎ regulatory developments in the United States and foreign countries;

∎ the performance of our third-party service providers, including our suppliers and manufacturers;

∎ the safety, efficacy and market success of competing therapies that are or become available;

∎ our ability to attract and retain key scientific or management personnel;

∎ our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;

∎ our ability to attract and retain collaborators with development, regulatory and commercialization expertise;

∎ our use of the proceeds from this offering;

∎ the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; and

∎ our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates, including MET409, and our ability to operate our business without infringing on the intellectual property rights of others.

In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this prospectus and are subject to risks and uncertainties. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. We discuss many of the risks associated with the forward-looking statements in this prospectus in greater detail under the heading “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

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You should carefully read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this prospectus by these cautionary statements.

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $                million (or approximately $                million if the underwriters’ option to purchase additional shares is exercised in full) from the sale of the shares of common stock offered by us in this offering, based on an assumed initial public offering price of $                per share (the midpoint of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase (decrease) in the assumed initial public offering price of $                per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering by approximately $                million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, a one million share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us by $                , assuming the assumed initial public offering price of $                per share (the midpoint of the price range set forth on the cover page of this prospectus) remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to obtain additional capital to support our operations, to create a public market for our common stock and to facilitate our future access to the public equity markets. We anticipate that we will use the net proceeds of this offering as follows:

∎ to                ; and

∎ for working capital and other general corporate purposes, including the additional costs associated with being a public company.

We may also use a portion of the net proceeds from this offering to in-license, acquire, or invest in complementary businesses, technologies, products or assets. However, we have no current plans, commitments or obligations to do so.

We believe that the net proceeds from this offering and our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations through at least the next                 months, although there can be no assurance in that regard.

Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering, or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of the net proceeds will vary depending on numerous factors, including the progress, cost and results of our preclinical and clinical development programs, our ability to obtain additional financing, and other factors described under “Risk Factors” in this prospectus, as well as the amount of cash used in our operations and any unforeseen cash needs. We may find it necessary or advisable to use the net proceeds for other purposes, and our management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds from this offering.

Pending their use, we plan to invest the net proceeds from this offering in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our board of directors may deem relevant, and subject to the restrictions contained in any future financing instruments.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of March 31, 2018 as follows:

∎ on an actual basis;

∎ on a pro forma basis to reflect (1) the conversion of all outstanding shares of our convertible preferred stock as of March 31, 2018 into 54,433,311 shares of our common stock and the related reclassification of the carrying value of the convertible preferred stock to permanent equity in connection with the completion of this offering, and (2) the filing of our amended and restated certificate of incorporation immediately prior to the completion of this offering; and

∎ on a pro forma as adjusted basis to give further effect to our issuance and sale of                shares of common stock in this offering at an assumed initial public offering price of $                per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma and pro forma as adjusted information below is illustrative only, and our cash and cash equivalents and capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this information in conjunction with our financial statements and the related notes included in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other financial information contained in this prospectus.

	AS OF MARCH 31, 2018
	ACTUAL			PRO FORMA	PRO FORMA AS ADJUSTED (1)
	(unaudited, in thousands, except share data)
Cash and cash equivalents	$	29,125		$	$
Capitalization:
Convertible preferred stock, $0.0001 par value; 54,433,311 shares authorized; 54,433,311 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted	$	57,600		$	$
Stockholders’ equity (deficit):
Preferred stock, $0.0001 par value; no shares authorized, issued and outstanding, actual;             shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted		—
Common stock, $0.0001 par value; 75,000,000 shares authorized; 13,571,059 shares issued and 10,218,039 shares outstanding, actual;             shares authorized,             shares issued and             shares outstanding, pro forma;             shares authorized,             shares issued and             shares outstanding, pro forma as adjusted		1
Additional paid-in capital		1,974
Accumulated deficit		(32,949	)
Total stockholders’ equity (deficit)		(30,974	)
Total capitalization	$	26,626		$	$

(1) Each $1.00 increase (decrease) in the assumed initial public offering price of $                 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $                 , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase

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(decrease) of one million shares in the number of shares offered by us at the assumed initial public offering price per share of $                 (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $                 , after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The number of shares in the table above excludes, as of March 31, 2018:

∎ 1,897,071 shares of common stock issuable upon the exercise of outstanding options as of March 31, 2018, at a weighted-average exercise price of $0.16 per share;

∎              shares of common stock reserved for future issuance under our 2018 Plan which will become effective upon the execution and delivery of the underwriting agreement for this offering (including shares of common stock reserved for issuance under our 2015 Plan which shares will be added to the shares reserved under the 2018 Plan upon its effectiveness);

∎              shares of common stock reserved for issuance under the ESPP, which will become effective upon the execution and delivery of the underwriting agreement for this offering; and

∎ 30,660,377 shares of common stock issuable upon the conversion of the shares of Series C convertible preferred stock issued by us in June 2018 to investors in our Series C convertible preferred stock financing.

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering.

As of March 31, 2018, we had a historical net tangible book deficit of $(31.0) million, or $(2.28) per share of common stock. Our historical net tangible book deficit per share represents the amount of our total tangible assets less total liabilities and convertible preferred stock, divided by the total number of shares of common stock outstanding (including 3,353,020 shares of restricted common stock which are subject to a right of repurchase by us) at March 31, 2018.

After giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock as of March 31, 2018 into 54,433,311 shares of our common stock and the related reclassification of the carrying value of the convertible preferred stock to permanent equity in connection with the completion of this offering, our pro forma net tangible book value as of March 31, 2018 is $                million, or $                per share of our common stock.

After giving further effect to the sale of                shares of common stock that we are offering at the initial public offering price of $                per share (the midpoint of the price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2018 is $                million, or approximately $                per share. This amount represents an immediate increase in pro forma net tangible book value of $                per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $                 per share to new investors participating in this offering.

Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution:

Assumed initial public offering price per share				$
Historical net tangible book deficit per share at March 31, 2018, before giving effect to this offering	$	(2.28	)
Pro forma increase in historical net tangible book value per share attributable to conversion of all outstanding shares of convertible preferred stock
Pro forma net tangible book value per share at March 31, 2018, before giving effect to this offering	$
Increase in pro forma net tangible book value per share attributable to investors participating in this offering
Pro forma as adjusted net tangible book value per share after this offering
Dilution per share to new investors participating in this offering				$

Each $1.00 increase (decrease) in the assumed initial public offering price of $                per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $                , and dilution in pro forma net tangible book value per share to new investors by approximately $                , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.

An increase of one million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase our pro forma as adjusted net tangible book value per share after this offering by approximately $                and decrease the dilution to investors participating in this offering by approximately $                per share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us. Similarly,

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a decrease of one million shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease the pro forma as adjusted net tangible book value per share after this offering by approximately $                and increase the dilution to investors participating in this offering by approximately $                per share, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions and the estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares of our common stock in full in this offering, the pro forma as adjusted net tangible book value after the offering would be $            per share, the increase in pro forma as adjusted net tangible book value per share to existing stockholders would be $            per share and the dilution per share to new investors would be $            per share, in each case assuming an initial public offering price of $            per share (the midpoint of the price range set forth on the cover page of this prospectus).

The following table summarizes on a pro forma as adjusted basis as of March 31, 2018, the number of shares of common stock purchased or to be purchased from us, the total consideration paid or to be paid to us in cash and the average price per share paid by existing stockholders for shares issued prior to this offering and the price to be paid by new investors in this offering. The calculation below is based on the assumed initial public offering price of $             per share (the midpoint of the price range set forth on the cover page of this prospectus), before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table below shows, investors participating in this offering will pay an average price per share substantially higher than our existing stockholders paid.

	SHARES PURCHASED				TOTAL CONSIDERATION				AVERAGE PRICE PER SHARE
	NUMBER	PERCENT			AMOUNT	PERCENT
Existing stockholders					$				$
Investors participating in this offering
Total			100.0	%			100.0	%

Each $1.00 increase (decrease) in the assumed initial public offering price of $                per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and the average price per share paid by all stockholders by $                million, $                million and $                , respectively, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Similarly, a one million share increase (decrease) in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by investors participating in this offering, total consideration paid by all stockholders and the average price per share paid by all stockholders by approximately $                million, $                million and $                , respectively, assuming the assumed initial public offering price of $                per share (the midpoint of the price range set forth on the cover page of this prospectus) remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The foregoing tables and calculations exclude:

∎ 1,897,071 shares of common stock issuable upon the exercise of outstanding options as of March 31, 2018, at a weighted-average exercise price of $0.16 per share;

∎             shares of common stock reserved for future issuance under our 2018 Plan which will become effective upon the execution and delivery of the underwriting agreement for this offering (including shares of common stock reserved for issuance under our 2015 Plan which shares will be added to the shares reserved under the 2018 Plan upon its effectiveness);

∎             shares of common stock reserved for issuance under the ESPP, which will become effective upon the execution and delivery of the underwriting agreement for this offering; and

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∎ 30,660,377 shares of common stock issuable upon the conversion of the shares of Series C convertible preferred stock issued by us in June 2018 to investors in our Series C convertible preferred stock financing.

We may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent we issue additional shares of common stock or other equity or convertible debt securities in the future, there will be further dilution to investors participating in this offering.

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SELECTED FINANCIAL DATA

The following selected statements of operations data for the years ended December 31, 2016 and 2017 and the balance sheet data as of December 31, 2016 and 2017 are derived from our audited financial statements appearing elsewhere in this prospectus. The selected statements of operations data for the three months ended March 31, 2017 and 2018 and the balance sheet data as of March 31, 2018 have been derived from our unaudited financial statements included elsewhere in this prospectus. In our opinion, these unaudited financial statements have been prepared on a basis consistent with our audited financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such financial data. You should read these data together with our financial statements and related notes appearing elsewhere in this prospectus and the information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of the results to be expected in the future, and our operating results for the interim periods are not necessarily indicative of the results that may be expected for any other interim periods or any future year.

	YEARS ENDED DECEMBER 31,						THREE MONTHS ENDED MARCH 31,
	2016			2017			2017			2018
							(unaudited)
	(in thousands, except share and per share data)
Statement of Operations Data:
Collaboration revenues	$	—		$	1,450		$	—		$	725
Operating expenses:
Research and development		7,654			11,466			2,296			4,424
General and administrative		2,758			2,334			568			606
Total operating expenses		10,412			13,800			2,864			5,030
Loss from operations		(10,412	)		(12,350	)		(2,864	)		(4,305	)
Interest income		8			87			5			44
Net loss and comprehensive loss	$	(10,404	)	$	(12,263	)	$	(2,859	)	$	(4,261	)
Net loss per share, basic and diluted (1)	$	(1.99	)	$	(1.46	)	$	(0.38	)	$	(0.42	)
Weighted average shares of common stock outstanding, basic and diluted (1)		5,218,013			8,422,187			7,601,330			10,047,962
Pro forma net loss per share, basic and diluted (unaudited) (2)				$	(0.27	)				$	(0.07	)
Pro forma weighted average shares of common stock outstanding, basic and diluted (unaudited) (2)					46,129,471						64,481,273

(1)    See Note 1 to our financial statements appearing elsewhere in this prospectus for an explanation of the method used to calculate the basic and diluted net loss per common share and the number of shares used in the computation of the per share amounts.

(2)    The calculations for the unaudited pro forma net loss per common share, basic and diluted, and the pro forma weighted average shares of common stock outstanding, basic and diluted, assume the conversion of all our outstanding shares of convertible preferred stock into shares of our common stock, as if the conversion had occurred at the beginning of the period presented, or the issuance date, if later.

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	AS OF DECEMBER 31,						AS OF MARCH 31, 2018
	2016			2017
							(unaudited)
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	22,063		$	33,858		$	29,125
Working capital		20,255			30,386			25,542
Total assets		23,348			35,042			33,811
Convertible preferred stock		35,789			57,600			57,600
Accumulated deficit		(16,425	)		(28,688	)		(32,949	)
Total stockholders’ deficit		(14,658	)		(26,765	)		(30,974	)

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Financial Data” and our financial statements and related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the “Risk Factors” section of this prospectus to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a clinical-stage biopharmaceutical company focused on building an innovative pipeline of best-in-class drugs to treat liver and GI diseases. Our most advanced program is focused on FXR, an important drug target in multiple liver and GI diseases. We have leveraged our chemistry and biology expertise to internally discover a proprietary portfolio of non-bile acid FXR agonists. We purposefully designed MET409, our lead product candidate, to be an optimized, next-generation FXR agonist that we are initially developing as a potentially differentiated and best-in-class treatment for NASH. In addition, we plan to evaluate MET409 as a potential first-in-class treatment for IBS-D and IBD, such as UC and Crohn’s. Beyond our FXR program, we are building a pipeline of novel drug candidates against other drug targets by taking advantage of our drug discovery and development capabilities. MET409 is currently in Phase 1 clinical development and our other research and development programs are in discovery stage.

We are currently conducting a Phase 1 clinical trial of MET409 in healthy volunteers. In addition to monitoring safety and PK, we are assessing FXR target engagement in this trial via blood-based biomarkers. Following completion of the Phase 1 clinical trial, we plan to evaluate MET409 as a treatment for three liver and GI diseases in parallel, beginning with NASH. We plan to submit an IND, and following acceptance, initiate a Phase 1b clinical trial in NASH before the end of 2018 and Phase 2 clinical trials in NASH, IBS-D and UC in the first half of 2019.

To date, we have devoted substantially all of our resources to organizing and staffing our company, business, planning, raising capital, researching, discovering and developing our pipeline in FXR and other drug targets and general and administrative support for these operations. We do not have any products approved for sale and have not generated any product sales. We have funded our operations primarily through the private placement of convertible preferred stock. To date, we have raised gross proceeds of approximately $124.8 million from the issuance of convertible preferred stock. As of March 31, 2018, we had cash and cash equivalents of $29.1 million, which does not include gross proceeds of $65.0 million from the sale of shares of our Series C convertible preferred stock in June 2018, or the Series C financing.

We have incurred net losses since our inception. Our net losses were $12.3 million and $4.3 million, respectively, for the year ended December 31, 2017 and the three months ended March 31, 2018. As of March 31, 2018, we had an accumulated deficit of $32.9 million. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and preclinical studies and our expenditures on other research and development activities. We expect our expenses and operating losses will increase substantially as MET409 and any future product candidates advance through preclinical studies and clinical trials, and as we expand our clinical, regulatory, quality and manufacturing capabilities, incur significant commercialization expenses for marketing, sales, manufacturing and distribution, if we obtain marketing approval for any of our product candidates, and incur additional costs associated with operating as a public company.

We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more product candidates, which will not be for many years, if ever. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, potentially including collaborations and other similar arrangements. However, we may be unable to raise additional

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funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, reduce or terminate our research and development programs or other operations, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Financial Operations Overview

Revenues

To date, we have not generated any revenues from the commercial sale of any products, and we do not expect to generate revenues from the commercial sale of any products for the foreseeable future, if ever. For the year ended December 31, 2017 and the three months ended March 31, 2018, revenues were derived from the $2.9 million non-refundable, non-creditable upfront fee we received under our research collaboration with Novo Nordisk A/S, or Novo, that concluded in July 2018.

Research and Development Expenses

To date, our research and development expenses have related primarily to discovery efforts and preclinical and clinical development of our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

Research and development expenses include:

∎ salaries, payroll taxes, employee benefits and stock-based compensation charges for those individuals involved in research and development efforts;

∎ external research and development expenses incurred under agreements with contract research organizations, or CROs, investigative sites and consultants to conduct our preclinical, toxicology and clinical studies;

∎ laboratory supplies;

∎ costs related to manufacturing MET409 for clinical trials and preclinical studies, including fees paid to third-party manufacturers;

∎ costs related to compliance with regulatory requirements;

∎ facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, insurance, equipment and other supplies; and

∎ license fees to The Salk.

The following table summarizes our research and development expenses allocated by program for the periods indicated (in thousands):

	YEARS ENDED DECEMBER 31,				THREE MONTHS ENDED MARCH 31,
	2016		2017		2017		2018
MET409	$	4,291	$	6,423	$	1,124	$	2,531
Other research programs		3,363		5,043		1,172		1,893
Total	$	7,654	$	11,466	$	2,296	$	4,424

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We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of MET409 and discovery of new product candidates. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future clinical trials and preclinical studies of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and

future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

Our clinical development costs may vary significantly based on factors such as:

∎ per patient trial costs;

∎ the number of trials required for approval;

∎ the number of sites included in the trials;

∎ the countries in which the trials are conducted;

∎ the length of time required to enroll eligible patients;

∎ the number of patients that participate in the trials;

∎ the number of doses that patients receive;

∎ the drop-out or discontinuation rates of patients;

∎ potential additional safety monitoring requested by regulatory agencies;

∎ the duration of patient participation in the trials and follow-up;

∎ the phase of development of the product candidate; and

∎ the efficacy and safety profile of the product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and insurance costs. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities and, if any of our product candidates receive marketing approval, commercialization activities. We also anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs associated with operating as a public company.

Interest Income

Interest income consists primarily of interest income from our money market fund.

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Results of Operations

Comparison of the Three Months Ended March 31, 2017 and 2018

The following table summarizes our results of operations for the three months ended March 31, 2017 and 2018:

	THREE MONTHS ENDED MARCH 31,						CHANGE
	2017			2018
	(unaudited, in thousands)
Collaboration revenues	$	—		$	725		$	725
Operating expenses:
Research and development		2,296			4,424			2,128
General and administrative		568			606			38
Total operating expenses		2,864			5,030			2,166
Loss from operations		(2,864	)		(4,305	)		(1,441	)
Interest income		5			44			39
Net loss	$	(2,859	)	$	(4,261	)	$	(1,402	)

Collaboration Revenues. The $0.7 million increase in collaboration revenues was due to the revenue we recognized on the $2.9 million upfront payment from Novo.

Research and Development Expenses. Research and development expenses were $2.3 million and $4.4 million for the three months ended March 31, 2017 and 2018, respectively. The increase of $2.1 million was due primarily to increases of $0.9 million of preclinical study related expenses and $0.9 million of manufacturing related expenses in support of our FXR program, and $0.3 million of personnel related expenses.

General and Administrative Expenses. General and administrative expenses were $0.6 million for both the three months ended March 31, 2017 and 2018. Although general and administrative expenses were substantially the same for the three months ended March 31, 2017 and 2018, we had an underlying increase of $0.1 million in patent costs offset by decreases in other general and administrative expenses.

Comparison of the Years Ended December 31, 2016 and 2017

The following table summarizes our results of operations for the years ended December 31, 2016 and 2017:

	YEARS ENDED DECEMBER 31,						CHANGE
	2016			2017
	(in thousands)
Collaboration revenues	$	—		$	1,450		$	1,450
Operating expenses:
Research and development		7,654			11,466			3,812
General and administrative		2,758			2,334			(424	)
Total operating expenses		10,412			13,800			3,388
Loss from operations		(10,412	)		(12,350	)		(1,938	)
Interest income		8			87			79
Net loss	$	(10,404	)	$	(12,263	)	$	(1,859	)

Collaboration Revenues. The $1.5 million increase in collaboration revenues was due to the revenue we recognized on the $2.9 million upfront payment from Novo.

Research and Development Expenses. Research and development expenses were $7.7 million and $11.5 million for the years ended December 31, 2016 and 2017, respectively. The increase of $3.8 million was due primarily to increases of $1.6 million of manufacturing related expenses and $1.1 million of preclinical study related expenses in support of our FXR program, and $1.1 million of personnel related expenses.

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General and Administrative Expenses. General and administrative expenses were $2.8 million and $2.3 million for the years ended December 31, 2016 and 2017, respectively. The decrease was due primarily to a decrease of $0.4 million in consulting and outside services related to business development activities and a decrease of $0.3 million of personnel related expenses primarily due to non-recurring severance payments in 2016, offset by a $0.3 million increase in professional services related to corporate legal matters.

Liquidity and Capital Resources

We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of March 31, 2018, we had cash and cash equivalents of $29.1 million. In June 2018, we raised an aggregate of $65.0 million through the sale of 30,660,377 shares of Series C convertible preferred stock in the Series C financing.

The following table sets forth a summary of the net cash flow activity for each of the periods indicated:

	YEARS ENDED DECEMBER 31,						THREE MONTHS ENDED MARCH 31,
	2016			2017			2017			2018
	(in thousands)
							(unaudited)
Net cash provided by (used in):
Operating activities	$	(9,578	)	$	(10,053	)	$	(3,092	)	$	(4,495	)
Investing activities		(43	)		(420	)		—			(276	)
Financing activities		25,567			22,268			3			38
Net increase (decrease) in cash and cash equivalents	$	15,946		$	11,795		$	(3,089	)	$	(4,733	)

Operating Activities

Net cash used in operating activities was $3.1 million and $4.5 million for the three months ended March 31, 2017 and 2018, respectively. The net cash used in operating activities for the three months ended March 31, 2017 was primarily due to our net loss of $2.9 million, adjusted for $0.2 million of noncash charges and a $0.4 million change in operating assets and liabilities. The net cash used in operating activities for the three months ended March 31, 2018 was primarily due to our net loss of $4.3 million, adjusted for $0.2 million of noncash charges and a $0.5 million change in operating assets and liabilities.

Net cash used in operating activities was $9.6 million and $10.1 million for the years ended December 31, 2016 and 2017, respectively. The net cash used in operating activities during the year ended December 31, 2016 was primarily due to our net loss of $10.4 million, adjusted for $0.7 million of noncash charges and a $0.1 million change in operating assets and liabilities. Net cash used in operating activities during the year ended December 31, 2017 was primarily due to our net loss of $12.3 million, adjusted for $0.8 million of noncash charges and a $1.4 million change in operating assets and liabilities.

Investing Activities

Net cash used in investing activities was due to property and equipment purchases in each period. The purchases primarily consisted of laboratory equipment.

Financing Activities and Funding Requirements

Net cash provided by financing activities for the three months ended March 31, 2017 and 2018 was primarily due to the proceeds from the exercise of stock options.

Net cash provided by financing activities was $25.7 million for the year ended December 31, 2016, primarily due to the net proceeds from the sale of Series A convertible preferred stock. Net cash provided by financing activities was $22.3 million for the year ended December 31, 2017, primarily due to $21.9 million of net proceeds from the sale of Series B convertible preferred stock and $0.3 million of proceeds from the exercise of stock options.

We believe that our existing cash and cash equivalents, together with the estimated net proceeds from this offering, will be sufficient to meet our anticipated cash requirements through at least the next                 months. In particular, we expect the net proceeds from this offering will allow us to complete                  and                . However, our forecast

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of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could expend our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.

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

∎ the scope, rate of progress and costs of our drug discovery, preclinical development activities, laboratory testing and clinical trials for our product candidates;

∎ the number and scope of clinical programs we decide to pursue;

∎ the scope and costs of manufacturing development and commercial manufacturing activities;

∎ the cost, timing and outcome of regulatory review of our product candidates;

∎ the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

∎ the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;

∎ our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates;

∎ the costs associated with being a public company;

∎ the timing of any milestone and royalty payments to The Salk or other future licensors;

∎ the extent to which we acquire or in-license other product candidates and technologies; and

∎ the cost associated with commercializing our product candidates, if they receive marketing approval.

Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations at December 31, 2017 (in thousands):

	PAYMENTS DUE BY PERIOD
	TOTAL		LESS THAN 1 YEAR		1-3 YEARS		3-5 YEARS		MORE THAN 5 YEARS
Operating lease obligations (1)	$	4,134	$	738	$	1,482	$	1,731	$	183
Total	$	4,134	$	738	$	1,482	$	1,731	$	183

⁽¹⁾ Our operating lease obligations primarily relate to our current corporate headquarters and laboratory space in San Diego, California.

Under a license agreement with The Salk, or the FXR License Agreement, we have payment obligations that are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones and are required to make development milestone payments and royalty payments in connection with the sale of products developed under that agreement. As of December 31, 2017, we were unable to estimate the timing

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or likelihood of achieving the milestones or making future product sales and, therefore, any related payments are not included in the table above. For additional information regarding the FXR License Agreement, including our payment obligations thereunder, see “License Agreement — FXR” in the “Business” section of this prospectus and Notes 3 and 8 to our financial statements appearing elsewhere in this prospectus.

We enter into contracts in the normal course of business with clinical trial sites and clinical supply manufacturers and with vendors for preclinical studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts and not included in the table above.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 1 to our financial statements appearing elsewhere in this prospectus, we believe the following accounting policies and estimates to be most critical to the preparation of our financial statements.

Revenue Recognition

Effective January 1, 2017, we adopted Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, or Topic 606, using the full retrospective transition method. As we did not have any revenue contracts prior to the second quarter of 2017, an adjustment to prior periods under this method was not applicable. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Our research collaboration with Novo is within the scope of Topic 606 as it is a contract with a customer that transfers the output of our ordinary activities for consideration. We determined the transaction price is equal to the up-front fee of $2.9 million. The research collaboration was deemed to contain a single combined performance obligation comprising services for research work and exclusivity that are not distinct from one another. As the services provided are predominately comprised of internal research efforts that are deemed to be expended evenly throughout the performance period, we are recognizing the revenue on a straight-line basis.

Accrued Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service

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performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. 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. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced.

We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development 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. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. 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 the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Stock-Based Compensation Expense

Stock-based compensation expense represents the cost of the grant date fair value of employee awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We account for awards to nonemployees using the fair value method. Awards to nonemployees are subject to periodic revaluation over their vesting terms and were not material for all periods presented. We estimate the fair value of all stock option grants using the Black-Scholes option pricing model and recognize forfeitures as they occur. Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. See Note 4 to our financial statements included elsewhere in this prospectus for information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted in the years ended December 31, 2016 and 2017 and the three months ended March 31, 2017 and 2018. As of March 31, 2018, the unrecognized stock-based compensation expense related to stock options was $0.6 million and is expected to be recognized as expense over a weighted average period of approximately 3.6 years. The intrinsic value of all outstanding stock options as of March 31, 2018 was approximately $    million, based on the estimated public offering price of $    per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, of which approximately $    million related to vested options and approximately $    million related to unvested options.

Common stock valuations

We are required to estimate the fair value of the common stock underlying our stock-based awards when performing fair value calculations, which is the most subjective input into the Black-Scholes option pricing model. The fair value of the common stock underlying our stock-based awards was determined on each grant date by our board of directors, taking into account input from management and independent third-party valuation analyses. All options to purchase shares of our common stock are intended to be granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant. In the absence of a public trading market for our common stock, on each grant date we develop an estimate of the fair value of our common stock in order to determine an exercise price for the option grants. Our determinations of the fair value of our common stock were made using methodologies, approaches

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and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately Held Company Equity Securities Issued as Compensation, or the Practice Aid.

Our board of directors considered various objective and subjective factors, along with input from management, to determine the fair value of our common stock, including:

∎ valuations of our common stock performed by independent third-party valuation specialists;

∎ our stage of development and business strategy, including the status of research and development efforts of our product candidates, and the material risks related to our business and industry;

∎ our results of operations and financial position, including our levels of available capital resources;

∎ the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;

∎ the lack of marketability of our common stock as a private company;

∎ the prices of our convertible preferred stock sold to investors in arm’s length transactions and the rights, preferences and privileges of our convertible preferred stock relative to those of our common stock;

∎ the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering or a sale of our company, given prevailing market conditions;

∎ trends and developments in our industry; and

∎ external market conditions affecting the life sciences and biotechnology industry sectors.

The Practice Aid prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to its common stock. The cost approach establishes the value of an enterprise based on the cost of reproducing or replacing the property less depreciation and functional or economic obsolescence, if present. The income approach establishes the value of an enterprise based on the present value of future cash flows that are reasonably reflective of our future operations, discounting to the present value with an appropriate risk adjusted discount rate or capitalization rate. The market approach is based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics. Each valuation methodology was considered in our valuations.

The various methods for allocating the enterprise value across our classes and series of capital stock to determine the fair value of our common stock in accordance with the Practice Aid include the following:

∎ Current Value Method. Under the current value method, once the fair value of the enterprise is established, the value is allocated to the various series of preferred and common stock based on their respective seniority, liquidation preferences or conversion values, whichever is greatest.

∎ Option Pricing Method, or OPM. Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options.

∎ Probability-Weighted Expected Return Method, or PWERM. The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.

Based on our early stage of development, the valuations used to determine the exercise price of our 2016 and 2017 stock option grants utilized the cost approach to determine our enterprise value and utilized the current value method to allocate enterprise value. Subsequent to our Series B convertible preferred stock financing in November 2017 we updated our common stock valuation methodology. As of December 31, 2017, and for our stock option grants in the first quarter of 2018, our common stock valuation utilized the back-solve method of the market approach to determine our enterprise value and the OPM to allocate enterprise value. The back-solve method assigns an implied enterprise value based on the most recent round of funding or investment and allows for the incorporation of the implied future benefits and risks of the investment decision assigned by an outside investor.

There are significant judgments and estimates inherent in the determination of the fair value of our common stock. These judgments and estimates include assumptions regarding our future operating performance, the time to complete an initial public offering or other liquidity event and the determination of the appropriate valuation

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methods. If we had made different assumptions, our stock-based compensation expense, net loss and net loss per common share could have been significantly different.

Following the completion of this offering, the fair value of our common stock will be based on the closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.

Other Company Information

Net Operating Loss and Research and Development Carryforwards and Other Income Tax Information

At December 31, 2017, we had federal and state net operating loss carryforwards of $26.7 million and $15.1 million, respectively. The federal and state loss carryforwards begin to expire in 2034 unless previously utilized. As of December 31, 2017, we also had federal and state research credit carryforwards of $0.4 million and $0.6 million, respectively. The federal research and development tax credit carryforwards expire beginning in 2034. The state research and development tax credit carryforwards may be carried forward indefinitely.

We have not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future. Pursuant to Code Sections 382 and 383, annual use of our net operating loss and research and development tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period.

The Tax Cuts and Jobs Act, or the Act, was enacted on December 22, 2017. The Act includes a number of changes to then-existing U.S. tax laws that impact us, most notably a reduction of the U.S. federal corporate tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018. In conjunction with the tax law changes, the SEC staff issued Staff Accounting Bulletin 118, or SAB 118, to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In these instances, a company can record provisional amounts in its financial statements for the income tax effects for which a reasonable estimate can be determined. For items for which a reasonable estimate cannot be determined, a company should continue to apply ASC 740 based on the provisions of the tax laws that were in effect immediately prior to the Act being enacted. In accordance with SAB 118, we have determined that the remeasurement of deferred tax assets and liabilities were provisional amounts and reasonable estimates at December 31, 2017. As a result of the new law, we have remeasured its deferred tax assets based on the rates at which they are expected to reverse in the future, resulting in a reduction in the deferred tax asset balance of $3.7 million, which was offset by a reduction in the valuation allowance by a corresponding amount, resulting in no tax expense impact. The aforementioned provisional amounts are based on information available at this time and may change due to a variety of factors, including, among others, (i) anticipated guidance from the U.S. Department of Treasury about implementing the Act, (ii) potential additional guidance from the Securities and Exchange Commission or the FASB related to the Act and (iii) management’s further assessment of the Act and related regulatory guidance. We are not complete in our assessment of the impact of the Act on its business and financial statements. While the effective date of most of the provisions of the Act do not apply until our tax year beginning January 1, 2018 we will continue the assessment of the impact of the Act on our business and financial statements throughout the one-year measurement period as provided by SAB 118.

JOBS Act

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley.

Recent Accounting Pronouncements

In June 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2018-07, Compensation-Stock Compensation (Topic 718), or Topic 718, which simplifies the accounting for

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nonemployee share-based payment transactions. The amendments in the new guidance specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The new guidance will be effective for us in the first quarter of 2019. Early adoption is permitted, but no sooner than the adoption of Topic 606. We do not expect the adoption of this new guidance will have a material impact on our financial statements.

Recently Adopted Accounting Pronouncements

We elected to early adopt ASU No. 2016-02, Leases (Topic 842) as of January 1, 2017 with retrospective application to January 1, 2016. We elected to apply the package of practical expedients allowed by the standard for existing leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right-of-use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. We determine the initial classification and measurement of our right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified. We recognize a right-of-use asset for our operating leases with lease terms greater than 12 months. The lease term includes any renewal options and termination options that we are reasonably assured to exercise. The present value of lease payments is determined by using the incremental borrowing rate for operating leases. The incremental borrowing rate is determined based on the rate of interest that we would pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment. We applied the new guidance to our existing sublease at the time of adoption and recognized a right-of-use asset of $1.3 million and lease liability of $1.5 million and recorded a reversal of the previous deferred rent balance under the previous lease guidance of approximately $0.2 million. During the first quarter of 2018, we used the guidance for the analysis of our new facility lease.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in research and development and general and administrative expenses in the statements of operations.

Off-Balance Sheet Arrangements

During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our cash and cash equivalents consist of cash and a money market fund. We do not hold any short-term investments. As a result, the fair value of our portfolio is moderately insensitive to interest rate changes.

Foreign Currency

We incur expenses, including for manufacturing of clinical trial materials, outside the United States based on contractual obligations denominated in currencies other than the U.S. dollar, including Euros. At the end of each reporting period, these liabilities are converted to U.S. dollars at the then-applicable foreign exchange rate. As a result, our business is affected by fluctuations in exchange rates between the U.S. dollar and foreign currencies. We do not enter into foreign currency hedging transactions to mitigate our exposure to foreign currency exchange risks. Exchange rate fluctuations may adversely affect our expenses, results of operations, financial position and cash flows. However, to date, these fluctuations have not been significant and a movement of 10% in U.S. dollar to Euro exchange rate would not have a material effect on our results of operations.

Effects of Inflation

Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe inflation has had a material effect on our results of operations during the periods presented.

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BUSINESS

Company Overview

We are a clinical-stage biopharmaceutical company focused on building an innovative pipeline of best-in-class drugs to treat liver and gastrointestinal, or GI, diseases. Our most advanced program is focused on the farnesoid X receptor, or FXR, an important drug target in multiple liver and GI diseases. We have leveraged our chemistry and biology expertise to internally discover a proprietary portfolio of non-bile acid FXR agonists. We purposefully designed MET409, our lead product candidate, to be an optimized, next-generation FXR agonist that we are initially developing as a potentially differentiated and best-in-class treatment for nonalcoholic steatohepatitis, or NASH. In addition, we plan to evaluate MET409 as a potential first-in-class treatment for irritable bowel syndrome with diarrhea, or IBS-D, and inflammatory bowel diseases, or IBD, such as ulcerative colitis, or UC, and Crohn’s disease, or Crohn’s. Beyond our FXR program, we are building a pipeline of novel drug candidates against other drug targets by taking advantage of our drug discovery and development capabilities. MET409 is currently in Phase 1 clinical development and our other research and development programs are in discovery stage.

We are currently conducting a Phase 1 clinical trial of MET409 in healthy volunteers. In addition to monitoring safety and pharmacokinetics, or PK, we are assessing FXR target engagement in this trial via blood-based biomarkers. Following completion of the Phase 1 clinical trial, we plan to evaluate MET409 as a treatment for three liver and GI diseases in parallel, beginning with NASH. We plan to submit an investigational new drug application, or IND, and following acceptance, initiate a Phase 1b clinical trial in NASH before the end of 2018 and Phase 2 clinical trials in NASH, IBS-D and UC, in the first half of 2019.

NASH is a liver disease that exists along a continuum of progressive liver deterioration and is characterized by fatty deposits, inflammation and cellular damage, referred to as ballooning. Globally, an estimated 6% of the population has NASH with approximately 16 million patients in the United States as of 2015. Over time, individuals with NASH may develop scarring or fibrosis of the liver which can progress to loss of liver cells and irreversible scarring, or cirrhosis, and ultimately require liver transplant. There is an increased risk of liver cancer in NASH patients as well as a higher risk of death from cardiovascular disease. Today, there are no approved therapies for NASH, and the disease, therefore, represents a significant unmet medical need.

While numerous drug targets are being explored to treat NASH, it has been challenging to demonstrate significant clinical benefit across key disease characteristics of inflammation, ballooning and fibrosis. Targeting FXR has been shown clinically to improve each of these three characteristics of NASH. The FXR agonist class for the treatment of NASH has evolved over time as drug developers have sought to harness its potential; however, each iteration to date has had limitations. The first generation of FXR agonists are derived from a bile acid chemical structure which has demonstrated dose-limiting side effects, including pruritus (itching). However, first generation FXR agonists with sustained FXR engagement have been shown to improve NASH in clinical trials. The second generation of FXR agonists are based on non-bile acid chemical structures, but have shown transient engagement with FXR with once-daily dosing, which may limit efficacy. MET409, was purposefully designed to be a non-bile acid, sustained engagement FXR agonist with high potency that could be dosed orally once-daily. With this profile, we believe MET409 has the potential to be a best-in-class NASH drug, differentiated from other FXR agonists in development.

We also plan to develop MET409 as a potential first-in-class FXR agonist for GI diseases affecting large patient populations with high unmet needs. IBS-D is a functional GI disease whereby patients experience diarrhea and abdominal discomfort or pain. IBS-D affects up to an estimated 4% of the adult population in major markets, with an estimated nine million patients in the United States as of 2013. Prior clinical studies have shown that up to 30% of IBS-D patients have evidence of bile acid malabsorption, or BAM, which could account for their symptoms. As one key role of FXR is bile acid regulation, drugs that target FXR could reduce the bile acid pool and, in turn, reduce diarrheal symptoms in IBS-D patients with BAM. As there are several modalities to diagnose BAM, we believe it will be possible to use a precision medicine approach to identify and treat this subset of IBS-D patients.

In addition to IBS-D, we intend to develop MET409 for the treatment of IBD, including UC and Crohn’s, as we believe FXR plays a key role in the disease process. Patients with IBD can suffer from abdominal pain and bloody diarrhea and have increased risk of colorectal cancer. The global incidence of IBD is increasing and as of 2015, it

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was estimated that there were 3.1 million people in the United States with IBD. Global drug sales for IBD are approximately $9.0 billion annually, with injectable biologics commonly used to treat patients with moderate-to-severe IBD. While these biologic agents can be effective initially, they increase the risk of opportunistic infections and can be cumbersome to administer. In preclinical studies of our FXR agonists, we have observed improvement in colon inflammation on a level similar to that of biologics. We believe an oral once-daily drug, such as our FXR agonists, could be an attractive treatment option for IBD patients.

Our internal discovery and development expertise focuses on optimizing both safety and efficacy parameters for our FXR agonists. FXR is a nuclear hormone receptor expressed selectively in various tissues, including the liver and GI tract, and implicated in multiple cellular processes that regulate bile acids, lipid metabolism and inflammation. We believe that optimal therapeutic activation of the FXR pathway requires both a non-bile acid chemical structure and sustained exposure with continuous target engagement and once-daily oral dosing. Our lead product candidate, MET409, was purposefully designed to be a non-bile acid, sustained engagement FXR agonist with high potency that could be dosed orally once-daily. With this profile, we believe MET409 has the potential to be a best-in-class NASH drug, differentiated from other FXR agonists in development.

In addition to our FXR program, we have continued to invest in drug discovery on other drug targets, particularly in NASH. We have sought to identify drug targets that have effects on inflammation and/or fibrosis for which we believe we could develop proprietary small molecule drugs.

Below is a summary of our MET409 clinical development program:

Strategy

Our goal is to become a leading biopharmaceutical company discovering, developing and commercializing innovative drugs that materially benefit patients with liver and GI diseases. To achieve our goal, we plan to:

∎ Rapidly evaluate safety and clinical efficacy of MET409 in NASH. We have initiated a Phase 1 clinical trial of MET409 in healthy male volunteers to assess safety and PK, as well as FXR target engagement. Following the Phase 1 clinical trial, we plan to submit an IND and, following acceptance, initiate a Phase 1b clinical trial in NASH patients by the end of 2018. In the Phase 1b NASH clinical trial, we are planning to administer two doses of MET409 over four weeks to assess safety and FXR target engagement. We expect to have data from this Phase 1b clinical trial in the first half of 2019. Following this, we plan to move into a 12-week, placebo-controlled Phase 2 clinical trial to further evaluate two doses of MET409 for the treatment of NASH.

∎ Advance MET409 through full clinical development in NASH. We plan to expand our clinical infrastructure to advance MET409 through potential regulatory approval. Data from our planned Phase 1b and Phase 2 clinical trials should allow us to select optimal doses of MET409 and also identify key design principles for further clinical trials. With the rapidly evolving landscape in NASH, we plan to work with regulatory authorities to help identify an efficient development path to approval.

∎ Establish clinical proof-of-concept for MET409 in IBS-D and IBD. We plan to initiate proof-of-concept clinical trials for MET409 in 2019 for the treatment of both IBS-D and IBD following submission and acceptance of INDs. As potential first-in-class indications for our FXR program, we plan to design these clinical trials with relevant clinical endpoints to demonstrate the impact of MET409 on each of these diseases. For IBS-D, we plan to enroll patients with evidence of BAM. In IBD, we intend to conduct initial clinical trials in patients with UC.

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∎ Establish commercial capabilities to market MET409 and opportunistically seek partnerships. If MET409 is approved, we intend to establish a specialty sales force and develop targeted commercial capabilities in key geographies. In addition, we will opportunistically explore partnerships, particularly with entities who have strong capabilities in geographies outside the United States.

∎ Continue to leverage our expertise in drug discovery and development to expand our pipeline in FXR and other drug targets. We will continue to discover and develop novel drugs targeting FXR as well as other drug targets, particularly those involved in inflammation and/or fibrosis. Based on our internal chemistry and biology expertise, we believe we can build a robust innovative pipeline.

Management and Investors

We have assembled a team of experienced professionals across various disciplines who have successfully advanced life science products previously. Our co-founder and chairman, Richard Heyman, Ph.D., is a scientist and co-founder of five biotechnology companies, including Aragon Pharmaceuticals, Inc., or Aragon, and Seragon Pharmaceuticals, Inc., or Seragon. Our Chief Executive Officer, Ken Song, M.D., is a trained gastroenterologist, former venture capitalist, and was CEO of Ariosa Diagnostics, Inc. from its founding through its acquisition in 2015. Our Senior Vice President of Chemistry and Intellectual Property, Nick Smith, Ph.D., previously held leadership positions in drug discovery and development at Aragon, Seragon, and Merck. As of March 31, 2018, we had 29 full-time employees, the majority of whom hold advanced degrees and over 85% of whom are directly involved in research and development.

We have been funded to date by leading institutional investors such as Alexandria Venture Investments, ARCH Venture Partners, Arrowmark Partners, Deerfield Management, Franklin Templeton Investments, Invus, LifeSci Capital, Lilly Asia Ventures, NEA, Polaris Partners, venBio, Venrock Healthcare Capital Partners, and Vivo Capital.

Our Approach to Drug Discovery and Development

Since our founding in 2014, we have invested in building a foundation of chemistry and biology expertise to drive innovative drug discovery and development. We believe these internal capabilities give us insight into disease targets and mechanisms and enable us to quickly and purposefully design drug candidates with characteristics that we view as key to safety and efficacy. With this systematic approach, we have designed MET409, currently our only drug candidate in clinical development, as a novel FXR agonist and have identified a potential role for it in the treatment of NASH, IBS-D and IBD.

NAFLD and NASH Disease Overview

Non-alcoholic fatty liver disease, or NAFLD, is one of the most common liver disease worldwide and is associated with obesity, type-2 diabetes and metabolic syndrome. NAFLD refers to conditions in which the liver accumulates excess fat in the absence of excessive alcohol use. According to the National Institutes of Health, between 30-40% of adults in the United States have NAFLD and approximately 20% of those have NASH, which is characterized by inflammation and ballooning in the liver. Over time, individuals with NASH may develop scarring or fibrosis of the liver which can progress to cirrhosis. Approximately 40% of patients diagnosed with NASH progress to more advanced fibrosis or liver cirrhosis (fibrosis stage 2 and higher), which increases risk for hepatocellular carcinoma, or liver cancer, as well as cardiovascular disease. NASH is projected to overtake hepatitis C virus, or HCV, as the leading indication for liver transplant by the end of 2020. With an estimated 16 million patients in the United States with NASH and no approved therapies, there is a significant unmet need for this disease. NASH is commonly associated with obesity and type-2 diabetes and, as the prevalence of these conditions is expected to increase, the number of patients with NASH is projected to increase from 16 to 27 million patients in the United States by 2030.

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Current Disease Management and Unmet Need in NASH

Conventionally, NASH is diagnosed using liver biopsies and the NAFLD Activity Score, or NAS, is used to assess severity. The NAS evaluates and scores three categories on a low-to-high point scale system: (a) steatosis, or liver fat (0 to 3); (b) ballooning, which is a form of damage to liver cells (0 to 3); and (c) inflammation of the liver (0 to 2). The three categories are totaled with score ranges from 0 to 8, with higher scores indicating greater NASH severity. In addition to the NAS, liver histology is also assessed for fibrosis using a 0 to 4 stage scale. Stage 0 is no fibrosis, Stage 4 is cirrhosis, and intervening stages account for levels of fibrosis between Stage 0 and Stage 4.

Non-invasive methods to diagnose NASH and fibrosis are gaining traction. Both ultrasounds and magnetic resonance imaging, or MRIs, have shown the ability to assess hepatic steatosis and fibrosis with high accuracy. In addition, various blood tests have also been used to assess hepatic steatosis, which include measurements of common liver function markers such as aspartate aminotransferase, or AST, and alanine aminotransferase, or ALT, as well as more specialized markers of fibrosis.

Currently, there are no approved therapies for NASH and, while diet and lifestyle modifications for weight loss are the only options and are encouraged, adherence by patients is low. Medications are used to address common comorbidities of NASH, such as diabetes, but the effectiveness of this approach to treat or control NASH has been inconclusive. Given the significant need for NASH therapies, many companies are currently pursuing development of drugs across several mechanisms, with several having reported initial clinical trial results for novel approaches. While numerous drug targets are being explored to treat NASH, it has been challenging to demonstrate a significant clinical benefit across inflammation, ballooning and fibrosis. Efficacy in clinical trials is typically demonstrated by showing improvement or resolution of the NAS or reversal of fibrosis. Definitive assessment of both of these endpoints typically requires liver biopsy; however, non-invasive imaging and biomarkers are increasingly being used for assessment as they correlate with findings on liver biopsy.

FXR in NASH

Certain drugs that target FXR and its pathway have shown, in liver biopsies, significant clinical benefit across the areas of inflammation, ballooning and/or fibrosis. Expressed selectively in various tissues, including the liver and GI tract, FXR is a nuclear hormone receptor implicated in multiple cellular processes that regulate bile acids, lipid metabolism and inflammation. FXR activation in the GI tract leads to release of fibroblast growth factor 19, or FGF19, which signals through receptors in the liver. Preclinical and clinical studies have shown that FGF19 signaling with use of an engineered FGF19 variant can have a beneficial impact in NASH. However, FGF19 variants require daily injection associated with injection site reactions, have demonstrated significant elevations in low density lipoprotein, or LDL, cholesterol, preclinically and in clinical trials, and also can cause gastrointestinal side effects. Preclinical studies have shown the importance of targeting FXR directly in the liver beyond FGF19 signaling alone. The first generation of FXR agonists, an example of which is obeticholic acid, or OCA, contains a bile acid chemical structure. In published clinical studies, OCA has shown sustained FXR engagement with once-daily oral dosing and demonstrated clinical benefit, measured by liver biopsy for both NAS and fibrosis improvement. However, pruritus associated with OCA has limited the use of higher doses in clinical trials. In addition, OCA is characterized by adverse effects of increased LDL cholesterol and liver toxicity. In an effort to avoid the dose-limiting adverse effects potentially attributed to the bile-acid chemical structure of these first generation FXR agonists, second generation FXR agonists were designed based on non-bile acid chemical structures. While this may confer an advantage in terms of adverse effects as they appear to be better tolerated in early clinical trials, the second generation FXR agonists have shown transient FXR engagement with once-daily oral dosing, which may limit efficacy. Based on clinical data from OCA trials and preclinical studies in NASH mouse models, we believe that sustained FXR engagement is more effective than transient FXR engagement.

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Our Solution — MET409 — a Non-Bile Acid FXR Agonist for the Treatment of NASH

Since our founding in 2014, we invested in building a foundation of chemistry and biology expertise to drive innovative drug discovery and development. We believe these internal capabilities allow us to gain insights into disease targets and mechanisms and more quickly and purposefully design drugs with characteristics that we view as key to safety and efficacy. With this systematic approach, we have designed our lead product candidate MET409 as a novel FXR agonist and have identified a potential role for it in the treatment of NASH, IBS-D and IBD. MET409, was purposefully designed to be a non-bile acid, sustained engagement FXR agonist with high potency that could be dosed orally once-daily. With this profile, we believe MET409 has the potential to be a best-in-class NASH drug, differentiated from other FXR agonists in development.

MET409 DESIGN FEATURE	POTENTIAL BENEFIT
No bile acid or steroidal elements (non-bile acid)	Safety
Sustained FXR engagement	Efficacy
Selective and potent for FXR	Safety and Efficacy
Oral, once-daily dosing	Compliance and Convenience

Based on in vitro assays, MET409 selectively binds FXR at 16 nanomolar, which is approximately seven-fold more potent than OCA which binds FXR at 116 nanomolar in the same assay, supporting a wide potential therapeutic window. MET409 is designed to be dosed orally, once-daily and has shown sustained FXR target engagement in multiple preclinical animal models based on PK as well as blood biomarkers. In our preclinical testing using NASH mouse models, MET409 has shown statistically significant improvement in NAS and fibrosis as further described below.

Phase 1 Clinical Trial of MET409

In June 2018, we initiated a Phase 1 clinical trial of MET409 in healthy male volunteers in the Netherlands. The trial involves two parts — (1) a single-ascending dose and (2) a multiple-ascending dose in which subjects are given MET409 for 14 days at increased doses. While the primary objectives of this trial are to evaluate PK and safety, we will also evaluate FXR target engagement through the measurement of FGF19 and 7a-Hydroxy-4-cholesten-3-one, or C4, blood biomarkers. FGF19 and C4 are both regulated in response to activation of FXR. FGF19 blood levels increase with FXR activation in the GI tract, and C4, a marker of bile acid synthesis in the liver, decreases with FXR activation.

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Preclinical MET409 Studies in NASH

Our initial studies of MET409 in mice demonstrated that after a single oral dose, FXR engagement — in both the liver and GI tract, particularly the ileum — continued for at least 24 hours. This was determined by measuring the expression of direct FXR target genes. We have conducted preclinical studies using our internally-developed FXR agonists with transient or sustained FXR engagement in NASH models. In these studies, we observed that FXR agonists with more sustained FXR engagement led to better improvements in both fibrosis and NAS. The conventional method for measuring the statistical significance of a result is known as the “P value”, which represents the probability that random chance caused the result. Generally, a P value of 0.05 or less is considered a statistically significant result. In the chart below and all subsequent charts where P values are included, a P value of less than 0.05 is indicated by an asterisk.

FXR Agonist NAFLD Activity Score

Mean with SEM (standard error of mean) * P<0.05 relative to vehicle

We evaluated MET409 in a NASH mouse model where male mice were placed on a diet high in fat, fructose and cholesterol for 30 weeks. Biopsied livers identified mice that had developed NASH (fibrosis stage ³ 1 and hepatic steatosis score ³ 2). Mice with confirmed NASH were then randomized into different treatment groups of MET409 at 3 and 10 mg/kg as well as a vehicle control administered orally daily for eight weeks (n=12 per group). Plasma was collected to measure liver enzymes, total cholesterol, or TC, and triglycerides, or TG, four and eight weeks after treatment initiation.

The following image shows the study design:

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Following four weeks’ and eight weeks’ of treatment, MET409 improved blood levels of ALT, AST as well as cholesterol at both time points. In addition, blood insulin levels, which were measured seven weeks into treatment, decreased, and liver fat content improved, as demonstrated by decreases of liver triglycerides by 86% and 93% at doses of MET409 of 3 mg/kg and 10mg/kg, respectively, as compared to vehicle after eight weeks of treatment.

Mean with SEM, * P<0.05 relative to vehicle

After eight weeks of treatment, blinded evaluation of liver histology showed MET409 improved NASH as measured by changes in the NAS. Changes in NAS for each mouse was derived from its own baseline NAS value. MET409 at 3 and 10 mg/kg led to significant decreases in all three parameters of the NAS — steatosis, inflammation and ballooning.

Mean with SEM; * P<0.05 relative to vehicle.

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At the end of treatment, livers were also assessed for fibrosis. MET409 significantly decreased liver fibrosis by approximately 50% when evaluating it by liver histology. The two primary histologic endpoints of NAS and fibrosis significantly improved with MET409 treatment.

Mean with SEM; *P<0.05 relative to vehicle.

A follow-up study of MET409 in this same NASH model evaluated the time course at which MET409 improved various NASH related parameters. Using the same model, MET409 at 10mg/kg was orally administered daily for two, four, or eight weeks. Liver fat content, as assessed by liver triglycerides, showed statistically significant improvement with MET409 treatment as early as two weeks. As compared to vehicle control, MET409 decreased liver triglycerides by 88%, 91%, and 93% at two, four and eight weeks, respectively.

Mean with SEM; *P<0.05 relative to vehicle.

Blood levels of ALT and AST also showed rapid normalization with MET409 in as early as two weeks of treatment. NAS scores showed improvement as early as two weeks with maximal benefit seen at eight weeks. A fibrosis benefit was seen only in the eight-week treatment arm and we believe these findings suggest that early resolution of liver fat and other parameters can have an eventual fibrosis benefit.

This same NASH mouse model has been used to evaluate other drug mechanisms. Studies were carried out at different times, and they were not conducted head to head with MET409, but the same contract research organization performed the studies using the same protocol. While liraglutide (a GLP-1 receptor agonist, currently prescribed to treat type-2 diabetes and obesity), elafibranor (a PPARa/d agonist), and OCA (a bile acid derivative

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FXR agonist) showed statistically significant improvements in NASH as measured by the NAS, MET409 showed the most robust improvement in these independent studies.

References: Tølbøl KS et al. World J Gastroenterol. 2018; internal data

MET409 has also been evaluated in other preclinical NASH models, in which disease is induced using a combination of chemical insult to tissues as well as high fat diet feeding. In these models, treatment with MET409 has shown statistically significant improvement in NAS (score of 1.4 for MET409 vs 4.8 for vehicle control) and fibrosis (score of 1.4 for MET409 vs 2.1 for vehicle control).

Safety and PK of MET409

We have completed several preclinical studies in mice and non-human primates, or NHPs, to characterize the mechanism, safety and toxicology of MET409. To date, we have evaluated the safety of MET409 in animals dosed up to 28 days in IND-enabling Good Laboratory Practice, or GLP, toxicology studies, and have observed no material behavioral or physiological changes in treated animals or notable adverse effects on cardiovascular, respiratory or other systems. Liver weight increases as well as elevations in bilirubin and alkaline phosphatase in the blood have been observed, which we believe reflect FXR pharmacology. No significant safety findings were observed across preclinical studies that evaluated oral dose levels of MET409 at a predicted safety margin (dose tested in safety study over dose demonstrating therapeutic activity) of approximately 60-fold and 120-fold in rats and NHPs, respectively.

The PK and pharmacodynamic, or PD, characteristics of MET409 have been well characterized in rodents and NHPs. PK refers to the study of drug absorption, distribution, metabolism and elimination. PD refers to the study of the effects a drug, including the mechanism of action of the drug and effects of various doses or concentrations of the drug.

Further, we have shown bioavailability of MET409 as an oral, single-tablet formulation. MET409 has a mean elimination half-life of 7.7 to 12 hours based on single, oral dosing in NHPs up to 30 mg/kg. No adverse effects have been observed at doses up to 50 mg/kg in rat and 150 mg/kg in NHP dosed for 28 days. We plan to initiate longer-term GLP toxicology studies in animals by the end of 2018 in advance of our planned Phase 2 clinical trials.

Planned Clinical Trials of MET409 for NASH

We plan to submit an IND and, following acceptance, initiate a Phase 1b clinical trial before year end 2018 in which we will evaluate MET409 for four weeks in NASH patients. The doses to be evaluated will be based on FXR target engagement and safety observed in our ongoing Phase 1 clinical trial in healthy volunteers. The primary purpose of the trial will be to assess PK, safety and evidence of FXR target engagement as measured by blood levels of C4 and FGF19. In addition, we plan to do an exploratory analysis on whether MET409 has any early effect on liver fat reduction as measured by imaging using MRI-derived proton density fat fraction imaging, or MRI-PDFF, and NASH-related blood biomarkers.

Following the Phase 1b clinical trial, we plan to initiate a 12-week, placebo controlled, Phase 2 clinical trial for the treatment of NASH in the first half of 2019. This clinical trial will require a liver biopsy during screening so as to

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select patients with a defined level of NASH disease activity as well as a defined stage of liver fibrosis. The doses of MET409 will be selected based on our analysis of the results from our Phase 1b clinical trial. The primary endpoint for this clinical trial will be a change in liver fat at 12 weeks as measured by MRI-PDFF. Secondary endpoints will include evaluation of change in NASH and liver fibrosis biomarkers and safety.

Our FXR Program for the Treatment of GI Diseases

We believe that targeting FXR can have a beneficial impact in both IBS-D and IBD, such as UC and Crohn’s. These diseases afflict a large number of patients and there continues to be a need for new therapies. We intend to file INDs and initiate Phase 2 clinical trials of MET409 for the treatment of IBS-D and UC in the first half of 2019.

IBS-D Overview

IBS-D affects up to an estimated 4% of the adult population in major markets, with an estimated nine million patients in the United States as of 2013. Patients with IBS-D experience abdominal discomfort and pain, bloating, urgency and diarrhea. While the causes of IBS-D can vary, approximately 30% of IBS-D patients show evidence of BAM. Bile acids enhance mucosal permeability, induce water and electrolyte secretion, and accelerate movement through the colon. In addition, BAM may induce changes in the fecal microbiome, which could contribute to symptoms.

Diagnosis of BAM has traditionally involved 48-hour stool collections with analysis of fecal bile acids. In certain countries outside the United States, a nuclear medicine test, the SeHCAT scan, has been used to diagnose BAM. The principles of the test involve ingestion of a radio-labeled bile acid with monitoring to gauge how much is retained over time. While 48-hour stool collection and SeHCAT scan are robust modalities for diagnosing BAM, they are cumbersome or not broadly available. More recently, non-invasive methods to diagnose BAM have been explored. These include the analysis of blood levels of C4 and FGF19. In patients with BAM, C4 is increased and FGF19 levels are decreased. Utilizing these blood-based biomarkers may provide a simpler way to identify patients with BAM, and commercial laboratories have begun offering C4 testing for this purpose. In addition, we believe it may be possible to use a single random stool sample rather than a 48-hour stool collection to identify patients with BAM.

Current pharmacologic management of IBS-D patients with BAM typically involves the use of drugs such as cholestyramine, colestipol and colesevelam, which are resins taken orally to bind bile acids. However, compliance with taking such medicines is poor given the adverse GI effects and cumbersome administration due to palatability and dose. We believe targeting FXR offers potential for development as a novel treatment for IBS-D patients with BAM given FXR’s regulation of bile acid metabolism. Drugs that engage with FXR can reduce bile acid production thereby providing a potential effective treatment for patients with BAM. A previously-published pilot study using the oral FXR agonist OCA in patients with BAM (IBS-D and other patients as well) led to improvements in bowel habits with just two weeks of therapy with habits rebounding upon cessation of treatment. Patients on OCA also experienced changes in FGF19 and C4 consistent with FXR activation.

Development Plan in IBS-D

After we evaluate the preliminary safety profile of MET409 in our ongoing Phase 1 clinical trial, we plan to pursue a precision medicine-based approach for IBS-D. By using diagnostic methods involving blood biomarkers or stool to identify IBS-D patients with BAM, we believe we can predict the subset of patients who likely will respond to treatment with FXR agonists. We plan to submit an IND, and following acceptance, initiate a Phase 2 clinical trial in the first half of 2019 to evaluate MET409 in IBS-D patients with BAM. Patients will be randomized to placebo or MET409 and be treated for four weeks. The primary objectives of the trial will be to evaluate the ability of MET409 to show a clinically meaningful improvement in bowel symptoms such as stool frequency and stool form using the Bristol Stool Form Scale, a diagnostic tool designed to classify human feces, as well as to evaluate safety and tolerability. Secondary objectives will be to assess symptom improvement using patient questionnaires.

IBD Overview

IBD is a significant global health issue and is thought to occur due to a maladaptive immune response to gut microbes. UC and Crohn’s are the two primary types of IBD. Patients with IBD can suffer from abdominal pain and bloody diarrhea and also be at increased risk of colorectal cancer. The global incidence of IBD is increasing and as of 2015, it was estimated that there were 3.1 million people in the United States with IBD. The cost of care for IBD is significant with annual global IBD drug sales of approximately $9.0 billion.

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UC is characterized by continuous mucosal inflammation, which begins in the rectum and may extend to parts of or all of the colon. In contrast, Crohn’s is characterized by full thickness inflammation that can occur anywhere in the GI tract but most typically involves the small intestine and colon. Crohn’s can lead to fistulas and strictures which may necessitate surgical intervention. Symptoms for UC and Crohn’s can vary, depending on the location and severity of inflammation, but some of the most common symptoms are diarrhea, abdominal cramps and rectal bleeding. Extraintestinal manifestations of IBD such as arthritis, skin rash and liver disease can also occur.

Goals in treatment of IBD are to induce and maintain remission while improving the patient’s quality of life. For patients with moderate-to-severe IBD, medical treatment options have limitations in terms of long-term efficacy and side effects and have complicated administration regimens. Injectable biologics have become a mainstay of treatment in IBD patients. While these agents can be effective, they increase the risk of opportunistic infections and can be cumbersome to administer. Regardless of therapy, most patients with IBD will become refractory to treatment and, therefore, novel therapies are needed for this condition. We believe that an oral once-daily treatment for IBD that does not increase risk of infections could be a beneficial treatment for patients.

Mechanism of MET409 in IBD and Preclinical Studies

We believe FXR has multiple beneficial roles in treating IBD. Expressed in the GI tract, FXR has been shown to regulate tight junctions between epithelial cells, which are crucial in maintaining a barrier from the gut microbiome and mucosa. In addition, FXR can also impact antimicrobial molecules which are released by GI epithelial cells to help regulate the gut microbiome population. Activation of FXR also reduces the production and in turn the amount of bile acids in the GI tract. Bile acids are known to be pro-inflammatory, can worsen diarrheal symptoms, and can impact the gut microbiome. Published studies in FXR knockout mice demonstrated worsening colitis when exposed to chemical irritants such as TNBS (trinitrobenzene sulfonic acid), suggesting a role for FXR in IBD.

We evaluated M480, an internally-developed FXR agonist and predecessor to MET409, in a mouse model of immune mediated colitis. We believe this preclinical model of IBD is relevant to human IBD, as the primary mechanism of injury involves T-cell mediated inflammation. Also known as an adoptive transfer model, immunodeficient mice received an intraperitoneal, or IP, injection of a T-cell population isolated from wild-type mice. Twenty-one days post cell-transfer, at which point some level of colitis has developed, treatment with M480 was orally given at 10 mg/kg daily. For comparison, mice were also administered vehicle (negative control) or with drugs currently used to treat IBD: anti-IL-12/23 antibody 0.5 mg weekly via IP injection or cyclosporine A, or CsA, at 50 mg/kg via oral gavage daily. After four weeks of treatment, colons were examined for gross anatomy as well as histology.

The colon weight-to-length ratio is a gross anatomical evaluation to assess colitis. In the inflamed state, colon weight increases due to recruitment of inflammatory cells and development of edema and the colon length decreases. Therefore, the colon weight-to-length ratio is high in active inflammation and lower in the absence of inflammation. In the adoptive transfer study, all treatment modalities decreased the colon weight-to-length ratio relative to vehicle.

Mean with SEM; *P<0.05 relative to vehicle.

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Histological analysis provides a more detailed depiction of the inflammation and injury in the colon. A histologic index was used to evaluate inflammation, erosion, mucosal hyperplasia and gland loss. Treatment with M480 and anti-IL-12/23 led to statistically significant improvements in colon histology whereas CsA had no effect.

Mean with SEM; *P<0.05 relative to vehicle.

Representative histological images at the same magnification show M480 and anti-IL-12/23 treated mice have significantly less inflammatory infiltrate in the mucosa (“M” in the pictures below) and edema (“E” in the pictures below) as compared to vehicle treated animals.

We have also observed statistically significant improvement in colon histopathology with M480 in the multidrug resistance mutation 1, or MDR1, knockout mouse which develops spontaneous colitis. Treatment also led to statistically significant improvements in a disease activity index, a measurement of rectal prolapse, rectal bleeding and stool consistency.

Development Plan in IBD

After we evaluate the preliminary safety profile of MET409 in our ongoing Phase 1 clinical trial, we plan to submit an IND, and following acceptance, initiate a Phase 2 clinical trial in the first half of 2019 to evaluate MET409 in moderate-to-severe UC patients. Up to 50 patients will be randomized to placebo or MET409 and be treated for 12 weeks. The primary objectives of the trial will be to evaluate the ability of MET409 to show a clinically meaningful signal based on changes in endoscopic, histological and/or symptoms in patients, as well as safety and tolerability. Secondary objectives will assess clinical response and remission based on the Mayo score, as well as components of

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the Mayo score. The Mayo score is used to assess disease activity in UC and measures stool frequency, rectal bleeding, endoscopic findings and physician global assessment. Based on the results of this Phase 2 clinical trial, we will consider further development of MET409 in Crohn’s as well as larger clinical trials in UC.

Building the Broader Pipeline

Given the high unmet need, particularly in NASH, we have sought to identify drug targets in inflammation and fibrosis for which we could develop proprietary small molecule drugs.

We continue to leverage our expertise in drug discovery and development to expand our pipeline in FXR and other drug targets. We will continue to discover and develop novel drugs targeting FXR as well as other validated drug targets, particularly those involved in inflammation and/or fibrosis. Based on our internal chemistry and biology expertise, we believe we can build a robust innovative pipeline.

License Agreement — FXR

In January 2015, we entered into an exclusive patent license agreement, or the 2015 Salk Agreement, with The Salk Institute for Biological Studies, or The Salk, pursuant to which we licensed certain FXR- and FGF1-related intellectual property. In connection with the 2015 Salk Agreement, we paid The Salk an aggregate initial license fee of $200,000, which was paid in two equal installments in 2015 and 2016. On November 10, 2016, the 2015 Salk Agreement was amended and restated by two separate agreements: an amended and restated exclusive FXR license agreement for FXR-related intellectual property (as amended February 4, 2017 and July 25, 2018), or the FXR License Agreement, and an amended and restated exclusive FGF1 license agreement (as amended February 4, 2017 and September 20, 2017) for FGF1-related intellectual property, or the FGF1 License Agreement. In July 2018, we provided notice to The Salk to terminate the FGF1 License Agreement, effective October 7, 2018. Pursuant to a second amendment to the FXR License Agreement, which we entered into with The Salk in July 2018, or the July 2018 amendment, we agreed to changes to certain of our FXR patent rights under the FXR License Agreement. As partial consideration for the 2015 Salk Agreement, the FXR License Agreement and the FGF1 License Agreement, we have issued The Salk an aggregate of 843,057 shares of our common stock.

Pursuant to the FXR License Agreement prior to its amendment in July 2018, The Salk granted us an exclusive, worldwide license under certain patents relating to FXR, or the Licensed Patents, to make, use, offer for sale, import, export and distribute products, or Licensed Products, covered by the Licensed Patents, or that use or incorporate certain technical information, or Technical Information, owned or controlled by The Salk. In addition, The Salk granted us a non-exclusive, worldwide license to use the Technical Information to research, develop, test, make, have made, use, offer for sale, sell, import, export, distribute and manufacture Licensed Products. We returned the Licensed Patents to The Salk pursuant to a notice delivered to The Salk in February 2018 as memorialized by the July 2018 amendment. Pursuant to the July 2018 amendment, we agreed to include within the definition of Licensed Products all of the patents and/or patent applications owned or controlled by us as of July 25, 2018 that cover FXR agonists for diagnosis, prevention and/or treatment of disease in humans. We are required to use commercially reasonable efforts to achieve certain diligence milestones with respect to the Licensed Products, including with respect to developing, producing and selling Licensed Products. We are also required to pay The Salk up to $6.5 million in milestone payments upon the completion of certain clinical and regulatory milestones, certain of which payments we may defer under certain circumstances. We are also obligated to pay The Salk a low single-digit percentage royalty on net sales, with a minimum annual royalty payment due beginning with the first commercial sale of each Licensed Product. The applicable minimum annual royalty payment amount depends on the number of years that have elapsed since the first commercial sale of a Licensed Product and is in the hundreds-of-thousands-of-dollars range. In addition, if we choose to sublicense the Licensed Product to any third parties, we must pay to The Salk a low single-digit percentage of all sublicensing revenue. In addition, in the event of a change of control, we are required to pay The Salk a low single-digit percentage of any payments and consideration that we receive in consideration of the change of control. We are no longer responsible for reimbursing The Salk for its patent costs incurred in connection with prosecuting and maintaining the Licensed Patents, which Licensed Patents we returned to The Salk.

We have agreed to indemnify The Salk and its affiliates against any third party claims or actions directly or indirectly arising from or relating to the FXR License Agreement, except where the claim results solely from the gross

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negligence or willful misconduct of The Salk or its affiliates. Unless terminated earlier, the FXR License Agreement will expire upon the last to expire royalty term, which, as to a particular Licensed Product in a given country, is the earliest of (i) the expiration of the last to expire government exclusivity (other than patent exclusivity) for the Licensed Product in such country, or (ii) ten years from the date of first commercial sale of such Licensed Product in such country. We may terminate the FXR License Agreement upon 90 days’ prior written notice to The Salk only in the event we, our affiliates and sublicensees have ceased all development and commercialization of Licensed Products and all commercial sales and all sublicenses have been terminated. The Salk may terminate the FXR License Agreement immediately upon written notice in the event of (i) default by us in our reporting, payment or indemnification obligations if we do not cure within 30 business days after receiving written notice from The Salk, default by us in our insurance obligations if we do not cure within 15 business days after receiving written notice from The Salk, or default by us in the performance of any other obligations in the FXR License Agreement if we do not cure within 60 days after receiving written notice from The Salk; or (ii) if we cease to carry out our business, or become bankrupt or insolvent. The Salk may also terminate the FXR License Agreement in the event that it provides us with a written notice specifying the basis for its belief that we are not using reasonable efforts and diligence to meet our diligence obligations and we fail to respond within 30 days with written proof of our diligence and/or a plan for a cure that meets The Salk’s satisfaction.

Manufacturing

We do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on third-party contract manufacturers for all our required raw materials, drug substance and drug product needs for preclinical research and clinical trials. We do not have long-term agreements with any of these third parties. We also do not have any current contractual relationships for the manufacture of commercial supplies of any of our product candidates if they are approved. If any of our products are approved by any regulatory agency, we intend to enter into agreements with a third-party contract manufacturer and one or more back-up manufacturers for the commercial production of those products. Development and commercial quantities of any products that we develop will need to be manufactured in facilities, and by processes, that comply with the requirements of the FDA and the regulatory agencies of other jurisdictions in which we are seeking approval.

Sales and Marketing

Given our stage of development, we have not yet established a commercial organization or distribution capabilities. If MET409 is approved, we intend to establish a specialty sales force and develop targeted commercial capabilities in key geographies. We expect to manage sales, marketing and distribution through internal resources and third-party relationships. In addition, we will opportunistically explore commercialization partnerships, particularly with entities who have strong capabilities in geographies outside the United States. As our product candidates progress through our pipeline, our commercial plans may change. Clinical data, the size of the development programs, the size of our target markets, the size of a commercial infrastructure and manufacturing needs may all influence our commercialization strategies.

Competition

The pharmaceutical and biotechnology industries are characterized by intense competition and rapid innovation. While we believe that our technology, development experience, and scientific knowledge provide us with competitive advantages, we face potential competition from many different sources, including large multinational pharmaceutical companies, established biotechnology companies and specialty pharmaceutical companies, which have materially greater financial, manufacturing, marketing, research and drug development resources than we do. Large pharmaceutical companies in particular have extensive expertise in preclinical and clinical testing and in obtaining regulatory approvals for drugs. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. In addition, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative or licensing relationships with our competitors.

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We are aware of both private and public companies with development programs in NASH. These companies include, but are not limited to, Allergan, Inc., Bristol-Myers Squibb Company, Conatus Pharmaceuticals Inc., Eli Lilly and Company, Enanta Pharmaceuticals, Inc., ENYO Pharma SA, Intercept Pharmaceuticals, Inc., Genfit Corp., whose product candidate, elafibranor (a PPAR alpha/delta agonist), is in Phase 3 clinical trials, Gilead Sciences, Inc., whose product candidate, selonsertib (an ASK1 inhibitor), is in Phase 3 clinical trials, Madrigal Pharmaceuticals, Inc., NGM Biopharmaceuticals, Inc., Novartis AG, Novo Nordisk A/S, Pfizer, Inc., Sanofi S.A., Shire plc and Terns Pharmaceuticals, Inc. Several companies, including some of those mentioned above, have active research and development programs on FXR, including Intercept’s OCA, which is in Phase 3 clinical trials, Gilead’s GS-9674, which has completed Phase 2 clinical trials and Novartis’ tropifexor and Enata’s EDP-305, which are currently in Phase 2 clinical trials. Our commercial opportunity could be substantially limited in the event that our competitors develop and commercialize products that are more effective, safer, less toxic, more convenient or cheaper than our comparable products. In geographies that are critical to our commercial success, competitors may also obtain regulatory approvals before us, resulting in our competitors building a strong market position in advance of our product’s entry. We believe the competitive factors that will determine the success of our programs will be the efficacy, safety, pricing and reimbursement, and convenience of our product candidates.

Major, currently marketed IBD therapies include, but are not limited to, adalimumab (marketed as Humira by Pfizer, Inc.), infliximab (marketed as Remicade by Janssen Biotech, Inc.), tofacitinib (marketed as Xeljanz by Pfizer, Inc.), ustekinumab (marketed as Stelara by Janssen Biotech, Inc.), and vedolizumab (marketed as Entyvio by Takeda Pharmaceuticals, Inc.) and we are aware of several companies with development programs including, but not limited to, Abbvie Inc., Janssen Pharmaceuticals, Inc., Pfizer, Inc., and Takeda Pharmaceuticals, Inc. Major, currently marketed IBS-D therapies include, but are not limited to, eluxadoline (marketed as Viberzi by Allergan, Inc.) and rifaximin (marketed as Xifaxan by Salix Pharmaceuticals, Ltd. (acquired by Valeant Pharmaceuticals International, Inc.)) and we are aware of several companies with development programs, including, but not limited to, Ironwood Pharmaceuticals, Inc. and Valeant Pharmaceuticals International, Inc.

Intellectual Property

The proprietary nature of, and protection for, our product candidates and our discovery programs, processes and know-how are important to our business. Our patent portfolio for the FXR program is at an early stage with no issued patents. We have sought patent protection in the United States and internationally for MET409 and related product candidates, as well as our proprietary technology in our FXR program and any other inventions to which we have rights, where available and when appropriate. For our product candidates, we generally pursue patent protection covering compositions of matter, methods of use and manufacture. Our policy is to pursue, maintain and defend patent rights in strategic areas, whether developed internally or licensed from third parties, and to protect the technology, inventions and improvements that are commercially important to the development of our business. We also rely on trade secrets that may be important to the development of our business.

For our MET409 FXR program, we own two patent families directed to composition-of-matter coverage of MET409, its formulations, and methods of use for metabolic, liver and other disorders. These patent families include one U.S. non-provisional patent application, one Patent Cooperation Treaty, or PCT, international application, and over 15 foreign patent application counterparts. Any issued patents issuing from these two families are projected to expire in 2036 and 2038 respectively, not including any patent term adjustments and any patent term extensions.

Furthermore, we own seven patent families directed to composition-of-matter coverage of additional FXR agonists that have differentiated compound structures, their formulations and methods of use for metabolic, liver and other disorders. These families include approximately three U.S. non-provisional patent applications, four PCT international applications, and three foreign patent application counterparts. Any issued patents issuing from these seven families are projected to expire in 2036 and 2038 respectively, not including any patent term adjustments and any patent term extensions.

Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our current and future product candidates and the methods used to develop and manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products depends on the extent to which we have rights

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under valid and enforceable patents or trade secrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our product candidates, discovery programs and processes. For this and more comprehensive risks related to our intellectual property, please see “Risk Factors — Risks Relating to Our Intellectual Property.”

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, the patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to an approved drug may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We plan to seek patent term extensions to any of our issued patents in any jurisdiction where these are available, however there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and if granted, the length of such extensions. For more information regarding the risks related to our intellectual property, see “Risk Factors — Risks Related to Our Intellectual Property.”

In addition to patent protection, we also rely on trademark registration, trade secrets, know how, other proprietary information and continuing technological innovation to develop and maintain our competitive position. We seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. Our agreements with employees also provide that all inventions conceived by the employee in the course of employment with us or from the employee’s use of our confidential information are our exclusive property. However, such confidentiality agreements and invention assignment agreements can be breached and we may not have adequate remedies for any such breach. For more information regarding the risks related to our intellectual property, see “Risk Factors — Risks Related to Our Intellectual Property.”

The patent positions of biotechnology companies like ours are generally uncertain and involve complex legal, scientific and factual questions. Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, or our drugs or processes, obtain licenses or cease certain activities. Our breach of any license agreements or our failure to obtain a license to proprietary rights required to develop or commercialize our future products may have a material adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference or derivation proceedings in the USPTO to determine priority of invention. For more information, see “Risk Factors — Risks Related to Our Intellectual Property.”

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Government Regulation and Product Approval

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

FDA Approval Process

In the United States, the Food and Drug Administration, or FDA, regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as clinical hold, FDA refusal to approve pending regulatory applications, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.

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

∎ Completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices, or GLP, or other applicable regulations;

∎ Submission to the FDA of an IND, which must become effective before human clinical trials may begin in the United States;

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

∎ Performance of adequate and well-controlled human clinical trials according to Good Clinical Practices, or GCP, to establish the safety and efficacy of the product candidate for its intended use;

∎ Submission to the FDA of a New Drug Application, or NDA, for a new product;

∎ Completion of an FDA advisory committee review, if applicable;

∎ Satisfactory completion of an FDA inspection of the facility or facilities where the product candidate is manufactured to assess compliance with the FDA’s current good manufacturing practices, or cGMP, to assure that the facilities, methods and controls are adequate to preserve the therapeutic product candidate’s identity, strength, quality, purity and potency;

∎ Potential FDA audit of the preclinical and clinical trial sites that generated the data in support of the NDA; and

∎ FDA review and approval of the NDA.

Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product candidate or disease. A clinical hold may occur at any time during the life of an IND and may affect one or more specific trials or all trials conducted under the IND.

Preclinical tests include laboratory evaluation of product candidate’s chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product candidate. The conduct of the preclinical tests must comply with federal regulations and requirements, including GLP. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product candidate’s chemistry, manufacturing and controls, and a proposed clinical trial protocol. The sponsor will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Long term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the

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clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns about on-going or proposed clinical trials or non-compliance with specific FDA requirements, and the trials may not begin or continue until the FDA notifies the sponsor that the hold has been lifted.

Clinical trials involve the administration of the investigational product to healthy volunteers or subjects under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with GCP, an international standard meant to protect the rights and health of subjects and to define the roles of clinical trial sponsors, administrators and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. subjects and subsequent protocol amendments must be submitted to the FDA as part of the IND, and timely safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events.

The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial subjects. The trial protocol and informed consent information for subjects in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions. The study sponsor may also suspend a clinical trial at any time on various grounds, including a determination that the subjects are being exposed to an unacceptable health risk.

Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial introduction of the product candidate usually into healthy human subjects, the product candidate is tested to assess metabolism, PK, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the product candidate for a particular indication, dosage tolerance and optimal dosage, and to identify common adverse effects and safety risks. If a product candidate demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain additional information about clinical efficacy and safety in a larger number of subjects, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit risk relationship of the product candidate and to provide adequate information for the labeling of the product candidate. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the product candidate. A single Phase 3 trial may be sufficient in certain circumstances. Post-approval trials, sometimes referred to as Phase 4 studies, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.

During the development of a new product candidate, sponsors are given opportunities to meet with the FDA at certain points; specifically, prior to the submission of an IND, at the end of Phase 2 and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide advice on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trials that they believe will support the approval of the new product candidate.

While the IND is active and before approval, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure.

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There are also requirements governing the reporting of ongoing clinical trials and completed trial results to public registries. Sponsors of certain clinical trials of FDA-regulated products are required to register and disclose specified clinical trial information, which is publicly available at www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, trial sites and investigators and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved.

Concurrent with clinical trials, sponsors usually complete additional animal safety studies and also develop additional information about the chemistry and physical characteristics of the product candidate and finalize a process for manufacturing commercial quantities of the product candidate in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and the manufacturer must develop methods for testing the quality, purity and potency of the product candidate. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its proposed shelf-life. After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States. The NDA must include the results of all preclinical, clinical and other testing and a compilation of data relating to the product candidate’s pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee, and the applicant under an approved NDA is also subject to annual program user fees.

The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. The FDA may refuse to file any NDA that it deems incomplete or not properly reviewable at the time of submission, and may request additional information. In this event, the NDA must be resubmitted with the additional information and the resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the review of NDAs. Under the Prescription Drug User Fee Act, or PDUFA, guidelines that are currently in effect, the FDA has a goal of ten months from the date of “filing” of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to FDA because the FDA has approximately two months to make a “filing” decision after the application is submitted. For priority review NDAs, FDA has a goal of six months from the date of filing to review and act on the submission.

Among other things, the FDA reviews an NDA to determine whether the product is safe and effective for its intended use, and whether the product candidate is being manufactured in accordance with cGMP. The FDA may also refer applications for novel product candidates, or product candidates that present difficult questions of safety or efficacy, to an advisory committee — typically a panel that includes clinicians and other experts — for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.

Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the product candidate is manufactured. The FDA will not approve the product candidate unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. To assure GCP and cGMP compliance, an applicant must incur significant expenditures of time, money and effort in the areas of training, record keeping, production and quality control.

Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval and deny approval. Data obtained from clinical trials are not always conclusive. The FDA may disagree with our trial design or interpret data from preclinical studies and clinical trials differently than we interpret the same data. If the agency decides not to approve the NDA in its present form, the FDA will issue a complete response letter that describes all of the specific deficiencies in the application identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. If a complete response letter is issued, the applicant may either resubmit the

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NDA, addressing the deficiencies identified in the letter, or withdraw the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has a goal of reviewing and acting on such resubmissions in two or six months depending on the type of information included. An approval letter authorizes commercial marketing of the drug in the United States with specific prescribing information for specific indications.

Even if a product candidate receives regulatory approval, the approval may be significantly limited to specific indications and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a Risk Evaluation and Mitigation Strategy, or REMS, or otherwise limit the scope of any approval. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the product. In addition, the FDA may require post marketing clinical trials, sometimes referred to as “Phase 4” clinical trials, designed to further assess a product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.

The Pediatric Research Equity Act, or PREA, requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.

Foreign Clinical Trials to Support an IND or NDA

The FDA will accept as support for an IND or NDA a well-designed, well-conducted, non-IND foreign clinical trial if it was conducted in accordance with GCP and the FDA is able to validate the data from the trial through an on-site inspection, if necessary. A sponsor or applicant who wishes to rely on a non-IND foreign clinical trial to support an IND must submit the following supporting information to the FDA to demonstrate that the trial conformed to GCP:

∎ the investigator’s qualifications;

∎ a description of the research facilities;

∎ a detailed summary of the protocol and trial results and, if requested, case records or additional background data;

∎ a description of the drug substance and drug product, including the components, formulation, specifications, and, if available, the bioavailability of the product candidate;

∎ information showing that the trial is adequate and well controlled;

∎ the name and address of the independent ethics committee that reviewed the trial and a statement that the independent ethics committee meets the required definition;

∎ a summary of the independent ethics committee’s decision to approve or modify and approve the trial, or to provide a favorable opinion;

∎ a description of how informed consent was obtained;

∎ a description of what incentives, if any, were provided to subjects to participate;

∎ a description of how the sponsor monitored the trial and ensured that the trial was consistent with the protocol;

∎ a description of how investigators were trained to comply with GCP and to conduct the trial in accordance with the trial protocol; and

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∎ a statement on whether written commitments by investigators to comply with GCP and the protocol were obtained.

Expedited development and review programs

The FDA has a fast track designation program that is intended to expedite or facilitate the process for reviewing new drug products that meet certain criteria. Specifically, new drugs are eligible for Fast Track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Unique to a fast track product, the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.

Any product submitted to the FDA for approval, including a product with a fast track designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. A product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug designated for priority review in an effort to facilitate the review. The FDA endeavors to review applications with priority review designations within six months of the filing date as compared to ten months for review of new molecular entity NDAs under its current PDUFA review goals.

In addition, a product may be eligible for accelerated approval. Drug products intended to treat serious or life threatening diseases or conditions may be eligible for accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. Fast track designation, priority review and accelerated approval do not change the standards for approval but may expedite the development or approval process.

The Food and Drug Administration Safety and Innovation Act established a category of drugs referred to as “breakthrough therapies” that may be eligible to receive breakthrough therapy designation. A sponsor may seek FDA designation of a product candidate as a “breakthrough therapy” if the product is intended, alone or in combination with one or more other products, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program features, as well as more intensive FDA interaction and guidance. The breakthrough therapy designation is a distinct status from both accelerated approval and priority review, which can also be granted to the same drug if relevant criteria are met. If a product is designated as a breakthrough therapy, the FDA will work to expedite the development and review of such drug. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. We may explore some of these opportunities for our product candidates as appropriate.

Patent Term Restoration and Marketing Exclusivity

After approval, owners of relevant drug patents may apply for up to a five year patent extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act. The allowable patent term extension is calculated as half of the product’s testing phase — the time between IND and NDA submission —and all of the review phase — the time between NDA submission and approval, up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years.

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For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the U.S. Patent and Trademark Office must determine that approval of the product candidate covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a product candidate for which an NDA has not been submitted.

Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A product candidate is a new chemical entity if the FDA has not previously approved any other new product candidate containing the same active moiety, which is the molecule or ion responsible for the action of the product candidate substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application or a 505(b)(2) NDA submitted by another company for another version of such product candidate where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement.

The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an approved NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of an existing product candidate. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for product candidates containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Pediatric exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the described clinical trials. In addition, orphan drug exclusivity, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances.

Post-approval Requirements

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may under some circumstances require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA under some circumstances has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

Any product manufactured or distributed by us or our collaborators pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things:

∎ record-keeping requirements;

∎ reporting of adverse experiences associated with the product;

∎ providing the FDA with updated safety and efficacy information;

∎ therapeutic sampling and distribution requirements;

∎ notifying the FDA and gaining its approval of specified manufacturing or labeling changes;

∎ registration and listing requirements; and

∎ complying with FDA promotion and advertising requirements, which include, among other things, standards for direct-to-consumer advertising, restrictions on promoting products for uses or in patient populations that

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are not described in the product’s approved labeling, limitations on industry-sponsored scientific and educational activities and requirements for promotional activities involving the internet.

Manufacturers, their subcontractors, and other entities involved in the manufacture and distribution of approved drug products are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with cGMP, including data integrity requirements, and other laws. The FDA periodically inspects manufacturing facilities to assess compliance with ongoing regulatory requirements, including cGMP, which impose extensive procedural, substantive and record-keeping requirements upon us and third-party manufacturers engaged by us if our products are approved. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require FDA approval before being implemented. FDA regulations would also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and our third-party manufacturers. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance. Failure to comply with the statutory and regulatory requirements can subject a manufacturer to possible legal or regulatory actions, such as warning letters, suspension of manufacturing, seizures of products, injunctive actions or other civil penalties.

The FDA strictly regulates labeling, advertising, promotion and other types of information on products that are placed on the market and imposes requirements and restrictions on drug manufacturers, such as those related to direct-to-consumer advertising, the prohibition on promoting products for uses or in patient populations that are not described in the product’s approved labeling (known as “off-label use”), industry-sponsored scientific and educational activities, and promotional activities involving the internet. Discovery of previously unknown problems or the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from the market as well as possible civil or criminal sanctions. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant or manufacturer to administrative or judicial civil or criminal sanctions and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical holds on post-approval clinical trials, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, mandated corrective advertising or communications with doctors, debarment, restitution, disgorgement of profits, or civil or criminal penalties.

Other U.S. Healthcare Laws and Compliance Requirements

In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services, or HHS (such as the Office of Inspector General, Office for Civil Rights and the Health Resources and Service Administration), the U.S. Department of Justice, or DOJ, and individual U.S. Attorney offices within the DOJ, and state and local governments. For example, sales, marketing and scientific/educational grant programs may have to comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the privacy and security provisions of the Health Insurance Portability and Accountability Act, or HIPAA, and similar state laws, each as amended, as applicable.

The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between therapeutic product manufacturers on one hand and prescribers, purchasers and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a

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case-by-case basis based on a cumulative review of all of its facts and circumstances. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor.

Additionally, the intent standard under the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or Affordable Care Act, to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act, or FCA (discussed below).

The federal false claims and civil monetary penalty laws, including the FCA, which imposes significant penalties and can be enforced by private citizens through civil qui tam actions, prohibit any person or entity from, among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to, or approval by, the federal healthcare programs, including Medicare and Medicaid, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government. A claim includes “any request or demand” for money or property presented to the U.S. government. For instance, historically, pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved, off-label and thus generally non-reimbursable, uses.

HIPAA created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Like the Anti-Kickback Statute, the Affordable Care Act amended the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Also, many states have similar, and typically more prohibitive, fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

We may be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, imposes requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, independent contractors, or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways, are often not pre-empted by HIPAA, and may have a more prohibitive effect than HIPAA, thus complicating compliance efforts.

We may develop products that, once approved, may be administered by a physician. Under currently applicable U.S. law, certain products not usually self-administered (including injectable drugs) may be eligible for coverage under Medicare through Medicare Part B. Medicare Part B is part of original Medicare, the federal health care program that provides health care benefits to the aged and disabled, and covers outpatient services and supplies, including certain pharmaceutical products, that are medically necessary to treat a beneficiary’s health condition. As a condition of receiving Medicare Part B reimbursement for a manufacturer’s eligible drugs, the manufacturer is

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required to participate in other government healthcare programs, including the Medicaid Drug Rebate Program and the 340B Drug Pricing Program. The Medicaid Drug Rebate Program requires pharmaceutical manufacturers to enter into and have in effect a national rebate agreement with the Secretary of HHS as a condition for states to receive federal matching funds for the manufacturer’s outpatient drugs furnished to Medicaid patients. Under the 340B Drug Pricing Program, the manufacturer must extend discounts to entities that participate in the program.

In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average sales price, or ASP, and best price. Penalties may apply in some cases when such metrics are not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. It is difficult to predict how Medicare coverage and reimbursement policies will be applied to our products in the future and coverage and reimbursement under different federal healthcare programs are not always consistent. Medicare reimbursement rates may also reflect budgetary constraints placed on the Medicare program.

Additionally, the federal Physician Payments Sunshine Act, or the Sunshine Act, within the Affordable Care Act, and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) report annually to CMS information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members. Failure to report accurately could result in penalties. In addition, many states also govern the reporting of payments or other transfers of value, many of which differ from each other in significant ways, are often not pre-empted, and may have a more prohibitive effect than the Sunshine Act, thus further complicating compliance efforts.

In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of drug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and biotechnology companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.

Ensuring business arrangements with third parties comply with applicable healthcare laws and regulations is a costly endeavor. If our operations are found to be in violation of any of the federal and state healthcare laws described above or any other current or future governmental regulations that apply to us, we may be subject to penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions brought by individual whistleblowers in the name of the government, or refusal to allow us to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we may obtain regulatory approval. In the United States and in foreign markets, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors provide

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coverage and establish adequate reimbursement levels for such products. In the United States, third-party payors include federal and state healthcare programs, private managed care providers, health insurers and other organizations. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid in the United States, and commercial payors are critical to new product acceptance.

Our ability to commercialize any products successfully also will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which therapeutics they will pay for and establish reimbursement levels. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a therapeutic is:

∎ a covered benefit under its health plan;

∎ safe, effective and medically necessary;

∎ appropriate for the specific patient;

∎ cost-effective; and

∎ neither experimental nor investigational.

We cannot be sure that reimbursement will be available for any product that we commercialize and, if coverage and reimbursement are available, what the level of reimbursement will be. Coverage may also be more limited than the purposes for which the product is approved by the FDA or comparable foreign regulatory authorities. Reimbursement may impact the demand for, or the price of, any product for which we obtain regulatory approval.

Third-party payors are increasingly challenging the price, examining the medical necessity, and reviewing the cost-effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy. Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated with branded drugs and drugs administered under the supervision of a physician. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain FDA approvals. Our product candidates may not be considered medically necessary or cost-effective. Obtaining coverage and reimbursement approval of a product from a government or other third-party payor is a time-consuming and costly process that could require us to provide to each payor supporting scientific, clinical and cost-effectiveness data for the use of our product on a payor-by-payor basis, with no assurance that coverage and adequate reimbursement will be obtained. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop.

Different pricing and reimbursement schemes exist in other countries. In the European Union, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

The marketability of any product candidates for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care, the increasing influence of health maintenance organizations, and additional legislative changes

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in the United States has increased, and we expect will continue to increase, the pressure on healthcare pricing. The downward pressure on the rise in healthcare costs in general, particularly prescription medicines, medical devices and surgical procedures and other treatments, has become very intense. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Healthcare Reform

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities, and affect the ability to profitably sell product candidates for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

For example, the Affordable Care Act has substantially changed healthcare financing and delivery by both governmental and private insurers. Among the Affordable Care Act provisions of importance to the pharmaceutical and biotechnology industries, in addition to those otherwise described above, are the following:

∎ an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biologic agents apportioned among these entities according to their market share in some government healthcare programs that began in 2011;

∎ an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, retroactive to January 1, 2010, to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively, and capped the total rebate amount for innovator drugs at 100% of the Average Manufacturer Price, or AMP;

∎ a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts, which through subsequent legislative amendments, will be increased to 70%, starting in 2019, off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D;

∎ extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

∎ expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals beginning in 2014 and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability;

∎ expansion of the entities eligible for discounts under the 340B Drug Discount Program;

∎ a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research;

∎ expansion of healthcare fraud and abuse laws, including the FCA and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;

∎ a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected;

∎ requirements to report certain financial arrangements with physicians and teaching hospitals;

∎ a requirement to annually report certain information regarding drug samples that manufacturers and distributors provide to physicians;

∎ establishment of a Center for Medicare and Medicaid Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending that began on January 1, 2011; and

∎ a licensure framework for follow on biologic products.

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Some of the provisions of the Affordable Care Act have yet to be implemented, and there have been legal and political challenges to certain aspects of the Affordable Care Act. Since January 2017, President Trump has signed two executive orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by the Affordable Care Act. In December 2017, Congress repealed the tax penalty for an individual’s failure to maintain Affordable Care Act-mandated health insurance as part of a tax reform bill. Further, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Moreover, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. Congress is continuing to consider legislation that would alter other aspects of the Affordable Care Act. The ultimate content, timing or effect of any healthcare reform legislation on the U.S. healthcare industry is unclear.

We anticipate that the Affordable Care Act, if substantially maintained in its current form, will continue to result in additional downward pressure on coverage and the price that we receive for any approved product, and could seriously harm our business. Any reduction in reimbursement from Medicare and 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, attain profitability, or commercialize our products. Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates.

Further legislation or regulation could be passed that could harm our business, financial condition and results of operations. Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. For example, in August 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee on Deficit Reduction did not achieve a targeted deficit reduction of at least $1.2 trillion for fiscal years 2012 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect beginning on April 1, 2013 and will stay in effect through 2027 unless additional Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. While any proposed measures will require authorization through additional legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

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The Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.

Additional Regulation

In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern our use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.

Other Regulations

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

European Union / Rest of World Government Regulation

In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval to conduct clinical trials or market a product, we must obtain the requisite approvals from regulatory authorities in foreign jurisdictions prior to the commencement of clinical trials or marketing of the product in those countries.

Certain countries outside of the United States have a similar process that requires the submission of a clinical trial application, much like the IND, prior to the commencement of human clinical trials. In the European Union, for example, before starting a clinical trial, a valid request for authorization must be submitted by the sponsor to the competent authority of the EU Member State(s) in which the sponsor plans to conduct the clinical trial, as well as to an independent national Ethics Committee. A clinical trial may commence only once the relevant Ethics Committee(s) has (have) issued a favorable opinion and the competent authority of the EU Member State(s) concerned has (have) not informed the sponsor of any grounds for non-acceptance. Failure to comply with the EU requirements may subject a company to the rejection of the request and the prohibition to start a clinical trial. Clinical trials conducted in the European Union (or used for marketing authorization application in the European Union) must be conducted in accordance with applicable GCP and GMP rules, International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use, or ICH, guidelines and be consistent with ethical principles. EU Member State inspections are regularly conducted to verify the sponsor’s compliance with applicable rules. The sponsor is required to record and report to the relevant national competent authorities (and to the Ethics Committee) information about suspected serious unexpected adverse reactions.

The authorization of a clinical trial may be suspended or revoked by EU Member States in their territory if the conditions in the request for an authorization are no longer met, or if an EU Member State has information raising doubts about the safety or scientific validity of the clinical trial. Various penalties exist in EU Member States for non-compliance with the clinical trial rules and related requirements, for example with respect to data protection and privacy. If we or our potential collaborators fail to comply with applicable EU regulatory requirements, we may also be subject to damage compensation and civil and criminal liability. The way clinical trials are conducted in the European Union will undergo a major change when the new EU Clinical Trial Regulation (Regulation 536/2014) comes into application in 2019.

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As in the United States, no medicinal product may be placed on the EU market unless a marketing authorization has been issued. Suspected unexpected serious adverse reactions related to authorized medicinal products must be recorded and reported to the national competent authorities.

Various penalties and sanctions exist in different EU Member States for non-compliance with the EU marketing authorization procedure. The European Commission may also impose financial penalties on the holders of marketing authorizations if they fail to comply with certain obligations in connection with the authorizations. If we or our potential collaborators fail to comply with applicable EU — or other ex-U.S. — regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

In addition, there are foreign anti-corruption and anti-bribery laws that govern direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. These laws, such as the U.K. Bribery Act, generally prohibit companies and their intermediaries from providing money or anything of value to officials of foreign governments, foreign political parties, or international organizations with the intent to obtain or retain business or seek a business advantage. Violations of these laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences.

Coverage and reimbursement status of any product candidates for which we obtain regulatory approval are provided for by the national laws of EU Member States. The requirements may differ across the EU Member States. Also at national level, actions have been taken to enact transparency laws regarding payments between pharmaceutical companies and health care professionals, or HCPs.

Regulation 2016/679, known as the General Data Protection Regulation, or GDPR, replaced the EU Data Protection Directive on May 25, 2018. The GDPR introduced new data protection requirements in the European Union, as well as potential fines for noncompliant companies of up to the greater of €20 million or 4% of annual global revenue. The regulation imposes numerous new requirements for the collection, use and disclosure of personal information, including more stringent requirements relating to consent and the information that must be shared with data subjects about how their personal information is used, the obligation to notify regulators and affected individuals of personal data breaches, extensive new internal privacy governance obligations, and obligations to honor expanded rights of individuals in relation to their personal information (e.g., the right to access, correct and delete their data). In addition, the GDPR generally maintains the EU Data Protection Directive’s restrictions on cross-border data transfer. The GDPR increase the responsibility and liability of pharmaceutical companies in relation to personal data that they process, and companies may be required to put in place additional mechanisms to ensure compliance with the new EU data protection rules. Further, the United Kingdom’s vote in favor of exiting the EU (often referred to as “Brexit”) has created uncertainty with regard to data protection regulation in the United Kingdom. In particular, it is unclear whether the United Kingdom will enact data protection legislation equivalent to the GDPR and how data transfers to and from the United Kingdom will be regulated.

For other countries outside of the European Union , such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials must be conducted in accordance with GCP and the applicable regulatory requirements.

Employees

As of March 31, 2018, we employed 31 employees, 29 of whom are full-time and engaged in research and development activities, operations, finance, business development and administration. Fourteen of our employees hold doctorate degrees (Ph.D., M.D. or PharmD.).

Research and development

We have invested $7.7 million, $11.5 million, $2.3 million and $4.4 million in research and development for the years ended December 31, 2016 and 2017 and the three months ended March 31, 2017 and 2018, respectively.

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Property and facilities

We lease approximately 20,475 square feet of space for our current headquarters in San Diego, California under an agreement that expires in March 2023. We believe that our existing facilities are adequate to meet our current needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms.

Legal proceedings

From time to time, we are subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of litigation and claims cannot be predicted with certainty, as of the date of this prospectus, we do not believe we are party to any claim or litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

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MANAGEMENT

The following table sets forth information about our executive officers and directors as of August 20, 2018.

NAME	AGE		POSITION(S)
Executive Officers
Ken Song, M.D.		43	President, Chief Executive Officer and Director
Patricia Millican		45	Chief Financial Officer
Non-Employee Directors
Richard Heyman, Ph.D. (2)(3)		60	Director and Chairman of the Board of Directors
Robert Adelman, M.D. (2)		55	Director
Kristina Burow (2)(3)		44	Director
Ronald Evans, Ph.D.		69	Director
Carol Gallagher, Pharm.D. (1)(3)		54	Director
Andrew Guggenhime (1)		50	Director
Amir Nashat, Ph.D. (1)		45	Director

(1) Member of the audit committee.

(2) Member of the compensation committee.

(3) Member of the nominating and corporate governance committee.

Executive Officers

Ken Song, M.D. has served as our President and Chief Executive Officer and as a member of our board of directors since September 2016. From April 2010 to April 2016, Dr. Song served as the Chief Executive Officer and as a member of the board of directors of Ariosa Diagnostics, Inc., a DNA molecular diagnostics company. From July 2007 to April 2010, Dr. Song was Vice President at Venrock, a venture capital firm, leading investments in private and public healthcare companies. From 2002 to 2007, Dr. Song trained as both an internist and gastroenterologist and conducted translational and clinical outcome research at the University of California, San Francisco, University of Washington and the Fred Hutchinson Cancer Center. From 2000 to 2002, Dr. Song was a consultant at McKinsey & Company, Inc., a management consulting firm. Dr. Song also serves as Executive Chairman of Omniome, Inc., a DNA sequencing company, a position he has held since April 2017. Dr. Song holds a B.S. in Biology from the Massachusetts Institute of Technology, or MIT, and an M.D. from the University of California, San Francisco. Our board of directors believes that Dr. Song’s experience as our President and Chief Executive Officer and his clinical and research expertise qualify him to serve on our board of directors.

Patricia Millican has served as our Chief Financial Officer since March 2015. From August 2013 to February 2015, Ms. Millican served as the Senior Vice President of Finance at Seragon, a private biotechnology company focused on developing Selective Estrogen Receptor Degraders (SERDs) targeting hormone dependent cancers, which was acquired by Genentech in August 2014. From July 2012 to August 2013, Ms. Millican served as Vice President of Finance at Aragon, a discovery-stage small molecule company focused on therapeutics for the treatment of hormone-resistant cancers, which was acquired by Johnson and Johnson in August 2013. From September 2009 to July 2012, Ms. Millican served in various senior financial management roles at Zogenix, Inc., a pharmaceutical company developing and commercializing innovative central nervous system therapies for people living with serious and life-threatening rare central nervous system disorders and medical conditions. Ms. Millican spent five years with the public accounting firm Deloitte & Touche LLP. Ms. Millican holds a B.S. in Accountancy from the University of San Diego and is a certified public accountant in the state of California.

Non-Employee Directors

Richard Heyman, Ph.D. one of our co-founders, joined our board in September 2014 and has served as our Chairman since June 2015. From August 2013 to April 2015, he served as the Chief Executive Officer of Seragon, which he co-founded. Prior to joining Seragon, Dr. Heyman served as the Chief Executive Officer of Aragon, which he co-founded in 2009. He has served as Chairman of the Board of Directors of ORIC Pharmaceuticals, Inc., a private

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company focused on the discovery and development of novel therapies for treatment-resistant cancers, since November 2014. He serves as Vice Chair of the Board of Trustees of The Salk, and is a board member of Gritstone Oncology, Inc., Yumanity Therapeutics Inc., Vividion Therapeutics, Inc., or Vividion, and Mavupharma Inc. He also serves on the Executive Committee of the Board of Visitors at the UCSD Moores Cancer Center. Dr. Heyman received a Ph.D. in pharmacology from the University of Minnesota and a B.S. in Chemistry from the University of Connecticut. Our board of directors believes that Dr. Heyman’s operational, clinical and research expertise qualify him to serve on our board of directors.

Robert Adelman, M.D. has served as a member of our board of directors since January 2015. Since 2010, Dr. Adelman has served as Managing Partner at venBio Partners LLC, or venBio, a life sciences investment firm, which he co-founded in 2009. Prior to co-founding venBio, Dr. Adelman worked at OrbiMed Advisors LLC from 2002 to 2008, where he led numerous investments in both private and public companies across three venture capital funds. In addition, Dr. Adelman previously served on the boards of directors of Apellis Pharmaceuticals, Inc., Seragon and Aragon. Dr. Adelman received his B.A. from University of California at Berkeley and his M.D. from Yale University, performed his residency at Cornell University Medical Center, and practiced surgery in New York and New Jersey. Our board of directors believes Dr. Adelman’s previous board experience and his expertise and experience in the venture capital and life sciences industries qualify him to serve on our board of directors.

Kristina Burow has served as a member of our board of directors since May 2015. Ms. Burow has served as Managing Director of ARCH Venture Partners, or ARCH, since November 2011 and previously held roles of increasing responsibility at ARCH from August 2002 to November 2011. Ms. Burow currently serves on the board of directors of several biopharmaceutical and biotechnology companies, including Scholar Rock Holding Corporation (SRRK), or Scholar Rock, Vividion, Beam Therapeutics, Lycera Corp., BlackThorn Therapeutics, Inc., Sienna Biopharmaceuticals, Inc. (SNNA), Unity Biotechnology, Inc. (UBX), AgBiome Inc., Vir Biotechnology Inc. and Gossamer Bio, Inc. She previously was a co-founder and member of the board of directors of Receptos Inc., a public pharmaceutical company, until its acquisition by Celgene Corporation, a public biopharmaceutical company, and of Sapphire Energy, Inc., an energy company. Ms. Burow has participated in a number of other ARCH portfolio companies including KYTHERA, Siluria Technologies, Inc., an energy company, and Ikaria, Inc., a biotechnology company, acquired by Madison Dearborn Partners, a private equity firm. Prior to joining ARCH, Ms. Burow was an associate with the Novartis BioVenture Fund in San Diego and an early employee at the Genomics Institute of the Novartis Research Foundation. Ms. Burow received a B.A. in Chemistry from the University of California, Berkeley, an M.A. in Chemistry from Columbia University, and an M.B.A. from the University of Chicago. Our board of directors believes Ms. Burow’s previous board experience and her expertise and experience in the venture capital industry and in the life sciences industry qualify her to serve on our board of directors.

Ronald Evans, Ph.D. one of our co-founders, has served as a member of our board of directors since September 2014. Dr. Evans is a professor, director and biologist at The Salk, where he serves as the March of Dimes Chair in Molecular and Developmental Neurobiology. He became a faculty member of The Salk in 1978. Dr. Evans also serves as a Howard Hughes Medical Institute Investigator, a position he has held since 1985. Dr. Evans was elected to the National Academy of Sciences in 1989. He received his B.S. and Ph.D. degrees from UCLA in 1970 and 1974, respectively, followed by a postdoctoral training at Rockefeller University from 1975-1978. Our board of directors believes that Dr. Evans’ scientific and research expertise qualify him to serve on our board of directors.

Carol Gallagher, Pharm.D. has served as a member of our board of directors since November 2017. Since October 2014, Dr. Gallagher has served as a partner with New Enterprise Associates, a venture capital firm. Prior to joining New Enterprise Associates, Dr. Gallagher served as a venture partner with Frazier Healthcare, a venture capital firm, from October 2013 to September 2014. Dr. Gallagher served as the President and Chief Executive Officer of Calistoga Pharmaceuticals, Inc., a biopharmaceutical company, from 2008 to 2011, when the company was acquired by Gilead Sciences. From 2007 to 2008, Dr. Gallagher was the President and Chief Executive Officer of Metastatix, Inc., a biopharmaceutical company. Between 1989 to 2007, she served in various roles at pharmaceutical companies Eli Lilly, Amgen, Agouron Pharmaceuticals, Pfizer, Biogen Idec Pharmaceuticals, CancerVax and Anadys Pharmaceuticals. Dr. Gallagher attended Vanderbilt University and received B.S. and Doctor of Pharmacy degrees from the University of Kentucky. Our board of directors believes Dr. Gallagher’s previous board experience and her expertise and experience in the venture capital industry and in the life sciences industry qualify her to serve on our board of directors.

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Andrew Guggenhime has served as a member of our board of directors since July 2018. Mr. Guggenhime currently serves as Chief Financial Officer of Dermira, Inc., a public molecular diagnostics company. From April 2014 to May 2018, Mr. Guggenhime served as Chief Operating Officer and Chief Financial Officer of Dermira. From September 2011 to April 2014, Mr Guggenhime served as Chief Financial Officer of CardioDx, Inc., a molecular diagnostics life sciences company, and as a member of the CardioDx board of directors from April 2014 until July 2016. From September 2010 to April 2011, Mr. Guggenhime served as Chief Financial Officer of Calistoga Pharmaceuticals, Inc., a biotechnology company acquired in April 2011 by Gilead Sciences, Inc. From December 2008 to June 2010, Mr. Guggenhime served as Senior Vice President and Chief Financial Officer of Facet Biotech Corporation, a biotechnology company acquired in April 2010 by Abbott Laboratories. Facet Biotech Corporation was spun off from PDL BioPharma, Inc. at which Mr. Guggenhime served as Senior Vice President and Chief Financial Officer from April 2006 to December 2008. From October 2000 to March 2006, Mr. Guggenhime served as Chief Financial Officer of Neoforma, Inc., a provider of supply-chain management solutions for the healthcare industry acquired by Global Healthcare Exchange, LLC in March 2006. From January to October 2000, Mr. Guggenhime served as Neoforma’s Vice President, Corporate Development. Mr. Guggenhime began his career in financial services at Merrill Lynch & Co. and Wells Fargo & Company. Mr. Guggenhime holds a B.A. in International Politics and Economics from Middlebury College and holds an M.B.A. from the J.L. Kellogg Graduate School of Management at Northwestern University. Our board of directors believes that Mr. Guggenhime’s financial expertise and experience in the life sciences industry qualifies him to serve on our board of directors.

Amir Nashat, Ph.D. has served as a member of our board of directors since January 2015. Dr. Nashat is a managing partner at Polaris Partners, a venture capital firm, where he has worked since April 2002. Dr. Nashat was also the founding Chief Executive Officer of Living Proof, Inc. and Sun Catalytix Corporation. Dr. Nashat currently represents Polaris on the board of directors of Scholar Rock, Agbiome, Inc., aTyr Pharmaceuticals, Inc., Fate Therapeutics, Inc., Jnana Therapeutics, where he also serves as the Chief Executive Officer, CAMP4, Morphic Therapeutic, Inc., Olivo Labs, Promedior, Inc., Selecta Biosciences Inc., Syros Pharmaceuticals, Inc., and Taris Biomedical, LLC. Dr. Nashat also serves on the Partners Innovation Fund, the Investment Advisory Committee for The Engine at MIT, and helped launch the MIT Sandbox Innovation Fund as its active president. Dr. Nashat previously served on the board of directors of the New England Venture Capital Association. Dr. Nashat received an M.S. and B.S. in Materials Science and Mechanical Engineering from the University of California, Berkeley and a Sc.D. as a Hertz Fellow in Chemical Engineering at MIT with a minor in Biology. Our board of directors believes Dr. Nashat’s previous board experience and his expertise and experience in the venture capital industry and in the life sciences industry qualify him to serve on our board of directors.

Board Composition

Our business and affairs are organized under the direction of our board of directors, which currently consists of eight members. The primary responsibilities of our board of directors are to provide oversight, strategic guidance, counseling and direction to our management. Our board of directors meets on a regular basis and on an ad hoc basis as required.

Our board of directors has determined that all of our directors other than Dr. Song and Dr. Heyman are independent directors, as defined by Rule 5605(a)(2) of The Nasdaq Listing Rules.

In accordance with the terms of our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to and upon the completion of this offering, respectively, we will divide our board of directors into three classes, as follows:

∎ Class I, which will consist of            ,            and            , whose terms will expire at our annual meeting of stockholders to be held in 2019;

∎ Class II, which will consist of            ,            and            , whose terms will expire at our annual meeting of stockholders to be held in 2020; and

∎ Class III, which will consist of            ,            and            , whose terms will expire at our annual meeting of stockholders to be held in 2021.

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At each annual meeting of stockholders to be held after the initial classification, the successors to directors whose terms then expire will serve until the third annual meeting following their election and until their successors are duly elected and qualified. The authorized size of our board of directors is currently eight members. The authorized number of directors may be changed only by resolution of our board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed between the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of our board of directors may have the effect of delaying or preventing changes in our control or management. Our directors may be removed for cause by the affirmative vote of the holders of at least                % of our voting stock.

Board Leadership Structure

Our board of directors is currently chaired by Dr. Heyman who has authority, among other things, to call and preside over board of directors meetings, to set meeting agendas and to determine materials to be distributed to the board of directors. Accordingly, the Chairman has substantial ability to shape the work of the board of directors. We believe that separation of the positions of Chairman and Chief Executive Officer reinforces the independence of the board of directors in its oversight of our business and affairs. In addition, we have a separate chair for each committee of our board of directors. The chair of each committee is expected to report annually to our board of directors on the activities of their committee in fulfilling their responsibilities as detailed in their respective charters or specify any shortcomings should that be the case.

In addition, our board of directors has appointed                to serve as our lead independent director upon the closing of this offering. As lead independent director,                will preside over periodic meetings of our independent directors, serve as a liaison between our Chairman and the independent directors and perform such additional duties as set forth in our bylaws and as our board of directors may otherwise determine and delegate.

Role of the Board in Risk Oversight

The audit committee of our board of directors is primarily responsible for overseeing our risk management processes on behalf of our board of directors. Going forward, we expect that the audit committee will receive reports from management at least quarterly regarding our assessment of risks. In addition, the audit committee reports regularly to our board of directors, which also considers our risk profile. The audit committee and our board of directors focus on the most significant risks we face and our general risk management strategies. While our board of directors oversees our risk management, management is responsible for day-to-day risk management processes. Our board of directors expects management to consider risk and risk management in each business decision, to proactively develop and monitor risk management strategies and processes for day-to-day activities and to effectively implement risk management strategies adopted by the audit committee and our board of directors. We believe this division of responsibilities is the most effective approach for addressing the risks we face and that our board of directors’ leadership structure, which also emphasizes the independence of our board of directors in its oversight of its business and affairs, supports this approach.

Board Committees

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee.

Audit Committee

Our audit committee consists of Mr. Guggenhime, Dr. Gallagher and Dr. Nashat. Our board of directors has determined that each of the members of our audit committee satisfies The Nasdaq Stock Market and SEC independence requirements. Mr. Guggenhime serves as the chair of our audit committee. The functions of this committee include, among other things:

∎ evaluating the performance, independence and qualifications of our independent auditors and determining whether to retain our existing independent auditors or engage new independent auditors;

∎ reviewing and approving the engagement of our independent auditors to perform audit services and any permissible non-audit services;

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∎ monitoring the rotation of partners of our independent auditors on our engagement team as required by law;

∎ prior to engagement of any independent auditor, and at least annually thereafter, reviewing relationships that may reasonably be thought to bear on their independence, and assessing and otherwise taking the appropriate action to oversee the independence of our independent auditor;

∎ reviewing our annual and quarterly financial statements and reports, including the disclosures contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and discussing the statements and reports with our independent auditors and management;

∎ reviewing, with our independent auditors and management, significant issues that arise regarding accounting principles and financial statement presentation and matters concerning the scope, adequacy and effectiveness of our financial controls;

∎ reviewing with management and our independent auditors any earnings announcements and other public announcements regarding material developments;

∎ establishing procedures for the receipt, retention and treatment of complaints received by us regarding financial controls, accounting or auditing matters and other matters;

∎ preparing the report that the SEC requires in our annual proxy statement;

∎ reviewing and providing oversight of any related-person transactions in accordance with our related person transaction policy and reviewing and monitoring compliance with legal and regulatory responsibilities, including our code of business conduct and ethics;

∎ reviewing our major financial risk exposures, including the guidelines and policies to govern the process by which risk assessment and risk management are implemented;

∎ reviewing on a periodic basis our investment policy; and

∎ reviewing and evaluating on an annual basis the performance of the audit committee and the audit committee charter.

Our board of directors has determined that Mr. Guggenhime qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements of the Nasdaq Listing Rules. In making this determination, our board has considered Mr. Guggenhime’s prior experience, business acumen and independence. Both our independent registered public accounting firm and management periodically meet privately with our audit committee.

We believe that the composition and functioning of our audit committee complies with all applicable requirements of Sarbanes-Oxley, and all applicable SEC and Nasdaq rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Compensation Committee

Our compensation committee consists of Dr. Adelman, Dr. Heyman and Ms. Burow. Dr. Adelman serves as the chair of our compensation committee. Our board of directors has determined that each of the members of our compensation committee, except for Dr. Heyman, is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act, and satisfies The Nasdaq Stock Market independence requirements. Under NASDAQ Marketplace Rule 5615(b)(1), we are permitted to phase in our compliance with the independent compensation committee requirements set forth in NASDAQ Marketplace Rule 5605(d) as follows: (1) one independent member at the time of listing, (2) a majority of independent members within 90 days of listing and (3) all independent members within one year of listing. Within one year of our listing on The Nasdaq Global Market, we expect that Dr. Heyman will have resigned from our compensation committee and that any new directors added to the compensation committee will be independent under Nasdaq Marketplace Rules.

The functions of this committee include, among other things:

∎ reviewing, modifying and approving (or if it deems appropriate, making recommendations to the full board of directors regarding) our overall compensation strategy and policies;

∎ reviewing and making recommendations to the full board of directors regarding the compensation and other terms of employment of our executive officers;

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∎ reviewing and approving (or if it deems it appropriate, making recommendations to the full board of directors regarding) performance goals and objectives relevant to the compensation of our executive officers and assessing their performance against these goals and objectives;

∎ reviewing and approving (or if it deems it appropriate, making recommendations to the full board of directors regarding) the equity incentive plans, compensation plans and similar programs advisable for us, as well as modifying, amending or terminating existing plans and programs;

∎ evaluating risks associated with our compensation policies and practices and assessing whether risks arising from our compensation policies and practices for our employees are reasonably likely to have a material adverse effect on us;

∎ reviewing and making recommendations to the full board of directors regarding the type and amount of compensation to be paid or awarded to our non-employee board members;

∎ establishing policies with respect to votes by our stockholders to approve executive compensation as required by Section 14A of the Exchange Act and determining our recommendations regarding the frequency of advisory votes on executive compensation, to the extent required by law;

∎ reviewing and assessing the independence of compensation consultants, legal counsel and other advisors as required by Section 10C of the Exchange Act;

∎ administering our equity incentive plans;

∎ establishing policies with respect to equity compensation arrangements;

∎ reviewing the competitiveness of our executive compensation programs and evaluating the effectiveness of our compensation policy and strategy in achieving expected benefits to us;

∎ reviewing and making recommendations to the full board of directors regarding the terms of any employment agreements, severance arrangements, change in control protections and any other compensatory arrangements for our executive officers;

∎ reviewing with management and approving our disclosures under the caption “Compensation Discussion and Analysis” in our periodic reports or proxy statements to be filed with the SEC, to the extent such caption is included in any such report or proxy statement;

∎ preparing the report that the SEC requires in our annual proxy statement; and

∎ reviewing and assessing on an annual basis the performance of the compensation committee and the compensation committee charter.

We believe that the composition and functioning of our compensation committee complies with all applicable requirements of Sarbanes-Oxley, and all applicable SEC and Nasdaq rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee consists of Dr. Heyman, Dr. Gallagher and Ms. Burow. Dr. Heyman serves as the chair of our nominating and corporate governance committee. Our board of directors has determined that each of the members of this committee, except for Dr. Heyman, satisfies the Nasdaq Stock Market independence requirements. Under NASDAQ Marketplace Rule 5615(b)(1), we are permitted to phase in our compliance with the independent nominating and corporate governance committee requirements set forth in NASDAQ Marketplace Rule 5605(e) as follows: (1) one independent member at the time of listing, (2) a majority of independent members within 90 days of listing and (3) all independent members within one year of listing. Within one year of our listing on The Nasdaq Global Market, we expect that Dr. Heyman will have resigned from our nominating and corporate governance committee and that any new directors added to the nominating and corporate governance committee will be independent under Nasdaq Marketplace Rules.

The functions of this committee include, among other things:

∎ identifying, reviewing and evaluating candidates to serve on our board of directors consistent with criteria approved by our board of directors;

∎ determining the minimum qualifications for service on our board of directors;

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∎ evaluating director performance on the board and applicable committees of the board and determining whether continued service on our board is appropriate;

∎ evaluating, nominating and recommending individuals for membership on our board of directors;

∎ evaluating nominations by stockholders of candidates for election to our board of directors;

∎ considering and assessing the independence of members of our board of directors;

∎ developing a set of corporate governance policies and principles, including a code of business conduct and ethics, periodically reviewing and assessing these policies and principles and their application and recommending to our board of directors any changes to such policies and principles;

∎ considering questions of possible conflicts of interest of directors as such questions arise; and

∎ reviewing and assessing on an annual basis the performance of the nominating and corporate governance committee and the nominating and corporate governance committee charter.

We believe that the composition and functioning of our nominating and corporate governance committee complies with all applicable requirements of Sarbanes-Oxley, and all applicable SEC and Nasdaq rules and regulations. We intend to comply with future requirements to the extent they become applicable to us.

Compensation Committee Interlocks and Insider Participation

None of our current or former executive officers serve as a member of the compensation committee. None of our officers serve, or have served during the last completed fiscal year, on the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or our compensation committee. Prior to establishing the compensation committee, our full board of directors made decisions relating to compensation of our officers. For a description of transactions between us and members of our compensation committee and affiliates of such members, please see “Certain Relationships and Related Party Transactions.”

Code of Business Conduct and Ethics

We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or person performing similar functions. Following this offering, a current copy of the code will be available on the Corporate Governance section of our website, www.metacrine.com.

Limitation of Liability and Indemnification

Our amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law allows a corporation to eliminate the personal liability of directors of a corporation to the corporation and its stockholders for monetary damages for breach of their fiduciary duties as directors, except for liability for any:

∎ breach of his or her duty of loyalty to the corporation or its stockholders;

∎ act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

∎ unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

∎ transaction from which the director derived an improper personal benefit.

Our amended and restated certificate of incorporation, which will become effective immediately prior to the completion of this offering, does not eliminate a director’s duty of care and, in appropriate circumstances, equitable remedies, such as injunctive or other forms of non-monetary relief, will remain available under Delaware law. These limitations also do not affect a director’s responsibilities under any other laws, such as the federal securities laws or other state or federal laws. Our amended and restated bylaws, which will become effective upon the completion of this offering, provide that we will indemnify our directors and executive officers and may indemnify other officers, employees and other agents, to the fullest extent permitted by law. Our amended and restated bylaws, which will

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become effective upon the completion of this offering, also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding and also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in connection with their services to us, regardless of whether our amended and restated bylaws permit such indemnification. We have obtained a policy of directors’ and officers’ liability insurance.

We have entered, and intend to continue to enter, into separate indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our amended and restated bylaws. These agreements, among other things, will require us to indemnify our directors and executive officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of our directors or executive officers or any other company or enterprise to which the person provides services at our request. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

We believe that these provisions in our amended and restated certificate of incorporation and amended and restated bylaws and these indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

Except as otherwise disclosed under the heading “Legal Proceedings” in the “Business” section of this prospectus, at present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

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EXECUTIVE AND DIRECTOR COMPENSATION

Our named executive officers for the year ended December 31, 2017 are:

∎ Ken Song, M.D., our President and Chief Executive Officer; and

∎ Patricia Millican, our Chief Financial Officer.

Summary Compensation Table

NAME AND PRINCIPAL POSITION	YEAR		SALARY ($)			NON-EQUITY INCENTIVE PLAN COMPENSATION ($) (1)		OPTION AWARDS ($)		ALL OTHER COMPENSATION ($)		TOTAL ($)
Ken Song, M.D.		2017		350,000			126,000		—		—		476,000
President and Chief Executive Officer
Patricia Millican (2)		2017		100,000	(3)		—		—		—		100,000
Chief Financial Officer

(1) Amounts represent the annual cash performance bonus earned for the 12-month period from January 1, 2017 to December 31, 2017. Please see the description of bonus compensation for Dr. Song under “Bonus Compensation” below.

(2) Ms. Millican commenced employment with us in February 2017. From January 1, 2017 through her commencement of employment, Ms. Millican provided consulting services to us.

(3) Amount shown includes $15,000 in consulting fees paid to Ms. Millican in 2017 prior to the commencement of employment.

Annual Base Salary

The base salary of our named executive officers is generally determined and approved by our board of directors in connection with the commencement of employment of the executive and may be adjusted from time to time thereafter as the board of directors determines appropriate. As of December 31, 2017, the base salaries for our named executive officers are provided below.

NAME	2017 BASE SALARY ($)
Ken Song, M.D.		350,000	(1)
Patricia Millican		60,000	(2)

(1) Effective February 14, 2018, Dr. Song’s annual base salary was increased to $364,000.

(2) Ms. Millican commenced employment with us in February 2017. From January 1, 2017 through her date of commencement of employment, Ms. Millican provided consulting services to us. From February 1, 2017 until April 30, 2017, Ms. Millican’s annual base salary was $180,000. From May 1, 2017 until March 5, 2018, Ms. Millican’s annual base salary was $60,000. Effective March 6, 2018, Ms. Millican’s annual base salary was increased to $300,000.

Bonus Compensation

From time to time our board of directors or compensation committee may approve bonuses for our named executive officers based on individual performance, company performance or as otherwise determined appropriate.

Pursuant to Dr. Song’s employment agreement, dated September 7, 2016, Dr. Song is entitled to an annual bonus of up to 40% of his annual base salary based on achievement of individual and/or corporate performance targets, metrics and/or objectives to be determined and approved by the board of directors or the compensation committee thereof. Dr. Song’s employment agreement is described under “— Agreements with Named Executive Officers.”

In February 2018, our board of directors assessed our 2017 corporate performance goals and approved, at the recommendation of the compensation committee, a 90% overall achievement level for such goals. Accordingly, Dr. Song earned a bonus in the amount of $126,000 based on achievement of such goals.

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Ms. Millican was not entitled to any bonus for 2017, and no specific performance goals or bonus program were established for her for 2017. Pursuant to Ms. Millican’s offer letter, dated March 5, 2018, Ms. Millican is entitled to an annual target performance bonus of up to 30% of her base salary, subject to approval of a bonus plan by the board of directors and in accordance with the terms of such approved plan. Ms. Millican’s offer letter is described under “— Agreements with Named Executive Officers.”

Equity-Based Incentive Awards

Our equity-based incentive awards are designed to align our interests and those of our stockholders with those of our employees and consultants, including our named executive officers. The board of directors is responsible for approving equity grants. As of the date of this prospectus, stock option awards were the only form of equity awards we granted to our named executive officers.

We have historically used stock options as an incentive for long-term compensation to our named executive officers because they are able to profit from stock options only if our stock price increases relative to the stock option’s exercise price, which exercise price is set at the fair market value of our common stock on the date of grant. We may grant equity awards at such times as our board of directors determines appropriate. Our executives generally are awarded an initial grant in the form of a stock option in connection with their commencement of employment with us. Additional grants may occur periodically in order to specifically incentivize executives with respect to achieving certain corporate goals or to reward executives for exceptional performance.

Prior to this offering, we have granted all stock options pursuant to our 2015 Plan. Following this offering, we will grant equity incentive awards under the terms of our 2018 Plan. The terms of our equity plans are described below under “— Equity Benefit Plans.”

All options are granted with an exercise price per share that is no less than the fair market value of our common stock on the date of grant of such award. Our stock option awards generally vest over a four-year period subject to continued service and may be subject to acceleration of vesting and exercisability under certain termination and change in control events. See “— Outstanding Equity Awards at Fiscal Year-End.”

We did not grant any equity awards to our named executive officers in 2017. In February 2018, the board of directors granted an option to purchase 681,202 shares of common stock to Dr. Song, with an exercise price of $0.22 per share. Dr. Song’s option is subject to a four-year vesting schedule, vesting in equal monthly installments beginning on February 14, 2018, subject to Dr. Song’s continued service with us, and is early exercisable. In April 2018, the board of directors granted an option to purchase 360,000 shares of common stock to Ms. Millican, with an exercise price of $0.22 per share. Ms. Millican’s option is subject to a four-year vesting schedule, with 25% vesting as of March 19, 2019 and the balance vesting monthly over the remaining 36 months, subject to Ms. Millican’s continued service with us. In July 2018, the board of directors granted an option to purchase 2,014,000 shares of common stock to Dr. Song, with an exercise price of $1.27 per share. Dr. Song’s option is subject to a four-year vesting schedule, vesting in equal monthly installments beginning on July 1, 2018 subject to Dr. Song’s continued service with us. Our board of directors also granted an option in July 2018 to Ms. Millican to purchase 378,000 shares of common stock, with an exercise price of $1.27 per share, vesting in equal monthly installments for a period of four years beginning on July 1, 2018 subject to Ms. Millican’s continued service with us. The 2018 options for Dr. Song and Ms. Millican provide for full vesting acceleration of all of the shares subject to the option in the event of a termination and change in control, as provided in the 2015 Plan.

Agreements with Named Executive Officers

Agreement with Dr. Song. In September 2016, we entered into an employment agreement with Dr. Song that governs the terms of his employment with us. Under the terms of the employment agreement, Dr. Song is entitled to an annual base salary of $350,000 and is eligible to receive an annual performance bonus of up to 40% of his base salary, as determined by our board of directors or the compensation committee thereof. Dr. Song’s base salary was subsequently increased, as described above. Pursuant to his employment agreement, in October 2016 we granted an option to purchase 2,891,235 shares of common stock to Dr. Song, with an exercise price of $0.09 per share. Dr. Song’s option is subject to a four-year vesting schedule, with 25% vesting as of September 12, 2017 and the balance vesting monthly over the remaining 36 months, subject to Dr. Song’s continued service with us. In October

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2017, Dr. Song early exercised his option in full and we issued him 2,891,235 shares of common stock, certain of which are restricted shares subject to vesting and a repurchase right in favor of the company. Dr. Song’s employment agreement provides that, if we terminate his employment without cause or he resigns his employment for good reason, in either case, within three months preceding or 12 months immediately following the consummation of a change in control, the vesting of Dr. Song’s options and all subsequent time-based equity compensation awards shall be fully accelerated such that on the effective date of such termination 100% of the options and any other time-based equity awards granted to Dr. Song prior to such termination shall be fully vested and immediately exercisable by Dr. Song.

Agreement with Ms. Millican. In March 2018, we entered into an offer letter with Ms. Millican that governs the current terms of her employment with us. Under the terms of the offer letter, Ms. Millican is entitled to an annual base salary of $300,000 and is eligible to receive an annual target performance bonus of up to 30% of her base salary, subject to approval of a bonus plan by the board of directors and in accordance with the terms of such approved plan. In addition, as noted above under “— Equity-Based Incentive Awards”, we granted to Ms. Millican an option to purchase 360,000 shares of our common stock in April 2018. Ms. Millican is additionally entitled to certain vesting benefits upon a qualifying termination or a change in control pursuant to the terms of our 2015 Plan, which are described below under “— Equity Benefit Plans”. Prior to becoming an employee, Ms. Millican provided consulting services to us pursuant to a consulting agreement, as described below under “Certain Relationships and Related Party Transactions”.

Each of our named executive officers’ employment is at will and may be terminated by us at any time. Any potential payments and benefits due upon a qualifying termination of employment or a change in control are further described below under “— Potential Payments and Benefits upon Termination or Change in Control.”

Potential Payments and Benefits upon Termination or Change in Control

Regardless of the manner in which a named executive officer’s service terminates, each named executive officer is entitled to receive amounts earned during his or her term of service, including unpaid salary and unused vacation, as applicable. In addition, Dr. Song is entitled to receive certain stock award acceleration upon our termination of his employment without cause or his resignation for good reason, as provided above under “— Agreements with Named Executive Officers.”

Each of our named executive officers holds stock options that were granted subject to the general terms of our 2015 Plan. A description of the termination and change in control provisions in our 2015 Plan and applicable to the stock options granted to our named executive officers is provided below under “— Equity Benefit Plans” and “— Outstanding Equity Awards at Fiscal Year-End” and above under “— Equity-Based Incentive Awards.”

Severance Benefit Plan

In August 2018, our compensation committee and our board of directors approved the Metacrine, Inc. Severance Benefit Plan, or the Severance Plan, which provides for severance benefits for certain of our executives, including our named executive officers, subject to execution and effectiveness of a release of claims. In the event of a covered termination, which is either a termination without cause (and other than as a result of death or disability) or a resignation for good reason, that occurs during the time period commencing three months prior to and ending 12 months following a change in control, (i) Dr. Song will be entitled to a lump sum cash payment equal to 12 months of base salary (increased to 18 months effective upon and following the date of the underwriting agreement related to this offering, or the IPO effective date) plus annual target cash bonus, up to 12 months (increased to 18 months effective upon and following the IPO effective date) of payment for continued group health plan benefits and full vesting acceleration of all outstanding equity awards and (ii) Ms. Millican will be entitled to a lump sum cash payment equal to 9 months (increased to 12 months effective upon and following the IPO effective date) of base salary plus annual target cash bonus, up to 9 months (increased to 12 months effective upon and following the IPO effective date) of payment for continued group health plan benefits and full vesting acceleration of all outstanding equity awards.

In addition, the Severance Plan provides that upon and following the IPO effective date, in the event of a covered termination that occurs outside of the change in control period, (i) Dr. Song will be entitled to a lump sum cash payment equal to 12 months of base salary and up to 12 months of payment for continued group health plan benefits and (ii) Ms. Millican will be entitled to a lump sum cash payment equal to 9 months of base salary and up to 9 months of payment for continued group health plan benefits.

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Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information regarding equity awards granted to our named executive officers that remain outstanding as of December 31, 2017.

			OPTION AWARDS								STOCK AWARDS
	GRANT DATE		NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS EXERCISABLE (#)		NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS UNEXERCISABLE (#)		OPTION EXERCISE PRICE ($)		OPTION EXPIRATION DATE		NUMBER OF SHARES OF STOCK THAT HAVE NOT VESTED (#)(1)			MARKET VALUE OF SHARES THAT HAVE NOT VESTED ($)(2)
Ken Song, M.D.		10/4/2016		—		—		—		—		1,987,724	(3)		874,599
Patricia Millican		7/7/2015		—		—		—		—		103,524	(4)		45,551
		12/3/2015		—		—		—		—		11,573	(4)		5,092

(1) All of the shares of restricted stock were issued under the terms of the 2015 Plan, described below under “— Equity Benefit Plans.” We have a right to repurchase any unvested shares subject to each such award if the holder of the award ceases to provide services to us prior to the date on which all shares subject to the award have vested in accordance with the applicable vesting schedule described in the footnotes below. All vesting is subject to the individual’s continuous service with us through the vesting dates and the potential vesting acceleration described above under “— Potential Payments and Benefits upon Termination or Change in Control.”

(2) The market value of the restricted stock as of December 31, 2017 was determined based on the board of director’s determination of the fair market value of our common stock as of such date. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Common Stock Valuations.”

(3) These shares of restricted stock were issued in connection with the early exercise of a stock option, which vests over four years, with 25% of the shares vesting on September 12, 2017, and the balance vesting in equal monthly installments over the remaining three years, subject to the individual’s continued service through each vesting date.

(4) These shares of restricted stock were issued in connection with the early exercise of a stock option, which vests in equal monthly installments over four years beginning on November 1, 2014, subject to the individual’s continued service through each vesting date.

Option Repricings

We did not engage in any repricings or other modifications or cancellations to any of our named executive officers’ outstanding equity awards during the fiscal year ended December 31, 2017.

Perquisites, Health, Welfare and Retirement Benefits

Our named executive officers, during their employment with us, are eligible to participate in our employee benefit plans, including our medical, dental, group term life, disability and accidental death and dismemberment insurance plans, in each case on the same basis as all of our other employees. In addition, we provide a 401(k) plan to our employees, including our named executive officers, as discussed in the section below entitled “— 401(k) Plan.”

We generally do not provide perquisites or personal benefits to our named executive officers, except in limited circumstances. We do, however, pay the premiums for medical, dental, group term life, disability and accidental death and dismemberment insurance for all of our employees, including our named executive officers. Our board of directors may elect to adopt qualified or nonqualified benefit plans in the future if it determines that doing so is in our best interests.

401(k) Plan

We maintain a defined contribution employee retirement plan, or 401(k) plan, for our employees. Our named executive officers are eligible to participate in the 401(k) plan on the same basis as our other employees. The 401(k) plan is intended to qualify as a tax-qualified plan under Section 401(k) of the U.S. Internal Revenue Code of 1986, as amended, or the Code. The 401(k) plan provides that each participant may contribute up to the lesser of 100% of his or her compensation or the statutory limit, which is $18,000 and $18,500 for calendar years 2017 and 2018, respectively. Participants that are 50 years or older can also make “catch-up” contributions, which in calendar years 2017 and 2018 may be up to an additional $6,000 above the statutory limit. We currently do not make matching contributions into the 401(k) plan on behalf of participants. Participant contributions are held and invested, pursuant to the participant’s instructions, by the plan’s trustee.

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Nonqualified Deferred Compensation

We do not maintain nonqualified defined contribution plans or other nonqualified deferred compensation plans. Our board of directors may elect to provide our officers and other employees with nonqualified defined contribution or other nonqualified deferred compensation benefits in the future if it determines that doing so is in our best interests.

Equity Benefit Plans

The principal features of our equity plans are summarized below. These summaries are qualified in their entirety by reference to the actual text of the plans, which are filed as exhibits to the registration statement of which this prospectus is a part.

2018 Plan

Our board of directors adopted our 2018 Plan in                      2018 and our stockholders approved our 2018 Plan in                      2018. Our 2018 Plan is a successor to and continuation of our 2015 Plan. No stock awards may be granted under the 2018 Plan until the date of the underwriting agreement related to this offering. Once the 2018 Plan is effective, no further grants will be made under the 2015 Plan.

Stock Awards. Our 2018 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422 of the Code, to employees, including employees of any parent or subsidiary, and for the grant of nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other forms of stock awards to employees, directors and consultants, including employees and consultants of our affiliates.

Authorized Shares. Initially, the maximum number of shares of our common stock that may be issued under our 2018 Plan after it becomes effective will be                shares, which is the sum of (1)                  new shares, plus (2) the number of shares (not to exceed                  shares) (i) that remain available for the issuance of awards under our 2015 Plan at the time our 2018 Plan becomes effective, and (ii) any shares subject to outstanding stock options or other stock awards that were granted under our 2015 Plan that terminate or expire prior to exercise or settlement; are forfeited because of the failure to vest; or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price. In addition, the number of shares of our common stock reserved for issuance under our 2018 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2019 (assuming the 2018 Plan becomes effective in 2018) through January 1, 2028, in an amount equal to     % of the total number of shares of our capital stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by our board of directors. The maximum number of shares of our common stock that may be issued on the exercise of ISOs under our 2018 Plan is                     .

Shares subject to stock awards granted under our 2018 Plan that expire or terminate without being exercised in full or that are paid out in cash rather than in shares do not reduce the number of shares available for issuance under our 2018 Plan. If any shares of common stock issued pursuant to a stock award are forfeited back to or repurchased or reacquired by us for any reason, the shares that are forfeited or repurchased or reacquired will revert to and again become available for issuance under the 2018 Plan. Any shares reacquired in satisfaction of tax withholding obligations or as consideration for the exercise or purchase price of a stock award will again become available for issuance under the 2018 Plan.

Plan Administration. Our board of directors, or a duly authorized committee of our board of directors, will administer our 2018 Plan and is referred to as the “plan administrator” herein. Our board of directors may also delegate to one or more of our officers the authority to (1) designate employees (other than officers) to receive specified stock awards and (2) determine the number of shares subject to such stock awards. Under our 2018 Plan, our board of directors has the authority to determine award recipients, grant dates, the numbers and types of stock awards to be granted, the applicable fair market value, and the provisions of each stock award, including the period of exercisability and the vesting schedule applicable to a stock award.

Under the 2018 Plan, the board of directors also generally has the authority to effect, with the consent of any adversely affected participant, (A) the reduction of the exercise, purchase, or strike price of any outstanding award; (B) the cancellation of any outstanding award and the grant in substitution therefore of other awards, cash, or other consideration; or (C) any other action that is treated as a repricing under generally accepted accounting principles.

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Stock Options. ISOs and NSOs are granted under stock option agreements adopted by the plan administrator. The plan administrator determines the exercise price for stock options, within the terms and conditions of the 2018 Plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2018 Plan vest at the rate specified in the stock option agreement as determined by the plan administrator.

The plan administrator determines the term of stock options granted under the 2018 Plan, up to a maximum of 10 years. Unless the terms of an optionholder’s stock option agreement provide otherwise, if an optionholder’s service relationship with us or any of our affiliates ceases for any reason other than disability, death, or cause, the optionholder may generally exercise any vested options for a period of three months following the cessation of service. This period may be extended in the event that exercise of the option is prohibited by applicable securities laws or our insider trading policy. If an optionholder’s service relationship with us or any of our affiliates ceases due to death, or an optionholder dies within a certain period following cessation of service, the optionholder or a beneficiary may generally exercise any vested options for a period of 18 months following the date of death. If an optionholder’s service relationship with us or any of our affiliates ceases due to disability, the optionholder may generally exercise any vested options for a period of 12 months following the cessation of service. In the event of a termination for cause, options generally terminate upon the termination date. In no event may an option be exercised beyond the expiration of its term.

Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the plan administrator and may include (1) cash, check, bank draft or money order, (2) a broker-assisted cashless exercise, (3) the tender of shares of our common stock previously owned by the optionholder, (4) a net exercise of the option if it is an NSO, or (5) other legal consideration approved by the plan administrator.

Unless the plan administrator provides otherwise, options generally are not transferable except by will or the laws of descent and distribution. Subject to approval of the plan administrator or a duly authorized officer in each case, (i) an option may be transferred pursuant to a domestic relations order, official marital settlement agreement, or other divorce or separation instrument and (ii) an optionholder may designate a beneficiary who may exercise the option following the optionholder’s death.

Tax Limitations on ISOs. The aggregate fair market value, determined at the time of grant, of our common stock with respect to ISOs that are exercisable for the first time by an award holder during any calendar year under all of our stock plans may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (1) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and (2) the term of the ISO does not exceed five years from the date of grant.

Restricted Stock Unit Awards. Restricted stock unit awards are granted under restricted stock unit award agreements adopted by the plan administrator. Restricted stock unit awards may be granted in consideration for any form of legal consideration that may be acceptable to our board of directors and permissible under applicable law. A restricted stock unit award may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the plan administrator, or in any other form of consideration set forth in the restricted stock unit award agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement, restricted stock unit awards that have not vested will be forfeited once the participant’s continuous service ends for any reason.

Restricted Stock Awards. Restricted stock awards are granted under restricted stock award agreements adopted by the plan administrator. A restricted stock award may be awarded in consideration for cash, check, bank draft or money order, past or future services to us, or any other form of legal consideration that may be acceptable to our board of directors and permissible under applicable law. The plan administrator determines the terms and conditions of restricted stock awards, including vesting and forfeiture terms. If a participant’s service relationship with us ends for any reason, we may receive any or all of the shares of common stock held by the participant that have not vested as of the date the participant terminates service with us through a forfeiture condition or a repurchase right.

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Stock Appreciation Rights. Stock appreciation rights are granted under stock appreciation right agreements adopted by the plan administrator. The plan administrator determines the purchase price or strike price for a stock appreciation right, which generally cannot be less than 100% of the fair market value of our common stock on the date of grant. A stock appreciation right granted under the 2018 Plan vests at the rate specified in the stock appreciation right agreement as determined by the plan administrator.

The plan administrator determines the term of stock appreciation rights granted under the 2018 Plan, up to a maximum of 10 years. If a participant’s service relationship with us or any of our affiliates ceases for any reason other than cause, disability, or death, the participant may generally exercise any vested stock appreciation right for a period of three months following the cessation of service. This period may be further extended in the event that exercise of the stock appreciation right following such a termination of service is prohibited by applicable securities laws or our insider trading policy. If a participant’s service relationship with us, or any of our affiliates, ceases due to disability or death, or a participant dies within a certain period following cessation of service, the participant or a beneficiary may generally exercise any vested stock appreciation right for a period of 12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, stock appreciation rights generally terminate immediately upon the occurrence of the event giving rise to the termination of the individual for cause. In no event may a stock appreciation right be exercised beyond the expiration of its term.

Performance Awards. The 2018 Plan permits the grant of performance-based stock and cash awards. Our compensation committee may structure awards so that the stock or cash will be issued or paid only following the achievement of certain pre-established performance goals during a designated performance period.

The performance goals that may be selected include one or more of the following: (i) sales; (ii) revenues; (iii) assets; (iv) expenses; (v) market penetration or expansion; (vi) earnings from operations; (vii) earnings before or after deduction for all or any portion of interest, taxes, depreciation, amortization, incentives, service fees or extraordinary or special items, whether or not on a continuing operations or an aggregate or per share basis; (viii) net income or net income per common share (basic or diluted); (ix) return on equity, investment, capital or assets; (x) one or more operating ratios; (xi) borrowing levels, leverage ratios or credit rating; (xii) market share; (xiii) capital expenditures; (xiv) cash flow, free cash flow, cash flow return on investment, or net cash provided by operations; (xv) stock price, dividends or total stockholder return; (xvi) development of new technologies or products; (xvii) sales of particular products or services; (xviii) economic value created or added; (xix) operating margin or profit margin; (xx) customer acquisition or retention; (xxi) raising or refinancing of capital; (xxii) successful hiring of key individuals; (xxiii) resolution of significant litigation; (xxiv) acquisitions and divestitures (in whole or in part); (xxv) joint ventures and strategic alliances; (xxvi) spin-offs, split-ups and the like; (xxvii) reorganizations; (xxviii) recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings; (xxix) or strategic business criteria, consisting of one or more objectives based on the following goals: achievement of timely development, design management or enrollment, meeting specified market penetration or value added, payor acceptance, patient adherence, peer reviewed publications, issuance of new patents, establishment of or securing of licenses to intellectual property, product development or introduction (including, without limitation, any clinical trial accomplishments, regulatory or other filings, approvals or milestones, discovery of novel products, maintenance of multiple products in pipeline, product launch or other product development milestones), geographic business expansion, cost targets, cost reductions or savings, customer satisfaction, operating efficiency, acquisition or retention, employee satisfaction, information technology, corporate development (including, without limitation, licenses, innovation, research or establishment of third-party collaborations), manufacturing or process development, legal compliance or risk reduction, patent application or issuance goals, or goals relating to acquisitions, divestitures or other business combinations (in whole or in part), joint ventures or strategic alliances; and (xxx) other measures of performance selected by the board of directors.

The performance goals may be based on company-wide performance or performance of one or more business units, divisions, affiliates, or business segments, and may be either absolute or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Our board of directors is authorized at any time in its sole discretion, to adjust or modify the calculation of a performance goal for such performance period in order to prevent the dilution or enlargement of the rights of participants, (a) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development; (b) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting us, or our financial statements in response to, or

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in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions; or (c) in view of the board of director’s assessment of our business strategy, performance of comparable organizations, economic and business conditions, and any other circumstances deemed relevant. Specifically, the board of directors is authorized to make adjustment in the method of calculating attainment of performance goals and objectives for a performance period as follows: (i) to exclude the dilutive effects of acquisitions or joint ventures; (ii) to assume that any business divested by us achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; and (iii) to exclude the effect of any change in the outstanding shares of our common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends. In addition, the board of directors is authorized to make adjustment in the method of calculating attainment of performance goals and objectives for a performance period as follows: (i) to exclude restructuring and/or other nonrecurring charges; (ii) to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iv) to exclude the effects of any items that are “unusual” in nature or occur “infrequently” as determined under generally accepted accounting principles; (v) to exclude the effects to any statutory adjustments to corporate tax rates; and (vi) to make other appropriate adjustments selected by the board of directors.

Other Stock Awards. The plan administrator may grant other awards based in whole or in part by reference to our common stock. The plan administrator will set the number of shares under the stock award and all other terms and conditions of such awards.

Changes to Capital Structure. In the event there is a specified type of change in our capital structure, such as a stock split, reverse stock split, or recapitalization, appropriate adjustments will be made to (1) the class and maximum number of shares reserved for issuance under the 2018 Plan, (2) the class and maximum number of shares by which the share reserve may increase automatically each year, (3) the class and maximum number of shares that may be issued on the exercise of ISOs and (4) the class and number of shares and exercise price, strike price, or purchase price, if applicable, of all outstanding stock awards.

Corporate Transactions. Our 2018 Plan provides that in the event of certain specified significant corporate transactions (or a change in control, as defined below), unless otherwise provided in an award agreement or other written agreement between us and the award holder, the plan administrator may take one or more of the following actions with respect to such stock awards:

∎ arrange for the assumption, continuation, or substitution of a stock award by a successor corporation;

∎ arrange for the assignment of any reacquisition or repurchase rights held by us to a successor corporation;

∎ accelerate the vesting, in whole or in part, of the stock award and provide for its termination if not exercised (if applicable) at or before the effective time of the transaction;

∎ arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by us;

∎ cancel or arrange for the cancellation of the stock award, to the extent not vested or not exercised before the effective time of the transaction, in exchange for a cash payment, if any; or

∎ make a payment equal to the excess, if any, of (A) the value of the property the participant would have received on exercise of the award immediately before the effective time of the transaction, over (B) any exercise price payable by the participant in connection with the exercise.

The plan administrator is not obligated to treat all stock awards or portions of stock awards in the same manner and is not obligated to take the same actions with respect to all participants.

Under the 2018 Plan, a corporate transaction is generally the consummation of: (1) a sale of all or substantially all of our assets, (2) the sale or disposition of more than 50% of our outstanding securities, (3) a merger or consolidation where we do not survive the transaction, or (4) a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding immediately before such transaction are converted or exchanged into other property by virtue of the transaction.

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Change in Control. In the event of a change in control, the plan administrator may take any of the above-mentioned actions. Awards granted under the 2018 Plan may be subject to additional acceleration of vesting and exercisability upon or after a change in control as may be provided in the applicable stock award agreement or in any other written agreement between us or any affiliate and the participant, but in the absence of such provision, no such acceleration will automatically occur. Under the 2018 Plan, a change in control is generally (1) the acquisition by any person or company of more than 50% of the combined voting power of our then outstanding stock, (2) a merger, consolidation or similar transaction in which our stockholders immediately before the transaction do not own, directly or indirectly, more than 50% of the combined voting power of the surviving entity (or the parent of the surviving entity) in substantially the same proportions as their ownership immediately prior to such transaction, (3) a sale, lease, exclusive license or other disposition of all or substantially all of our assets other than to an entity more than 50% of the combined voting power of which is owned by our stockholders in substantially the same proportions as their ownership of our outstanding voting securities immediately prior to such transaction, (4) a complete dissolution or liquidation of the company or (5) when a majority of our board of directors becomes comprised of individuals who were not serving on our board of directors on the date of the underwriting agreement related to this offering, or the incumbent board, or whose nomination, appointment, or election was not approved by a majority of the incumbent board still in office.

Plan Amendment or Termination. Our board of directors has the authority to amend, suspend, or terminate our 2018 Plan, provided that such action does not materially impair the existing rights of any participant without such participant’s written consent. Certain material amendments also require the approval of our stockholders. No ISOs may be granted after the tenth anniversary of the date our board of directors adopts our 2018 Plan. No stock awards may be granted under our 2018 Plan while it is suspended or after it is terminated.

2015 Plan

Our board of directors and our stockholders approved our 2015 Plan in January 2015. It was subsequently amended and restated in October 2016 and most recently amended by our board of directors and stockholders in July 2018. All references in this prospectus to the 2015 Plan shall be deemed to refer to our Amended and Restated 2015 Equity Incentive Plan, as amended, unless the context otherwise requires. As of March 31, 2018, there were 1,547,309 shares remaining available for the future grant of stock awards under our 2015 Plan. As of March 31, 2018, there were outstanding stock options covering a total of 1,897,071 shares of our common stock that were granted under our 2015 Plan.

Stock Awards. Our 2015 Plan provides for the grant of ISOs within the meaning of Section 422 of the Code to employees, including employees of any parent or subsidiary, and for the grant of NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards and other forms of stock awards to employees, directors and consultants, including employees and consultants of our affiliates. We have granted stock options under the 2015 Plan.

Authorized Shares. Subject to certain capitalization adjustments, the aggregate number of shares of common stock that may be issued pursuant to stock awards under the 2015 Plan will not exceed 19,345,185 shares. The maximum number of shares of our common stock that may be issued pursuant to the exercise of ISOs under our 2015 Plan is 38,690,370 shares.

Shares subject to stock awards granted under our 2015 Plan that expire or terminate without being exercised in full or that are settled in cash rather than in shares do not reduce the number of shares available for issuance under our 2015 Plan. Additionally, if any shares issued pursuant to a stock award are forfeited back to or repurchased because of the failure to meet a contingency or condition required to vest, then the shares that are forfeited or repurchased will revert to and again become available for issuance under the 2015 Plan. This includes shares used to pay the exercise price of a stock award or to satisfy the tax withholding obligations related to a stock award.

Plan Administration. Our board of directors, or a duly authorized committee of our board of directors, will administer our 2015 Plan and is referred to as the “plan administrator” herein. The plan administrator may also delegate to one or more of our officers the authority to (1) designate employees (other than officers) to receive specified stock awards and (2) determine the number of shares subject to such stock awards. Under our 2015 Plan, the plan administrator has the authority to determine award recipients, dates of grant, the numbers and types of stock awards to be

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granted, the applicable fair market value and the provisions of each stock award, including the period of their exercisability and the vesting schedule applicable to a stock award.

Under the 2015 Plan, the plan administrator also generally has the authority to effect, with the consent of any adversely affected participant, (A) the reduction of the exercise, purchase, or strike price of any outstanding award; (B) the cancellation of any outstanding award and the grant in substitution therefore of other awards, cash, or other consideration; or (C) any other action that is treated as a repricing under generally accepted accounting principles.

Stock Options. ISOs and NSOs are granted under stock option agreements adopted by the plan administrator. The plan administrator determines the exercise price for stock options, within the terms and conditions of the 2015 Plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2015 Plan vest at the rate specified in the stock option agreement as determined by the plan administrator.

The plan administrator determines the term of stock options granted under the 2015 Plan, up to a maximum of 10 years. If an optionholder’s service relationship with us or any of our affiliates ceases for any reason other than disability, death or cause, the optionholder may generally exercise any vested options for a period of three months following the cessation of service. This period may be extended in the event that exercise of the option is prohibited by applicable securities laws or our insider trading policy. If an optionholder’s service relationship with us or any of our affiliates ceases due to death, or an optionholder dies within a certain period following cessation of service, the optionholder or a beneficiary may generally exercise any vested options for a period of 18 months following the date of death. If an optionholder’s service relationship with us or any of our affiliates ceases due to disability, the optionholder may generally exercise any vested options for a period of 12 months following the cessation of service. In the event of a termination for cause, options generally terminate upon the termination date. In no event may an option be exercised beyond the expiration of its term.

Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the plan administrator and may include (1) cash, check, bank draft or money order, (2) a broker-assisted cashless exercise, (3) the tender of shares of our common stock previously owned by the optionholder, (4) a net exercise of the option if it is an NSO, (5) a deferred payment arrangement or (6) other legal consideration approved by the plan administrator.

Unless the plan administrator provides otherwise, options generally are not transferable except by will or the laws of descent and distribution. Subject to approval of the plan administrator or a duly authorized officer in each case, (i) an option may be transferred pursuant to a domestic relations order, official marital settlement agreement, or other divorce or separation instrument and (ii) an optionholder may designate a beneficiary who may exercise the option following the optionholder’s death.

Tax Limitations on ISOs. The aggregate fair market value, determined at the time of grant, of our common stock with respect to ISOs that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless (1) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant and (2) the term of the ISO does not exceed five years from the date of grant.

Restricted Stock Unit Awards. Restricted stock unit awards are granted under restricted stock unit award agreements adopted by the plan administrator. Restricted stock unit awards may be granted in consideration for any form of legal consideration that may be acceptable to our board of directors and permissible under applicable law. A restricted stock unit awards may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the plan administrator, or in any other form of consideration set forth in the restricted stock unit award agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement, restricted stock unit awards that have not vested will be forfeited once the participant’s continuous service ends for any reason.

Restricted Stock Awards. Restricted stock awards are granted under restricted stock award agreements adopted by the plan administrator. A restricted stock award may be awarded in consideration for cash, check, bank draft or

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money order, past or future services to us, or any other form of legal consideration that may be acceptable to our board of directors and permissible under applicable law. The plan administrator determines the terms and conditions of restricted stock awards, including vesting and forfeiture terms. If a participant’s service relationship with us ends for any reason, we may receive any or all of the shares of common stock held by the participant that have not vested as of the date the participant terminates service with us through a forfeiture condition or a repurchase right.

Changes to Capital Structure. In the event there is a specified type of change in our capital structure, such as a stock split, reverse stock split, or recapitalization, appropriate adjustments will be made to (1) the class and maximum number of shares reserved for issuance under the 2015 Plan, (2) the class and maximum number of shares that may be issued on the exercise of ISOs and (3) the class and number of shares and exercise price, strike price, or purchase price, if applicable, of all outstanding stock awards.

Corporate Transactions. Our 2015 Plan provides that in the event of certain specified significant corporate transactions, unless otherwise provided in an award agreement or other written agreement between us and the award holder, the plan administrator may take one or more of the following actions with respect to such stock awards:

∎ arrange for the assumption, continuation, or substitution of a stock award by a surviving or acquiring corporation;

∎ arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring corporation;

∎ accelerate the vesting, in whole or in part, of the stock award and provide for its termination if not exercised (if applicable) at or before the effective time of the transaction;

∎ arrange for the lapse, in whole or in part, of any reacquisition or repurchase rights held by us;

∎ cancel or arrange for the cancellation of the stock award, to the extent not vested or not exercised before the effective time of the transaction, in exchange for a cash payment, if any; and

∎ make a payment equal to the excess, if any, of (A) the value of the property the participant would have received on exercise of the award immediately before the effective time of the transaction, over (B) any exercise price payable by the participant in connection with the exercise.

The plan administrator is not obligated to treat all stock awards or portions of stock awards in the same manner and is not obligated to treat all participants in the same manner.

Notwithstanding the foregoing, pursuant to the 2015 Plan, with respect to any stock award granted to a participant who was our employee or director on the applicable grant date, in the event that any surviving or acquiring corporation in a corporate transaction does not assume any or all such outstanding stock awards or substitute similar stock awards or cash payment rights for such outstanding stock awards, then the vesting (and, if applicable, the exercisability) of such stock awards shall (contingent upon the effectiveness of the corporate transaction) be accelerated in full to a date prior to the effective time of such corporate transaction, and the stock awards shall terminate if not exercised (if applicable) at or prior to such effective time.

Under the 2015 Plan, a corporate transaction is generally the consummation of: (1) a sale of all or substantially all of our assets, (2) the sale or disposition of at least 90% of our outstanding securities, (3) a merger or consolidation where we do not survive the transaction, or (4) a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding immediately before such transaction are converted or exchanged into other property by virtue of the transaction.

Change in Control. Under the 2015 Plan, with respect to any stock award granted to a participant who was our employee or director on the applicable grant date, if a change in control occurs, and within the period commencing three months prior to, and ending twelve months after, the effective time of such change in control, such participant’s continuous service with us terminates due to an involuntary termination (not including death or disability) without cause or due to such participant’s voluntary termination with good reason, then, as of the date of termination of such participant’s continuous service, the vesting and exercisability of such participant’s stock award will be accelerated in full, if applicable, and any reacquisition or repurchase rights held by us or our successor with respect to the stock award shall lapse in full, if applicable. A stock award may be subject to additional acceleration of vesting and exercisability upon or after a change in control as may be provided in the award agreement or other

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written agreement between us and the participant, but in the absence of such provision, no such acceleration will occur, except as described above. Under the 2015 Plan, a change in control is generally (1) the acquisition by any person or company of more than 50% of the combined voting power of our then outstanding stock, (2) a merger, consolidation or similar transaction in which our stockholders immediately before the transaction do not own, directly or indirectly, more than 50% of the combined voting power of the surviving entity (or the parent of the surviving entity) in substantially the same proportions as their ownership immediately prior to such transaction, (3) a complete dissolution or liquidation of the company, or (4) a sale, lease, exclusive license or other disposition of all or substantially all of our assets other than to an entity more than 50% of the combined voting power of which is owned by our stockholders in substantially the same proportions as their ownership of our outstanding voting securities immediately prior to such transaction.

Plan Amendment or Termination. Our board of directors has the authority to amend, suspend, or terminate our 2015 Plan, provided that such action does not impair the existing rights of any participant without such participant’s written consent. Certain material amendments also require the approval of our stockholders. Unless terminated sooner, the 2015 Plan will automatically terminate on January 28, 2025. No stock awards may be granted under our 2015 Plan while it is suspended or after it is terminated.

ESPP

Our board of directors adopted, and our stockholders approved, our ESPP in                      2018. The ESPP will become effective immediately prior to and contingent upon the date of the underwriting agreement related to this offering. The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees, and to provide incentives for such individuals to exert maximum efforts toward our success and that of our affiliates. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code for U.S. employees.

Share Reserve. Following this offering, the ESPP authorizes the issuance of                  shares of our common stock under purchase rights granted to our employees or to employees of any of our designated affiliates. The number of shares of our common stock reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2019 (assuming the ESPP becomes effective in 2018) through January 1, 2028, by the lesser of (1)     % of the total number of shares of our common stock outstanding on the last day of the calendar month before the date of the automatic increase and (2)              shares; provided that before the date of any such increase, our board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2). As of the date hereof, no shares of our common stock have been purchased under the ESPP.

Administration. Our board of directors administers the ESPP and may delegate its authority to administer the ESPP to our compensation committee. The ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of our common stock on specified dates during such offerings. Under the ESPP, we may specify offerings with durations of not more than          months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of our common stock will be purchased for employees participating in the offering. An offering under the ESPP may be terminated under certain circumstances.

Payroll Deductions. Generally, all regular employees, including executive officers, employed by us or by any of our designated affiliates, may participate in the ESPP and may contribute, normally through payroll deductions, up to     % of their earnings (as defined in the ESPP) for the purchase of our common stock under the ESPP. Unless otherwise determined by our board of directors, common stock will be purchased for the accounts of employees participating in the ESPP at a price per share that is at least the lesser of (1) 85% of the fair market value of a share of our common stock on the first date of an offering or (2) 85% of the fair market value of a share of our common stock on the date of purchase.

Limitations. Employees may have to satisfy one or more of the following service requirements before participating in the ESPP, as determined by our board of directors, including: (1) being customarily employed for more than 20 hours per week, (2) being customarily employed for more than five months per calendar year or (3) continuous employment with us or one of our affiliates for a period of time (not to exceed two years). No employee may purchase shares under the ESPP at a rate in excess of $25,000 worth of our common stock based on the fair market value per

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share of our common stock at the beginning of an offering for each calendar year such a purchase right is outstanding. Finally, no employee will be eligible for the grant of any purchase rights under the ESPP if immediately after such rights are granted, such employee has voting power over 5% or more of our outstanding capital stock measured by vote or value under Section 424(d) of the Code.

Changes to Capital Structure. In the event that there occurs a change in our capital structure through such actions as a stock split, merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, liquidating dividend, combination of shares, exchange of shares, change in corporate structure, or similar transaction, the board of directors will make appropriate adjustments to: (1) the class(es) and maximum number of shares reserved under the ESPP, (2) the class(es) and maximum number of shares by which the share reserve may increase automatically each year, (3) the class(es) and number of shares subject to and purchase price applicable to outstanding offerings and purchase rights and (4) the class(es) and number of shares that are subject to purchase limits under ongoing offerings.

Corporate Transactions. In the event of certain significant corporate transactions, any then-outstanding rights to purchase our stock under the ESPP may be assumed, continued, or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue, or substitute for such purchase rights, then the participants’ accumulated payroll contributions will be used to purchase shares of our common stock within 10 business days before such corporate transaction, and such purchase rights will terminate immediately.

Under the ESPP, a corporate transaction is generally the consummation of: (1) a sale of all or substantially all of our assets, (2) the sale or disposition of more than 50% of our outstanding securities, (3) a merger or consolidation where we do not survive the transaction and (4) a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding immediately before such transaction are converted or exchanged into other property by virtue of the transaction.

ESPP Amendment or Termination. Our board of directors has the authority to amend or terminate our ESPP, provided that except in certain circumstances such amendment or termination may not materially impair any outstanding purchase rights without the holder’s consent. We will obtain stockholder approval of any amendment to our ESPP as required by applicable law or listing requirements.

Director Compensation

Historically, we have not paid cash compensation to any of our non-employee directors for service on our board of directors. However, in 2017 we paid Dr. Heyman and Dr. Evans $150,000 and $75,000, respectively, pursuant to consulting agreements, as described under “Certain Relationships and Related Party Transactions — Employment and Consulting Arrangements.”

In addition, we have not granted equity awards to our non-employee directors for service on our board of directors, except for options to purchase shares of our common stock respectively granted to Dr. Heyman in February 2018 and July 2018 and Mr. Guggenhime in July 2018. In February 2018 we granted Dr. Heyman an option to purchase 261,006 shares of common stock at an exercise price of $0.22 per share, which option is subject to a four-year vesting schedule, vesting in equal monthly installments beginning on February 14, 2018, subject to Dr. Heyman’s continued service with us. In July 2018 we granted Dr. Heyman an option to purchase 583,000 shares of common stock at an exercise price of $1.27 per share, which vests monthly over a three year period in equal installments beginning July 1, 2018, subject to Dr. Heyman’s continued service with us. In July 2018 our board of directors also granted Mr. Guggenhime an option to purchase 318,000 shares of our common stock at an exercise price of $1.27 per share, which vests monthly over a three year period in equal installments beginning July 9, 2018, subject to Mr. Guggenhime’s continued service with us. Dr. Heyman and Mr. Guggenhime are additionally entitled to certain vesting benefits upon a change in control pursuant to the terms of our 2015 Plan, which are described above under “— Equity Benefit Plans”. In March 2018, Dr. Heyman early exercised his February 2018 option in full and we issued him 261,006 shares of common stock, certain of which are restricted shares subject to vesting under the vesting schedule for the option described above.

We have reimbursed and will continue to reimburse all of our non-employee directors for their travel, lodging and other reasonable expenses incurred in attending meetings of our board of directors and committees of our board of directors.

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The following table sets forth in summary form information concerning the compensation that we paid or awarded during the year ended December 31, 2017 to each of our non-employee directors.

NAME (1)	ALL OTHER COMPENSATION ($) (2)		TOTAL ($)
Richard Heyman, Ph.D.		150,000		150,000
Ronald Evans, Ph.D.		75,000		75,000
Robert Adelman, M.D.		—		—
Kristina Burow		—		—
Carol Gallagher, Pharm.D.		—		—
Amir Nashat, Ph.D.		—		—

(1) None of our non-employee directors held unexercised option awards or unvested stock awards as of December 31, 2017.

(2) Consists of consulting fees paid pursuant to consulting agreements with each of Dr. Heyman and Dr. Evans.

Non-employee Director Compensation Policy

Our board of directors adopted a new compensation policy in                    that will become effective upon the execution and delivery of the underwriting agreement for this offering and will be applicable to all of our non-employee directors. This compensation policy provides that each such non-employee director will receive the following compensation for service on our board of directors:

∎ an annual cash retainer of $            ;

∎ an additional cash retainer of $             to the chairman of the board of directors;

∎ an additional annual cash retainer of $            , $             and $             for service as a member of the audit committee, compensation committee and the nominating and corporate governance committee, respectively;

∎ an additional annual cash retainer of $            , $             and $             for service as chairman of the audit committee, compensation committee and the nominating and corporate governance committee, respectively;

∎ an initial option grant to purchase              shares of our common stock for each non-employee director who first joins our board of directors, on the date of commencement of service on the board, vesting over a three year period following the grant date; and

∎ an annual option grant to purchase              shares of our common stock for each non-employee director serving on the board of directors on the date of our annual stockholder meeting, vesting one year following the grant date.

Each of the option grants described above will vest and become exercisable subject to the director’s continuous service to us, provided that each option will vest in full upon a change in control (as defined under our 2018 Plan). The term of each option will be 10 years, subject to earlier termination as provided in the 2018 Plan, except that the post-termination exercise period will be for 12 months from the date of termination, if such termination is other than for death, disability or cause. The options will be granted under our 2018 Plan, the terms of which are described in more detail above under “— Equity Benefit Plans — 2018 Plan.”

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following includes a summary of transactions since September 17, 2014, our inception, to which we have been a party, in which the amount involved in the transaction exceeded $120,000, and in which any of our directors, executive officers or, to our knowledge, beneficial owners of more than 5% of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described under “Executive And Director Compensation.”

Convertible Note Financing

In October 2014, we issued and sold to investors convertible promissory notes in the aggregate principal amount of $500,000. The convertible promissory notes carried an interest rate of 6% per annum, and converted in January 2015 in connection with the Series A convertible preferred stock financing described below. The participants in this convertible note financing included the following holders of more than 5% of our capital stock, who are also affiliated with members of our board of directors:

PARTICIPANTS	AGGREGATE PRINCIPAL AMOUNT OF NOTES		INTEREST PAID
Greater than 5% Stockholders
Polaris Partners VII, L.P. (1)	$	166,666.67	$	2,603
venBio Global Strategic Fund L.P. (2)	$	166,666.67	$	2,521

⁽¹⁾  Consists of a convertible note held by Polaris Partners Entrepreneurs’ Fund VII, L.P., or Polaris Entrepreneurs. Dr. Nashat, a member of our board of directors, is a managing member of Polaris Management Co. VII, L.L.C., which is the sole general partner of Polaris Entrepreneurs.

⁽²⁾ Consists of a convertible note held by venBio Global Strategic Fund L.P., or venBio Global Fund. Dr. Adelman, a member of our board of directors, is a general partner of venBio Global Fund.

Preferred Stock Financings

Series A Convertible Preferred Stock

In January 2015, we entered into a Series A preferred stock purchase agreement with various investors, as amended in May 2015, July 2015, May 2016 and September 2016, pursuant to which we issued and sold to participating investors an aggregate of 37,766,644 shares of our Series A convertible preferred stock at a purchase price of $1.00 per share, and received gross proceeds of approximately $37.8 million including conversion of the convertible promissory notes described above.

The participants in the Series A convertible preferred stock financing included the following executive officers and members of our board of directors and holders of more than 5% of our capital stock or entities affiliated with them. The following table sets forth the aggregate number of shares of convertible preferred stock issued to these related parties in the Series A convertible preferred stock financing:

PARTICIPANTS	SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK		CONSIDERATION
Executive Officers and Directors
Ken Song, M.D. (1)		50,000	$	50,000
Patricia Millican (2)		49,998	$	49,998
Ronald Evans, Ph.D. (3)		49,998	$	49,998
Greater than 5% Stockholders
Alexandria Venture Investments, LLC		4,599,997	$	4,599,997
Entities affiliated with Polaris Partners (4)		10,000,000	$	10,000,000
venBio Global Strategic Fund L.P.		10,000,000	$	10,000,000
Entities affiliated with ARCH Venture Fund (5)		10,000,000	$	10,000,000

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⁽¹⁾ Consists of 50,000 shares of Series A convertible preferred stock held by Kenneth Song and Yu Linda Song, Trustees of the Song Family Trust Dated October 14, 2016, or the Song Trust. Dr. Song, our President and Chief Executive Officer and a member of our board of directors, is a trustee of the Song Trust.

⁽²⁾ Consists of 49,998 shares of Series A convertible preferred stock held by the Millican Family Trust, dated March 10, 2016, or the Millican Trust. Ms. Millican, our Chief Financial Officer, is a trustee of the Millican Trust.

⁽³⁾ Consists of 49,998 shares of Series A convertible preferred stock held by the Evans Potter Rev. Trust 12/29/1989, or the Evans Trust. Dr. Evans is a member of our board of directors, is a the trustee of the Evans Trust, and may be deemed to beneficially own the shares held by the Evans Trust.

⁽⁴⁾ Consists of (i) 435,887 shares of Series A convertible preferred stock held by Polaris Entrepreneurs and (ii) 9,564,113 shares of Series A convertible preferred stock held by Polaris Partners VII, L.P., or Polaris VII. Dr. Nashat, a member of our board of directors, is a managing member of Polaris Management Co. VII, L.L.C., which is the sole general partner of Polaris VII.

⁽⁵⁾ Consists of 10,000,000 shares of Series A convertible preferred stock held by ARCH Venture Fund VIII, L.P., or ARCH Fund VIII. Ms. Burow, a member of our board of directors, is managing director of ARCH and holds an indirect pecuniary interest in ARCH Fund VIII.

Series B Convertible Preferred Stock

In November 2017, we entered into a Series B preferred stock purchase agreement with various investors, pursuant to which we issued and sold to such investors an aggregate of 18,333,333 shares of our Series B convertible preferred stock at a purchase price of $1.20 per share, and received gross proceeds of approximately $22.0 million.

The participants in the Series B convertible preferred stock financing included the following members of our board of directors and holders of more than 5% of our capital stock or entities affiliated with them. The following table sets forth the aggregate number of shares of convertible preferred stock issued to these related parties in the Series B convertible preferred stock financing:

PARTICIPANTS	SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK		CONSIDERATION
Greater than 5% stockholders
Alexandria Venture Investments, LLC		1,107,899	$	1,329,479
Entities affiliated with Polaris Partners (1)		2,408,478	$	2,890,174
venBio Global Strategic Fund L.P.		2,408,478	$	2,890,174
ARCH Venture Fund VIII, L.P.		2,408,478	$	2,890,174
Entities affiliated with New Enterprise Associates (2)		10,000,000	$	12,000,000

⁽¹⁾ Consists of (i) 104,982 shares of Series B convertible preferred stock held by Polaris Entrepreneurs and (ii) 2,303,496 shares of Series B convertible preferred stock held by Polaris VII.

⁽²⁾ Consists of (i) 12,500 shares of Series B convertible preferred stock held by NEA Ventures 2017, Limited Partnership, or Ven 2017, and (ii) 9,987,500 shares of Series B convertible preferred stock held by New Enterprise Associates 16, L.P., or NEA 16. Dr. Gallagher, a member of our board of directors, is a partner of New Enterprise Associates, Inc. which is affiliated with Ven 2017 and NEA 16.

Series C Convertible Preferred Stock

In June 2018, we entered into a Series C preferred stock purchase agreement with various investors, pursuant to which we issued and sold to such investors an aggregate of 30,660,377 shares of our Series C convertible preferred stock at a purchase price of $2.12 per share, and received gross proceeds of approximately $65.0 million.

The participants in the Series C convertible preferred stock financing included the following members of our board of directors and holders of more than 5% of our capital stock or entities affiliated with them. The following table sets forth the aggregate number of shares of convertible preferred stock issued to these related parties in the Series C convertible preferred stock financing:

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PARTICIPANTS	SHARES OF SERIES C CONVERTIBLE PREFERRED STOCK		CONSIDERATION
Greater than 5% Stockholders
Alexandria Venture Investments, LLC		762,961	$	1,617,477
Entities affiliated with Polaris Partners (1)		1,179,245	$	2,499,999
venBio Global Strategic Fund L.P.		2,020,054	$	4,282,514
Entities affiliated with ARCH Venture Fund (2)		1,415,094	$	2,999,999
New Enterprise Associates 16, L.P.		1,698,118	$	3,600,010

⁽¹⁾  Consists of (i) 77,103 shares of Series C convertible preferred stock held by Polaris Entrepreneurs and (ii) 1,102,142 shares of Series C convertible preferred stock held by Polaris VII.

⁽²⁾  Consists of (i) 707,547 shares of Series C convertible preferred stock held by ARCH Venture Fund VIII Overage, L.P., or ARCH Fund Overage, and (ii) 707,547 shares of Series C convertible preferred stock held by ARCH Fund VIII. Ms. Burow, a member of our board of directors, is managing director of ARCH and holds an indirect pecuniary interest in ARCH Fund Overage.

Investor Agreements

In connection with our Series C convertible preferred stock financing, we entered into an amended and restated investor rights agreement, amended and restated voting agreement and amended and restated right of first refusal and co-sale agreement containing voting rights, information rights, rights of first refusal and co-sale and registration rights, among other things, with certain of our stockholders. These rights will terminate upon the closing of this offering, except for the registration rights as more fully described below in “Description of Capital Stock—Registration Rights.”

Consulting Arrangements

In March 2015, we entered into a consulting agreement with Patricia Millican, our Chief Financial Officer, pursuant to which she provided general business, financial and strategic consulting services. Pursuant to her consulting agreement, Ms. Millican was compensated for services rendered as requested from time to time. From March 1, 2015 through February 1, 2017, Ms. Millican’s annual compensation under the consulting agreement was $180,000. Further, under the consulting agreement, Ms. Millican was granted (i) an option to purchase 451,743 shares of our common stock, vesting monthly over a four year period commencing in November 2014, which she early-exercised in full in August 2015 and (ii) an option to purchase 50,500 shares of our common stock, vesting monthly over a four year period commencing in November 2014, which she early-exercised in full in January 2016. Ms. Millican’s consulting agreement was terminated when she commenced employment with us in February 2017.

In March 2015, we entered into a consulting agreement with Richard Heyman, Chairman of our board of directors, which was subsequently amended in January 2018, pursuant to which he provides board and general business, scientific, financial and strategic consulting regarding the development and commercialization of our programs. Pursuant to his consulting agreement, Dr. Heyman is compensated for services rendered as requested from time to time. The initial term of the consulting agreement commenced on October 1, 2014 for a period of three years, and automatically renewed for a one year period commencing on October 1, 2017. Dr. Heyman received a one-time payment of $100,000 under the consulting agreement. Further, from October 1, 2014 through December 31, 2017, Dr. Heyman’s annual compensation under the consulting agreement was $150,000, and effective January 1, 2018, Dr. Heyman’s annual cash compensation was reduced to $75,000 under the agreement.

In November 2014, we entered into a consulting agreement with Ronald Evans, a member of our board of directors, which was subsequently amended in November 2016 and November 2017, pursuant to which he provides board and advisory services in the area of treating metabolic diseases. Pursuant to his consulting agreement, Dr. Evans is compensated for services rendered as requested from time to time. The term of the consulting agreement, as amended, commenced on November 1, 2014 for a period of four years, and will automatically renew for successive one year terms. Dr. Evan’s annual compensation under the consulting agreement is $75,000.

Lease

In June 2017, we entered into a lease agreement with ARE-SD Region No. 30, LLC, an affiliate of one our 5% stockholders, Alexandria Venture Investments, LLC. The lease commenced in March 2018 and terminates in March

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2023, with aggregate monthly rental payments of $4.0 million over the term of the lease. In addition to the monthly rental payments, we will be obligated to pay certain customary amounts for its share of operating expenses and tax obligations.

Indemnification Agreements

We have entered, and intend to continue to enter, into separate indemnification agreements with each of our directors and executive officers, as described in “Management — Limitation of Liability and Indemnification.”

Policies and Procedures for Transactions with Related Persons

We have adopted a written related-person transactions policy that sets forth our policies and procedures regarding the identification, review, consideration and oversight of “related-person transactions.” For purposes of our policy only, a “related-person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any “related person” are participants involving an amount that exceeds $120,000. Transactions involving compensation for services provided to us as an employee, consultant or director are not considered related-person transactions under this policy. A related person is any executive officer, director, nominee to become a director or a holder of more than five percent of our common stock, including any of their immediate family members and affiliates, including entities owned or controlled by such persons.

Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed related-person transaction to our audit committee (or, where review by our audit committee would be inappropriate, to another independent body of our board of directors) for review. The presentation must include a description of, among other things, all of the parties thereto, the direct and indirect interests of the related persons, the purpose of the transaction, the material facts, the benefits of the transaction to us and whether any alternative transactions are available, an assessment of whether the terms are comparable to the terms available from unrelated third parties and management’s recommendation. To identify related-person transactions in advance, we rely on information supplied by our executive officers, directors and certain significant stockholders. In considering related-person transactions, our audit committee or another independent body of our board of directors takes into account the relevant available facts and circumstances including, but not limited to:

∎ the risks, costs and benefits to us;

∎ the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated;

∎ the terms of the transaction;

∎ the availability of other sources for comparable services or products; and

∎ the terms available to or from, as the case may be, unrelated third parties.

In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval. All of the transactions described in this section occurred prior to the adoption of this policy.

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PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership of our capital stock by:

∎ each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock;

∎ each of our directors;

∎ each of our named executive officers; and

∎ all of our current executive officers and directors as a group.

The percentage ownership information under the column entitled “Before Offering” is based on 98,700,265 shares of common stock outstanding as of June 6, 2018, assuming conversion of all outstanding shares of our convertible preferred stock into 85,093,688 shares of common stock, which will occur in connection with the completion of this offering. The percentage ownership information under the column entitled “After Offering” is based on the sale of shares of common stock in this offering. The following table does not reflect any potential purchases pursuant to the directed share program or otherwise in this offering, which purchases, if any, will increase the percentage of shares owned after the offering.

Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of more than 5% of our common stock. We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options or warrants that are either immediately exercisable or exercisable on or before August 5, 2018, which is 60 days after June 6, 2018. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.

Except as otherwise noted below, the address for each person or entity listed in the table is c/o Metacrine, Inc., 3985 Sorrento Valley Blvd. Suite C, San Diego, CA 92121.

NAME AND ADDRESS OF BENEFICIAL OWNER	NUMBER OF SHARES BENEFICIALLY OWNED		PERCENTAGE OF SHARES BENEFICIALLY OWNED
			BEFORE OFFERING			AFTER OFFERING
5% or Greater Stockholders
venBio Global Strategic Fund L.P. (1)		14,428,532		14.6	%
Entities affiliated with ARCH Venture Fund (2)		13,823,572		14.0	%
Entities affiliated with Polaris Partners (3)		13,587,723		13.8	%
Entities affiliated with New Enterprise Associates (4)		11,698,118		11.9	%
Alexandria Venture Investments, LLC (5)		6,470,857		6.6	%
Directors and Named Executive Officers
Ken Song, M.D. (6)		3,622,437		3.7	%
Patricia Millican (7)		552,241		*
Robert Adelman, Ph.D. (8)		14,428,532		14.6	%
Kristina Burow		—		—
Ronald Evans, Ph.D. (9)		2,415,936		2.5	%
Carol Gallagher, Pharm.D.		—		—
Andrew Guggenhime		—		—
Richard Heyman, Ph.D.		1,428,975		1.5	%
Amir Nashat (10)		13,587,723		13.8	%
All current executive officers and directors as a group (9 persons) (11)		36,035,844		36.52	%

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* Represents beneficial ownership of less than 1%.

⁽¹⁾  Consists of 14,428,532 shares of common stock issuable upon conversion of preferred stock held by venBio Global Strategic Fund L.P., or venBio Global Fund. The general partners of venBio Global Fund are Dr. Robert Adelman and Corey Goodman, who may be deemed to beneficially own the shares held by venBio Global Fund. Dr. Adelman and Mr. Goodman disclaim beneficial ownership of such shares, except to the extent of their pecuniary interest therein. The address of venBio Global Fund is 1700 Owens Street, Suite #595, San Francisco, CA 94158.

⁽²⁾  Consists of (i) 707,547 shares of common stock issuable upon conversion of preferred stock held by ARCH Venture Fund VIII Overage, L.P., or ARCH Fund Overage, and (ii) 13,116,025 shares of common stock issuable upon conversion of preferred stock held by ARCH Venture Fund VIII, L.P., or ARCH Fund VIII. The sole general partner of ARCH Fund VIII is ARCH Venture Partners VIII, L.P., or ARCH Partners VIII, which may be deemed to beneficially own the shares held by ARCH Fund VIII. The sole general partner of ARCH Partners VIII and ARCH Fund Overage is ARCH Venture Partners VIII, LLC, or ARCH VIII LLC, which may be deemed to beneficially own the shares held by ARCH Fund VIII and ARCH Fund Overage. ARCH Partners VIII and ARCH VIII LLC disclaim beneficial ownership of such shares, except to the extent of any pecuniary interest therein. The managing directors of ARCH VIII LLC are Keith L. Crandell, Clinton Bybee and Robert Nelsen, and they may be deemed to beneficially own the shares held by ARCH Fund VIII and ARCH Fund Overage. Messrs. Crandell, Bybee and Nelsen disclaim beneficial ownership of such shares, except to the extent of any pecuniary interest therein. Ms. Burow holds an interest in ARCH Partners VIII and ARCH VIII LLC but she does not have voting or investment control over the shares held by ARCH Partners VIII or ARCH VIII LLC and disclaims beneficial ownership except to the extent of any pecuniary interest therein. The address of ARCH Fund VIII and ARCH Fund Overage is 8755 West Higgins Road, Suite 1025, Chicago, Illinois 60631.

⁽³⁾  Consists of (i) 617,972 shares of common stock issuable upon conversion of preferred stock held by Polaris Partners Entrepreneurs’ Fund VII, L.P., or Polaris Entrepreneurs, and (ii) 12,969,751 shares of common stock issuable upon conversion of preferred stock held by Polaris Partners VII, L.P., or Polaris VII and together with Polaris Entrepreneurs, the Polaris Funds. The sole general partner of Polaris Entrepreneurs and Polaris VII is Polaris Management Co. VII, L.L.C., or Polaris Management, which may be deemed to beneficially own the shares held by Polaris Entrepreneurs and Polaris VII. Amir Nashat, Brian Chee, Bryce Youngren and David Barrett are the managing members of Polaris Management, or the Managing Members, and they may be deemed to beneficially own the shares held by Polaris Management. Each of Polaris Management and the Managing Members disclaim beneficial ownership of all of the shares owned by the Polaris Funds, and this registration statement shall not be deemed an admission that any of Polaris Management or the Managing Members is the beneficial owner of the shares owned by the Polaris Funds for purposes of Section 16 or for any other purpose, except to the extent of their respective and proportionate pecuniary interests therein. The address of Polaris Entrepreneurs and Polaris VII is One Marina Park Drive, 10th Floor, Boston, MA 02210.

⁽⁴⁾  Consists of (i) 12,500 shares of common stock issuable upon conversion of preferred stock held by NEA Ventures 2017, Limited Partnership, or NEA 2017, and (ii) 11,685,618 shares of common stock issuable upon conversion of preferred stock held by New Enterprise Associates 16, L.P., or NEA 16. The shares directly held by NEA 16 are indirectly held by (i) NEA Partners 16, L.P., or NEA Partners 16, the sole general partner of NEA 16, (ii) NEA 16 GP, LLC, or NEA 16 LLC, the sole general partner of NEA Partners 16 and (iii) each of the individual managers of NEA 16 LLC. The individual managers of NEA 16 LLC, collectively the NEA 16 Managers, are Peter J. Barris, Forest Baskett, Ali Behbahani, Carmen Chang, Anthony A. Florence, Jr., Joshua Makower, Mohamad Makhzoumi, David M. Mott, Chetan Puttagunta, Scott D. Sandell, Peter Sonsini and Ravi Viswanathan. The shares directly held by NEA 2017 are indirectly held by Karen P. Welsh, the general partner of Ven 2017. NEA 16, NEA Partners 16, NEA 16 LLC and the NEA 16 Managers share voting and dispositive power with regard to the Company’s securities directly held by NEA 16. Karen P. Welsh, the general partner of Ven 2017, shares voting and dispositive power with regard to the Company’s securities directly held by NEA 2017. All indirect holders of the above-referenced shares disclaim beneficial ownership of all applicable shares except to the extent of their pecuniary interest therein. The address of Ven 2017 and NEA 16 is 1954 Greenspring Drive, Suite 600, Timonium, MD 21093.

⁽⁵⁾  Consists of 6,470,857 shares of common stock issuable upon conversion of preferred stock held by Alexandria Venture Investments, LLC, or Alexandria. The managing member of Alexandria is Alexandria Real Estate Equities, Inc., which has full voting and investment power with respect to the shares owned by Alexandria. Joel S. Marcus is the Executive Chairman of Alexandria Real Estate Equities, Inc. and may be deemed to have voting and investment power with respect to the shares owned by Alexandria. Mr. Marcus disclaims beneficial ownership of the shares held by Alexandria, except to the extent of his underlying pecuniary interest therein. The address of Alexandria is 385 E. Colorado Blvd, Suite 299, Pasadena, CA 91101.

⁽⁶⁾  Consists of (i) 2,891,235 shares of common stock held by Dr. Song in his personal capacity, (ii) 50,000 shares of common stock issuable upon conversion of preferred stock held by Kenneth Song and Yu Linda Song, Trustees of the Song Family Trust Dated October 14, 2016, or the Song Trust, and (iii) 681,202 shares of common stock issuable upon exercise of options, 610,243 of which will be unvested but exercisable within 60 days of June 6, 2018. Dr. Song is a trustee of the Song Trust, and may be deemed to beneficially own the shares held by the Song Trust.

⁽⁷⁾  Consists of (i) 209,269 shares of common stock held by Ms. Millican in her personal capacity, (ii) 292, 974 shares of common stock held by Millican Family Trust, dated March 10, 2016, or the Millican Trust, and (iii) 49,998 shares of common stock issuable upon conversion of preferred stock held by the Millican Trust. Ms. Millican is a trustee of the Millican Trust, and may be deemed to beneficially own the shares held by the Millican Trust.

⁽⁸⁾  Consists of the shares described in Note (1) above. Dr. Adelman is a general partner of venBio Global Fund, and may be deemed to beneficially own the shares held by venBio Global Fund. Dr. Adelman disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein.

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⁽⁹⁾ Consists of (i) 2,365,938 shares of common stock held by Dr. Evans in his personal capacity and (ii) 49,998 shares of common stock issuable upon conversion of preferred stock held by Evans Potter Rev. Trust 12/29/1989, or the Evans Trust. Dr. Evans is the trustee of the Evans Trust, and may be deemed to beneficially own the shares held by the Evans Trust.

⁽¹⁰⁾  Consists of the shares described in Note (3) above. Dr. Nashat is a managing member of Polaris Management, which is the sole general partner of the Polaris Funds, and may be deemed to beneficially own the shares held by Polaris Management. Dr. Nashat disclaims beneficial ownership of all of the shares owned by the Polaris Funds, and this registration statement shall not be deemed an admission that Dr. Nashat is the beneficial owner of the shares owned by the Polaris Funds for purposes of Section 16 or for any other purpose, except to the extent of his proportionate pecuniary interests therein.

⁽¹¹⁾  Consists of the shares described in Notes (6) through (10) above and the shares beneficially owned by Dr. Heyman.

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DESCRIPTION OF CAPITAL STOCK

Upon filing of our amended and restated certificate of incorporation and the completion of this offering, our authorized capital stock will consist of 200,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share. All of our authorized preferred stock upon the completion of this offering will be undesignated. The following is a summary of the rights of our common and preferred stockholders and some of the provisions of our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to and upon the completion of this offering, respectively, and of the Delaware General Corporation Law. This summary is not complete. For more detailed information, please see our amended and restated certificate of incorporation and amended and restated bylaws, which are filed as exhibits to the registration statement of which this prospectus is a part, as well as the relevant provisions of the Delaware General Corporation Law.

Common Stock

Outstanding Shares

As of March 31, 2018, there were 13,571,059 shares of common stock issued and outstanding (including 3,353,020 shares of restricted common stock which are subject to a right of repurchase by us) held of record by 41 stockholders. This amount excludes our outstanding shares of convertible preferred stock as of March 31, 2018, which will convert into 54,433,311 shares of common stock in connection with the completion of this offering. Based on the number of shares of common stock outstanding as of March 31, 2018, and assuming (1) the conversion of all outstanding shares of our convertible preferred stock and (2) the issuance by us of                shares of common stock in this offering, there will be                shares of common stock outstanding upon the completion of this offering.

As of March 31, 2018, there were 1,897,071 shares of common stock subject to outstanding options under our equity incentive plan.

Voting

Our common stock is entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors, and does not have cumulative voting rights. Accordingly, the holders of a majority of the shares of our common stock entitled to vote in any election of directors can elect all of the directors standing for election.

Dividends

Subject to preferences that may be applicable to any then-outstanding preferred stock, the holders of common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds.

Liquidation

In the event of our liquidation, dissolution or winding-up, holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities, subject to the satisfaction of any liquidation preference granted to the holders of any outstanding shares of preferred stock.

Rights and Preferences

Holders of our common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate and issue in the future.

Fully Paid and Nonassessable

All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering will be, fully paid and nonassessable.

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Convertible Preferred Stock

As of March 31, 2018, there were 54,433,311 shares of convertible preferred stock outstanding, held of record by 21 stockholders. In connection with the completion of this offering, the shares of convertible preferred stock outstanding as of March 31, 2018 will be converted into 54,433,311 shares of our common stock. Immediately prior to the completion of this offering, our certificate of incorporation will be amended and restated to delete all references to such shares of convertible preferred stock. Under the amended and restated certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue up to 10,000,000 shares of convertible preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding.

Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in our control that may otherwise benefit holders of our common stock and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock. We have no current plans to issue any shares of preferred stock.

Stockholder Registration Rights

After the closing of this offering, certain holders of shares of our common stock, including substantially all of the current preferred stockholders, including certain holders of five percent of our capital stock and entities affiliated with certain of our directors, will be entitled to certain rights with respect to registration of such shares under the Securities Act. These shares are referred to as registrable securities. The holders of these registrable securities possess registration rights pursuant to the terms of the amended and restated investor rights agreement and are described in additional detail below.

The registration of shares of our common stock pursuant to the exercise of the registration rights described below would enable the holders to trade these shares without restriction under the Securities Act when the applicable registration statement is declared effective. We are required to pay the registration expenses, other than underwriting discounts and selling commissions, of the shares registered pursuant to the demand, piggyback and Form S-3 registrations described below.

Generally, in an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of shares the holders may include. The demand, piggyback and Form S-3 registration rights described below will expire (i) five years after the effective date of the registration statement, of which this prospectus forms a part, (ii) with respect to any particular holder, at such time that such holder can sell its shares under Rule 144 of the Securities Act during any three-month period, or (iii) upon termination of the amended and restated investor rights agreement.

Demand Registration Rights

At any time beginning on the earlier of (1) December 31, 2022 and (2) six months after the public offering date set forth on the cover page of this prospectus, the holders of the registrable securities will be entitled to certain demand registration rights. Subject to the terms of the lockup agreements described under “Underwriters”, the holders of at least a majority of the registrable securities then outstanding, may make a written request that we register all or a portion of their shares, subject to certain specified exceptions. Such request for registration must cover securities the aggregate offering price of which, after payment of underwriting discounts and commissions, would exceed $50,000,000.

Piggyback Registration Rights

At any time beginning on the earlier of (1) December 31, 2022 and (2) six months after the public offering date set forth on the cover page of this prospectus, if we propose to register for offer and sale any of our securities under the Securities Act in another offering, either for our own account or for the account of other security holders, the holders of registrable securities will be entitled to certain “piggyback” registration rights allowing them to include their shares in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to

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file a registration statement under the Securities Act, including a registration statement on Form S-3 as discussed below, other than with respect to a demand registration or a registration statement on Forms S-4 or S-8, the holders of these shares are entitled to notice of the registration and have the right, subject to limitations that the underwriters may impose on the number of shares included in the registration, to include their shares in the registration.

Form S-3 Registration Rights

At any time beginning on the first anniversary of the public offering date set forth on the cover page of this prospectus, the holders of the registrable securities will be entitled to certain Form S-3 registration rights. Any holder of these shares can make a request that we register for offer and sale their shares on Form S-3 if we are qualified to file a registration statement on Form S-3, subject to certain specified exceptions. Such request for registration on Form S-3 must cover securities the aggregate offering price of which, after payment of the underwriting discounts and commissions, equals or exceeds $1,000,000.

Anti-Takeover Effects of Provisions of Our Amended and Restated Certificate of Incorporation, Our Amended and Restated Bylaws and Delaware Law

Delaware Anti-Takeover Law

We are subject to Section 203. Section 203 generally prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time that such stockholder became an interested stockholder, unless:

∎ prior to such time the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

∎ upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (1) by persons who are directors and also officers and (2) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

∎ at or subsequent to such time, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66-2/3% of the outstanding voting stock which is not owned by the interested stockholder.

Section 203 defines a business combination to include:

∎ any merger or consolidation involving the corporation and the interested stockholder;

∎ any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;

∎ subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

∎ subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; and

∎ the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to and upon the completion of this offering, respectively, may delay or

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discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws:

∎ permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change in our control);

∎ provide that the authorized number of directors may be changed only by resolution of the board of directors;

∎ provide that the board of directors or any individual director may only be removed with cause and the affirmative vote of the holders of at least 66 2/3% of the voting power of all of our then outstanding common stock;

∎ provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

∎ divide our board of directors into three classes;

∎ require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;

∎ provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner and also specify requirements as to the form and content of a stockholder’s notice;

∎ do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose);

∎ provide that special meetings of our stockholders may be called only by the chairman of the board, our Chief Executive Officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and

∎ provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws and (iv) any action asserting a claim against us governed by the internal affairs doctrine.

The amendment of any of these provisions, with the exception of the ability of our board of directors to issue shares of preferred stock and designate any rights, preferences and privileges thereto, would require approval by the holders of at least             % of our then-outstanding common stock.

Nasdaq Global Market Listing

We intend to apply for listing of our common stock on The Nasdaq Global Market under the symbol “MTCR.”

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC. The transfer agent and registrar’s address is 6201 15th Avenue, Brooklyn, New York 11219.

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SHARES ELIGIBLE FOR FUTURE SALE

Immediately prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect prevailing market prices. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of contractual and legal restrictions on resale described below, sales of substantial amounts of common stock in the public market after the restrictions lapse could adversely affect the prevailing market price for our common stock as well as our ability to raise equity capital in the future.

Based on the number of shares of common stock outstanding as of March 31, 2018, upon the completion of this offering and assuming (1) the 1-for-            reverse stock split of all outstanding shares of our capital stock, (2) the conversion of all of our outstanding shares of convertible preferred stock (3) no exercise of the underwriters’ option to purchase additional shares of common stock and (4) no exercise of outstanding options, an aggregate of            shares of common stock will be outstanding. All of the shares sold in this offering will be freely tradable in the public market without restriction or further registration under the Securities Act, unless held by an affiliate of ours. Except as set forth below, the remaining shares of common stock outstanding after this offering will be restricted as a result of securities laws or lock-up agreements. In addition, any shares sold in this offering to entities affiliated with our existing stockholders and directors will be subject to lock-up agreements. These remaining shares will generally become available for sale in the public market as follows:

∎ no restricted shares will be eligible for immediate sale upon the completion of this offering;

∎ up to             restricted shares will be eligible for sale under Rule 144 or Rule 701 upon expiration of lock-up agreements 180 days after the date of this offering; and

∎ the remainder of the restricted shares will be eligible for sale from time to time thereafter upon expiration of their respective holding periods under Rule 144, as described below, but could be sold earlier if the holders exercise any available registration rights.

Rule 144

In general, under Rule 144 as currently in effect, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, any person who is not an affiliate of ours and has held their shares for at least six months, including the holding period of any prior owner other than one of our affiliates, may sell shares without restriction, provided current public information about us is available. In addition, under Rule 144, any person who is not an affiliate of ours and has held their shares for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares immediately upon the completion of this offering without regard to whether current public information about us is available. Beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is an affiliate of ours and who has beneficially owned restricted securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell a number of restricted shares within any three-month period that does not exceed the greater of:

∎ 1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; or

∎ the average weekly trading volume of our common stock on The Nasdaq Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

Sales of restricted shares under Rule 144 held by our affiliates are also subject to requirements regarding the manner of sale, notice and the availability of current public information about us. Rule 144 also provides that affiliates relying on Rule 144 to sell shares of our common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares, other than the holding period requirement.

Notwithstanding the availability of Rule 144, the holders of substantially all of our restricted shares have entered into lock-up agreements as described below and their restricted shares will become eligible for sale at the expiration of the restrictions set forth in those agreements.

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Rule 701

Under Rule 701, shares of our common stock acquired upon the exercise of currently outstanding options or pursuant to other rights granted under our stock plans may be resold by:

∎ persons other than affiliates, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, subject only to the manner-of-sale provisions of Rule 144; and

∎ our affiliates, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, subject to the manner-of-sale and volume limitations, current public information and filing requirements of Rule 144, in each case, without compliance with the six-month holding period requirement of Rule 144.

As of March 31, 2018, options to purchase a total of 1,897,071 shares of common stock were outstanding, of which 123,563 were vested. Of the total number of shares of our common stock issuable under these options, substantially all are subject to contractual lock-up agreements with us or the underwriters described below under “Underwriting” and will become eligible for sale at the expiration of those agreements unless held by an affiliate of ours.

Lock-Up Agreements

We, along with our directors, executive officers and all of our other stockholders and optionholders, have agreed that for a period of 180 days, after the date of this prospectus, except with the prior written consent of Jefferies LLC and Evercore Group L.L.C. and subject to specified exceptions, we or they will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock, or enter into any swap or other arrangement that transfers to another, in whole or in part, directly or indirectly, any of the economic consequences of ownership of the common stock. Jefferies LLC and Evercore Group L.L.C. have advised us that they have no current intent or arrangement to release any of the shares subject to the lock-up agreements prior to the expiration of the lock-up agreements.

After this offering, certain of our employees, including our executive officers and/or directors, may enter into written trading plans that are intended to comply with Rule 10b5-1 under the Exchange Act. Sales under these trading plans would not be permitted until the expiration of the lock-up agreements relating to the offering described above.

Registration Rights

Upon the closing of this offering, the holders of an aggregate of            shares of our common stock will have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. After registration pursuant to these rights, these shares will become freely tradable without restriction under the Securities Act. See “Description of Capital Stock — Registration Rights” for additional information regarding these registration rights.

Equity Incentive Plans

We intend to file with the SEC a registration statement on Form S-8 under the Securities Act covering the shares of common stock reserved for issuance under the 2015 Plan, the 2018 Plan and the ESPP. The registration statement is expected to be filed and become effective as soon as practicable after the completion of this offering. Accordingly, shares registered under the registration statement will be available for sale in the open market following its effective date, subject to Rule 144 volume limitations and the lock-up agreements described above, if applicable.

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

TO NON-U.S. HOLDERS OF OUR COMMON STOCK

The following summary describes the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock acquired in this offering by Non-U.S. Holders (as defined below). This discussion does not address all aspects of U.S. federal income taxes that may be relevant to Non-U.S. Holders in light of their particular circumstances, nor does it address any state, local or non-U.S. tax consequences or U.S. federal tax consequences other than income taxes (such as U.S. federal estate or gift tax consequences). Rules different from those described below may apply to certain Non-U.S. Holders that are subject to special treatment under the Code such as financial institutions, insurance companies, tax-exempt organizations, tax-qualified retirement plans, broker-dealers and traders in securities, commodities or currencies, government organizations, certain foreign citizens or long-term residents of the U.S., “controlled foreign corporations,” “passive foreign investment companies,” corporations that accumulate earnings to avoid U.S. federal income tax, persons that hold our common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security,” integrated investment or other risk reduction strategy, holders deemed to sell our common stock under the constructive sale provisions of the Code, holders who hold or receive our common stock pursuant to the exercise of employee stock options or otherwise as compensation, holders who are subject to the alternative minimum tax or the federal Medicare contribution tax on net investment income, persons who have a functional currency other than the U.S. dollar, accrual method taxpayers subject to special tax accounting rules under Section 451(b) of the Code, partnerships and other pass-through entities, and investors in such pass-through entities or entities that are treated as disregarded entities for U.S. federal income tax purposes (regardless of their places of organization or formation). Such Non-U.S. Holders are urged to consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them. Furthermore, the discussion below is based upon the provisions of the Code, and U.S. Treasury regulations, published administrative pronouncements, rulings and judicial decisions thereunder as of the date hereof. Such authorities may be repealed, revoked or modified, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those discussed below. We have not requested a ruling from the U.S. Internal Revenue Service, or IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions. This discussion assumes that the Non-U.S. Holder holds our common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment).

The following discussion is for general information only and is not tax advice for any Non-U.S. Holders under their particular circumstances. Persons considering the purchase of our common stock pursuant to this offering should consult their own tax advisors concerning the U.S. federal income tax and other tax consequences of acquiring, owning and disposing of our common stock in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction, including any state, local and non-U.S. tax consequences and any U.S. federal non-income tax consequences. In addition, significant changes in U.S. federal income tax laws were recently enacted. You should also consult with your tax advisor with respect to such changes in U.S. tax law as well as potential conforming changes in state tax laws.

For the purposes of this discussion, a “Non-U.S. Holder” is, for U.S. federal income tax purposes, a beneficial owner of common stock that is not a U.S. Holder. A “U.S. Holder” means a beneficial owner of our common stock that is for U.S. federal income tax purposes (a) an individual who is a citizen or resident of the United States, (b) a corporation or other entity treated as a corporation that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (c) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (d) a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. Also, partnerships and their partners, or other entities that are treated as partnerships for U.S. federal income tax purposes and their equity holders (regardless of their place of organization or formation) and entities that are treated as disregarded entities for U.S. federal income tax purposes (regardless of their place of organization or formation) are not addressed by this discussion and are, therefore, not considered to be Non-U.S. Holders for the purposes of this discussion.

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Distributions on Our Common Stock

Subject to the discussion below regarding backup withholding and foreign accounts, distributions, if any, made on our common stock to a Non-U.S. Holder generally will constitute dividends for U.S. tax purposes to the extent made out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles) and will be subject to withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. To obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder generally will be required to provide us with a properly executed IRS Form W-8BEN (in the case of individuals) or IRS Form W-8BEN-E (in the case of entities), or other appropriate form, certifying the Non-U.S. Holder’s entitlement to benefits under that treaty. This certification must be provided to us or our paying agent prior to the payment of dividends and must be updated periodically. In the case of a Non-U.S. Holder that is an entity, U.S. Treasury regulations and the relevant tax treaty provide rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends will be treated as paid to the entity or to those holding an interest in that entity. If a Non-U.S. Holder holds stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to such agent. The holder’s agent will then be required to provide such certification to us or our paying agent, either directly or through other intermediaries. If you are eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty, you should consult with your own tax advisor to determine if you are able to obtain a refund or credit if any excess amount is withheld by timely filing an appropriate claim for a refund with the IRS.

We generally are not required to withhold tax on dividends paid to a Non-U.S. Holder that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that such holder maintains in the United States) if a properly executed IRS Form W-8ECI, certifying that the dividends are so connected, is furnished to us (or, if stock is held through a financial institution or other agent, to such agent). In general, such effectively connected dividends will be subject to U.S. federal income tax, on a net income basis at the regular graduated rates applicable to U.S. residents, unless a specific treaty exemption applies. A corporate Non-U.S. Holder receiving effectively connected dividends may also be subject to an additional “branch profits tax,” which is imposed, under certain circumstances, at a rate of 30% (or such lower rate as may be specified by an applicable treaty) on the corporate Non-U.S. Holder’s effectively connected earnings and profits, subject to certain adjustments. Non-U.S. Holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.

To the extent distributions on our common stock, if any, exceed our current and accumulated earnings and profits, they will first reduce the Non-U.S. Holder’s adjusted basis in our common stock as a non-taxable return of capital, but not below zero, and then any excess will be treated as gain and taxed in the same manner as gain realized from a sale or other disposition of common stock as described in the next section.

Gain on Disposition of Our Common Stock

Subject to the discussion below regarding backup withholding and foreign accounts, a Non-U.S. Holder generally should not be subject to U.S. federal income tax with respect to gain realized on a sale or other disposition of our common stock unless (a) the gain is effectively connected with a trade or business of such holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment that such holder maintains in the United States), (b) the Non-U.S. Holder is a nonresident alien individual and is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met, or (c) we are or have been a “United States real property holding corporation,” or a USRPHC, within the meaning of Code Section 897(c)(2) at any time within the shorter of the five-year period preceding such disposition or such holder’s holding period.

If you are a Non-U.S. Holder described in clause (a) above, you will be required to pay tax on the net gain derived from the sale at regular graduated U.S. federal income tax rates, unless a specific treaty exemption applies, and corporate Non-U.S. Holders described in clause (a) above may be subject to the additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. If you are an individual Non-U.S. Holder described in clause (b) above, you will be required to pay a flat 30% tax on the gain derived from the sale, which gain may be offset by U.S. source capital losses (even though you are not considered a resident of the United States), provided you have timely filed U.S. federal income tax returns with respect to such losses. With

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respect to clause (c) above, in general, we would be a USRPHC if interests in U.S. real property constituted (by fair market value) at least half of our assets. We believe that we are not, and do not anticipate becoming, a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property interests relative to the fair market value of our other assets, there can be no assurance that we will not become a USRPHC in the future. Even if we are treated as a USRPHC, gain realized by a Non-U.S. Holder on a disposition of our common stock will not be subject to U.S. federal income tax so long as (1) the Non-U.S. Holder owned, directly, indirectly and constructively, no more than 5% of our common stock at all times within the shorter of (a) the five-year period preceding the disposition or (b) the holder’s holding period and (2) our common stock is regularly traded on an established securities market within the meaning of applicable U.S. Treasury regulations. There can be no assurance that our common stock will continue to qualify as regularly traded on an established securities market. If any gain on your disposition of our common stock is taxable because we are a USRPHC and your ownership of our common stock exceeds 5%, you will be taxed on such disposition generally in the manner applicable to U.S. persons and in addition, a purchaser of your common stock may be required to withhold tax with respect to that obligation.

Information Reporting Requirements and Backup Withholding

Generally, we or certain financial middlemen must report information to the IRS with respect to any dividends we pay on our common stock (even if payments are not subject to withholding) including the amount of any such dividends, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder to whom any such dividends are paid. Pursuant to tax treaties or certain other agreements, the IRS may make its reports available to tax authorities in the recipient’s country of residence.

Dividends paid by us (or our paying agents) to a Non-U.S. Holder may also be subject to U.S. backup withholding. U.S. backup withholding generally will not apply to a Non-U.S. Holder who provides a properly executed IRS Form W-8BEN (in the case of individuals), IRS Form W-8BEN-E (in the case of entities) or IRS Form W-8ECI, or otherwise establishes an exemption. Notwithstanding the foregoing, backup withholding may apply if the payor has actual knowledge, or reason to know, that the holder is a U.S. person who is not an exempt recipient.

Under current U.S. federal income tax law, U.S. information reporting and backup withholding requirements generally will apply to the proceeds of a disposition of our common stock effected within the United States or through certain U.S.-related brokers, unless the holder provides a properly executed IRS Form W-8BEN (in the case of individuals), IRS Form W-8BEN-E (in the case of entities) or IRS Form W-8ECI, or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding requirements will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker. Information reporting and backup withholding requirements may, however, apply to a payment of disposition proceeds if the broker has actual knowledge, or reason to know, that the holder is, in fact, a U.S. person. For information reporting purposes, certain brokers with substantial U.S. ownership or operations will generally be treated in a manner similar to U.S. brokers.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or credit against a Non-U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. If backup withholding is applied to you, you should consult with your own tax advisor to determine if you are able to obtain a tax refund or credit with respect to the amount withheld.

Foreign Accounts

A U.S. federal withholding tax of 30% may apply to dividends and the gross proceeds of a disposition of our common stock paid to a foreign financial institution (as specifically defined by applicable rules), including when the foreign financial institution holds our common stock on behalf of a Non-U.S. Holder, unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which may include certain equity holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these withholding and reporting requirements may be subject to different rules. This U.S. federal withholding tax of 30% will also apply to dividends on and the gross proceeds of a disposition of our common stock

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paid to a non-financial foreign entity unless such entity provides the withholding agent with either a certification that it does not have any substantial direct or indirect U.S. owners or provides information regarding direct and indirect U.S. owners of the entity. The withholding tax described above will not apply if the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. Under certain circumstances, a Non-U.S. Holder might be eligible for refunds or credits of such taxes. Holders are encouraged to consult with their own tax advisors regarding the possible implications of these rules on their investment in our common stock.

The withholding provisions described above generally apply to payments of dividends, and will apply to payments of gross proceeds from a sale or other disposition of common stock after December 31, 2018.

EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY RECENT AND PROPOSED CHANGE IN APPLICABLE LAW, AS WELL AS TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL, NON-U.S. OR U.S. FEDERAL NON-INCOME TAX LAWS.

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UNDERWRITING

Subject to the terms and conditions set forth in the underwriting agreement, dated                among us and Jefferies LLC, Evercore Group L.L.C. and RBC Capital Markets, LLC, as the representatives of the underwriters named below and the joint book-running managers of this offering, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the respective number of shares of common stock shown opposite its name below:

UNDERWRITER	NUMBER OF SHARES
Jefferies LLC
Evercore Group L.L.C.
RBC Capital Markets, LLC
Roth Capital Partners LLC
Total

The underwriting agreement provides that the obligations of the several underwriters are subject to certain conditions precedent such as the receipt by the underwriters of officers’ certificates and legal opinions and approval of certain legal matters by their counsel. The underwriting agreement provides that the underwriters will purchase all of the shares of common stock if any of them are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated. We have agreed to indemnify the underwriters and certain of their controlling persons against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make in respect of those liabilities.

The underwriters have advised us that, following the completion of this offering, they currently intend to make a market in the common stock as permitted by applicable laws and regulations. However, the underwriters are not obligated to do so, and the underwriters may discontinue any market-making activities at any time without notice in their sole discretion. Accordingly, no assurance can be given as to the liquidity of the trading market for the common stock, that you will be able to sell any of the common stock held by you at a particular time or that the prices that you receive when you sell will be favorable.

The underwriters are offering the shares of common stock subject to their acceptance of the shares of common stock from us and subject to prior sale. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Commission and Expenses

The underwriters have advised us that they propose to offer the shares of common stock to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers, which may include the underwriters, at that price less a concession not in excess of $            per share of common stock. The underwriters may allow, and certain dealers may reallow, a discount from the concession not in excess of $            per share of common stock to certain brokers and dealers. After the offering, the initial public offering price, concession and reallowance to dealers may be reduced by the representatives. No such reduction will change the amount of proceeds to be received by us as set forth on the cover page of this prospectus.

The following table shows the public offering price, the underwriting discounts and commissions that we are to pay the underwriters and the proceeds, before expenses, to us in connection with this offering. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.

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	PER SHARE		TOTAL
	WITHOUT OPTION TO PURCHASE ADDITIONAL SHARES	WITH OPTION TO PURCHASE ADDITIONAL SHARES	WITHOUT OPTION TO PURCHASE ADDITIONAL SHARES	WITH OPTION TO PURCHASE ADDITIONAL SHARES
Public offering price	$	$	$	$
Underwriting discounts and commissions paid by us	$	$	$	$
Proceeds to us, before expenses	$	$	$	$

We estimate expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be approximately $            .

Determination of Offering Price

Prior to this offering, there has not been a public market for our common stock. Consequently, the initial public offering price for our common stock will be determined by negotiations between us and the representatives. Among the factors to be considered in these negotiations will be prevailing market conditions, our financial information, market valuations of other companies that we and the underwriters believe to be comparable to us, estimates of our business potential, the present state of our development and other factors deemed relevant.

We offer no assurances that the initial public offering price will correspond to the price at which the common stock will trade in the public market subsequent to the offering or that an active trading market for the common stock will develop and continue after the offering.

Listing

We have applied to have our common stock listed on The Nasdaq Global Market under the symbol “MTCR.”

Stamp Taxes

If you purchase shares of common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.

Option to Purchase Additional Shares

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase, from time to time, in whole or in part, up to an aggregate of            shares from us at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. If the underwriters exercise this option, each underwriter will be obligated, subject to specified conditions, to purchase a number of additional shares proportionate to that underwriter’s initial purchase commitment as indicated in the table above.    

No Sales of Similar Securities

We, our officers, directors and holders of all or substantially all our outstanding capital stock and other securities have agreed, subject to specified exceptions, not to directly or indirectly:

∎ sell, offer, contract or grant any option to sell (including any short sale), pledge, transfer, establish an open “put equivalent position” within the meaning of Rule 16a-l(h) under the Exchange Act, or

∎ otherwise dispose of any shares of common stock, options or warrants to acquire shares of common stock, or securities exchangeable or exercisable for or convertible into shares of common stock hereafter owned either of record or beneficially, or

∎ publicly announce an intention to do any of the foregoing for a period of 180 days after the date of this prospectus without the prior written consent of Jefferies LLC and Evercore Group L.L.C.

This restriction terminates after the close of trading of the common stock on and including the 180^th day after the date of this prospectus.

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Jefferies LLC and Evercore Group L.L.C. may, in their discretion and at any time or from time to time before the termination of the 180-day period release all or any portion of the securities subject to lock-up agreements. There are no existing agreements between the underwriters and any of our shareholders who will execute a lock-up agreement, providing consent to the sale of shares prior to the expiration of the lock-up period.

Stabilization

The underwriters have advised us that they, pursuant to Regulation M under the Exchange Act, certain persons participating in the offering may engage in short sale transactions, stabilizing transactions, syndicate covering transactions or the imposition of penalty bids in connection with this offering. These activities may have the effect of stabilizing or maintaining the market price of the common stock at a level above that which might otherwise prevail in the open market. Establishing short sales positions may involve either “covered” short sales or “naked” short sales.

“Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares of our common stock in this offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares of our common stock or purchasing shares of our common stock in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the option to purchase additional shares.

“Naked” short sales are sales in excess of the option to purchase additional shares of our common stock. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares of our common stock in the open market after pricing that could adversely affect investors who purchase in this offering.

A stabilizing bid is a bid for the purchase of shares of common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. A syndicate covering transaction is the bid for or the purchase of shares of common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with the offering. Similar to other purchase transactions, the underwriter’s purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. A penalty bid is an arrangement permitting the underwriters to reclaim the selling concession otherwise accruing to a syndicate member in connection with the offering if the common stock originally sold by such syndicate member are purchased in a syndicate covering transaction and therefore have not been effectively placed by such syndicate member.

Neither we, nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. The underwriters are not obligated to engage in these activities and, if commenced, any of the activities may be discontinued at any time.

The underwriters may also engage in passive market making transactions in our common stock on The Nasdaq Global Market in accordance with Rule 103 of Regulation M during a period before the commencement of offers or sales of shares of our common stock in this offering and extending through the completion of distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, that bid must then be lowered when specified purchase limits are exceeded.

Electronic Distribution

A prospectus in electronic format may be made available by e-mail or through online services maintained by one or more of the underwriters or their affiliates. In those cases, prospective investors may view offering terms online and may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares of common stock for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters’ web sites and any information contained in any other web site maintained by any of

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the underwriters is not part of this prospectus, has not been approved and/or endorsed by us or the underwriters and should not be relied upon by investors.

Directed Share Program

At our request, the underwriters have reserved for sale at the initial public offering price up to              shares of common stock for employees, directors and other persons associated with us who have expressed an interest in purchasing shares in the offering. The number of shares of common stock available for sale to the general public in the offering will be reduced to the extent these persons purchase the directed shares in the program. Any directed shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. Except for certain participants who have entered into lock-up agreements as contemplated above, each person buying shares through the directed share program has agreed that, for a period of 180 days from and including the date of this prospectus, he or she will not, without the prior written consent of Jefferies LLC and Evercore Group L.L.C., dispose of or hedge any shares of common stock or any securities convertible into or exchangeable for shares of common stock respect to shares purchased in the program. For those participants who have entered into lock-up agreements as contemplated above, the lock-up agreements contemplated therein shall govern with respect to their purchases of shares of common stock in the program. Jefferies LLC and Evercore Group L.L.C. in their discretion may release any of the securities subject to these lock-up agreements at any time. We have agreed to indemnify the underwriters against certain liabilities and expenses, including liabilities under the Securities Act, in connection with sales of the directed shares.

Other Activities and Relationships

The underwriter and certain of its affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriter and certain of its affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for us and our affiliates, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the underwriter and certain of its affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments issued by us and our affiliates. If the underwriters or their respective affiliates have a lending relationship with us, they routinely hedge their credit exposure to us consistent with their customary risk management policies. The underwriters and their respective affiliates may hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the common stock offered hereby. Any such short positions could adversely affect future trading prices of the common stock offered hereby. The underwriters and certain of their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

Notice to Holders

Australia

This prospectus is not a disclosure document for the purposes of Australia’s Corporations Act 2001 (Cth) of Australia, or Corporations Act, has not been lodged with the Australian Securities & Investments Commission and is only directed to the categories of exempt persons set out below. Accordingly, if you receive this prospectus in Australia:

You confirm and warrant that you are either:

∎ a “sophisticated investor” under section 708(8)(a) or (b) of the Corporations Act;

∎ a “sophisticated investor” under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountant’s certificate to the Company which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made;

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∎ a person associated with the Company under Section 708(12) of the Corporations Act; or

∎ a “professional investor” within the meaning of section 708(11)(a) or (b) of the Corporations Act.

To the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act any offer made to you under this prospectus is void and incapable of acceptance.

You warrant and agree that you will not offer any of the securities issued to you pursuant to this prospectus for resale in Australia within 12 months of those securities being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act.

Canada

Resale Restrictions

The distribution of our shares in Canada is being made only in the provinces of Ontario, Quebec, Alberta and British Columbia on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of these securities are made. Any resale of the shares of common stock in Canada must be made under applicable securities laws which may vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the securities.

Representations of Canadian Purchasers

By purchasing our shares of common stock in Canada and accepting delivery of a purchase confirmation, a purchaser is representing to us and the dealer from whom the purchase confirmation is received that:

∎ the purchaser is entitled under applicable provincial securities laws to purchase the shares without the benefit of a prospectus qualified under those securities laws as it is an “accredited investor” as defined under National Instrument 45-106—Prospectus Exemptions,

∎ the purchaser is a “permitted client” as defined in National Instrument 31-103—Registration Requirements, Exemptions and Ongoing Registrant Obligations,

∎ where required by law, the purchaser is purchasing as principal and not as agent, and

∎ the purchaser has reviewed the text above under Resale Restrictions.

Conflicts of Interest

Canadian purchasers are hereby notified that the underwriters proposing to sell into Canada are relying on the exemption set out in section 3A.3 or 3A.4, if applicable, of National Instrument 33-105—Underwriting Conflicts from having to provide certain conflict of interest disclosure in this document.

Statutory Rights of Action

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if the prospectus (including any amendment thereto) such as this document contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser of these securities in Canada should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

Enforcement of Legal Rights

All of our directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.

Taxation and Eligibility for Investment

Canadian purchasers of our shares of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the share in their particular circumstances and about the eligibility of the shares for investment by the purchaser under relevant Canadian legislation.

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European Economic Area

In relation to each member state of the European Economic Area which has implemented the Prospectus Directive, each, a Relevant Member State, an offer to the public of any common shares which are the subject of the offering contemplated by this prospectus supplement and the accompanying prospectus may not be made in that Relevant Member State except that an offer to the public in that Relevant Member State of any common shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

∎ to any legal entity which is a “qualified investor” as defined in the Prospectus Directive;

∎ to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the underwriters or the underwriters nominated by us for any such offer; or

∎ in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of common shares shall require us or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer common shares to the public” in relation to the common shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the common shares to be offered so as to enable an investor to decide to purchase or subscribe to the common shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

Hong Kong

No securities have been offered or sold, and no securities may be offered or sold, in Hong Kong, by means of any document, other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent; or to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong, or SFO, and any rules made under that Ordinance; or in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong, or CO, or which do not constitute an offer or invitation to the public for the purpose of the CO or the SFO. No document, invitation or advertisement relating to the securities has been issued or may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted under the securities laws of Hong Kong) other than with respect to securities which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made under that Ordinance.

This prospectus has not been registered with the Registrar of Companies in Hong Kong. Accordingly, this prospectus may not be issued, circulated or distributed in Hong Kong, and the securities may not be offered for subscription to members of the public in Hong Kong. Each person acquiring the securities will be required, and is deemed by the acquisition of the securities, to confirm that he is aware of the restriction on offers of the securities described in this prospectus and the relevant offering documents and that he is not acquiring, and has not been offered any securities in circumstances that contravene any such restrictions.

Israel

This document does not constitute a prospectus under the Israeli Securities Law, 5728-1968, or the Securities Law, and has not been filed with or approved by the Israel Securities Authority. In Israel, this prospectus is being distributed only to, and is directed only at, and any offer of the shares is directed only at, (i) a limited number of persons in accordance with the Israeli Securities Law and (ii) investors listed in the first addendum, or the

150

Addendum, to the Israeli Securities Law, consisting primarily of joint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange, underwriters, venture capital funds, entities with equity in excess of NIS 50 million and “qualified individuals,” each as defined in the Addendum (as it may be amended from time to time), collectively referred to as qualified investors (in each case, purchasing for their own account or, where permitted under the Addendum, for the accounts of their clients who are investors listed in the Addendum). Qualified investors are required to submit written confirmation that they fall within the scope of the Addendum, are aware of the meaning of same and agree to it.

Japan

The offering has not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948 of Japan, as amended), or FIEL, and the Initial Purchaser will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEL and any other applicable laws, regulations and ministerial guidelines of Japan.

Singapore

This prospectus has not been and will not be lodged or registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the securities may not be circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

∎ a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

∎ a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

∎ securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the notes pursuant to an offer made under Section 275 of the SFA except:

∎ to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

∎ where no consideration is or will be given for the transfer;

∎ where the transfer is by operation of law;

∎ as specified in Section 276(7) of the SFA; or

∎ as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.

Switzerland

The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This prospectus has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the securities or the offering may be publicly distributed or otherwise made publicly available in Switzerland.

151

Neither this prospectus nor any other offering or marketing material relating to the offering, the Company or the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this prospectus will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of securities has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of securities.

United Kingdom

This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order and/or (ii) high net worth entities falling within Article 49(2)(a) to (d) of the Order and other persons to whom it may lawfully be communicated (each such person being referred to as a “relevant person”).

This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.

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LEGAL MATTERS

The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Cooley LLP, San Diego, California. The underwriters are being represented by Latham & Watkins LLP, San Diego, California.

EXPERTS

Ernst & Young LLP, independent registered public accounting firm, has audited our financial statements at December 31, 2016 and 2017, and for each of the two years in the period ended December 31, 2017, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the shares of common stock being offered by this prospectus. This prospectus does not contain all of the information in the registration statement and its exhibits. For further information with respect to us and the common stock offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street NE, Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You may also request a copy of these filings, at no cost, by writing us at 3985 Sorrento Valley Blvd. Suite C, San Diego, CA 92121 or telephoning us at (858) 369-7800.

Upon the completion of this offering, we will be subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We also maintain a website at www.metacrine.com, at which, following the completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not incorporated by reference in, and is not part of, this prospectus.

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METACRINE, INC.

INDEX TO FINANCIAL STATEMENTS

	PAGE
Report of Independent Registered Public Accounting Firm		F-2
Balance Sheets		F-3
Statements of Operations and Comprehensive Loss		F-4
Statements of Convertible Preferred Stock and Stockholders’ Deficit		F-5
Statements of Cash Flows		F-6
Notes to Financial Statements		F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of

Metacrine, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Metacrine, Inc. (the Company) as of December 31, 2016 and 2017, the related statements of operations and comprehensive loss, convertible preferred stock and stockholders’ deficit and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2016 and 2017, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

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

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

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

San Diego, California

July 11, 2018

F-2

METACRINE, INC.

Balance Sheets

(in thousands, except share and par value data)

	DECEMBER 31,						MARCH 31, 2018			PRO FORMA MARCH 31, 2018
	2016			2017
							(unaudited)			(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	22,063		$	33,858		$	29,125
Prepaid expenses and other current assets		215			477			573
Total current assets		22,278			34,335			29,698
Property and equipment, net		251			553			916
Right-of-use asset		734			154			3,197
Other assets		85			—			—
Total assets	$	23,348		$	35,042		$	33,811
Liabilities, Convertible Preferred Stock and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	491		$	793		$	1,911
Accrued expenses		854			1,526			1,057
Deferred revenue		—			1,450			725
Current portion of lease liability		678			180			463
Total current liabilities		2,023			3,949			4,156
Unvested stock liability		14			258			295
Lease liability, net of current portion		180			—			2,734
Commitments and contingencies (Note 3)
Convertible preferred stock, $0.0001 par value; authorized shares — 38,116,667, 54,433,311 and 54,433,311 at December 31, 2016 and 2017 and March 31, 2018 (unaudited), respectively; issued and outstanding shares — 36,099,978, 54,433,311 and 54,433,311 at December 31, 2016 and 2017 and March 31, 2018 (unaudited), respectively; liquidation preference — $36,100, $58,100 and $58,100 at December 31, 2016 and 2017 and March 31, 2018 (unaudited), respectively; no shares issued and outstanding, pro forma (unaudited)		35,789			57,600			57,600		$	—
Stockholders’ deficit:
Common stock, $0.0001 par value; authorized shares — 54,000,000, 75,000,000 and 75,000,000 at December 31, 2016 and 2017 and March 31, 2018 (unaudited), respectively; issued shares – 9,584,168, 13,307,553 and 13,571,059 at December 31, 2016 and 2017 and March 31, 2018 (unaudited), respectively; outstanding shares — 7,382,715, 9,869,043 and 10,218,039 at December 31, 2016 and 2017 and March 31, 2018 (unaudited), respectively; 68,004,370 and 64,651,350 shares issued and outstanding, respectively, pro forma (unaudited)		1			1			1			6
Additional paid-in capital		1,766			1,922			1,974			59,569
Accumulated deficit		(16,425	)		(28,688	)		(32,949	)		(32,949	)
Total stockholders’ deficit		(14,658	)		(26,765	)		(30,974	)	$	26,626
Total liabilities, convertible preferred stock and stockholders’ deficit	$	23,348		$	35,042		$	33,811

See accompanying notes.

F-3

METACRINE, INC.

Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

	YEARS ENDED DECEMBER 31,						THREE MONTHS ENDED MARCH 31,
	2016			2017			2017			2018
							(unaudited)
Collaboration revenues	$	—		$	1,450		$	—		$	725
Operating expenses:
Research and development		7,654			11,466			2,296			4,424
General and administrative		2,758			2,334			568			606
Total operating expenses		10,412			13,800			2,864			5,030
Loss from operations		(10,412	)		(12,350	)		(2,864	)		(4,305	)
Interest income		8			87			5			44
Net loss and comprehensive loss	$	(10,404	)	$	(12,263	)	$	(2,859	)	$	(4,261	)
Net loss per share, basic and diluted	$	(1.99	)	$	(1.46	)	$	(0.38	)	$	(0.42	)
Weighted average shares of common stock outstanding, basic and diluted		5,218,013			8,422,187			7,601,330			10,047,962
Pro forma net loss per share, basic and diluted (unaudited)				$	(0.27	)				$	(0.07	)
Pro forma weighted average shares of common stock outstanding, basic and diluted (unaudited)					46,129,471						64,481,273

See accompanying notes.

F-4

METACRINE, INC.

Statements of Convertible Preferred Stock and Stockholders’ Deficit

(in thousands, except share data)

	CONVERTIBLE PREFERRED STOCK						COMMON STOCK				ADDITIONAL PAID-IN CAPITAL		ACCUMULATED DEFICIT			TOTAL STOCKHOLDERS’ DEFICIT
	SHARES			AMOUNT			SHARES		AMOUNT
Balance at December 31, 2015		12,149,995		$	11,881			3,529,282	$	—	$	13	$	(6,021	)	$	(6,008	)
Issuance of Series A convertible preferred stock, net of $43 of issuance costs		25,616,649			25,574			—		—		—		—			—
Conversion of preferred stock to common stock		(1,666,666	)		(1,666	)		333,332		—		1,666		—			1,666
Vesting of early exercised stock options and founders’ shares		—			—			2,990,524		1		19		—			20
Issuance of common stock for license rights		—			—			529,577		—		48		—			48
Stock-based compensation		—			—			—		—		20		—			20
Net loss		—			—			—		—		—		(10,404	)		(10,404	)
Balance at December 31, 2016		36,099,978			35,789			7,382,715		1		1,766		(16,425	)		(14,658	)
Issuance of Series B convertible preferred stock, net of $189 of issuance costs		18,333,333			21,811			—		—		—		—			—
Vesting of early exercised stock options and founders’ shares		—			—			2,486,328		—		93		—			93
Stock-based compensation		—			—			—		—		63		—			63
Net loss		—			—			—		—		—		(12,263	)		(12,263	)
Balance at December 31, 2017		54,433,311			57,600			9,869,043		1		1,922		(28,688	)		(26,765	)
Vesting of early exercised stock options (unaudited)		—			—			348,996		—		21		—			21
Stock-based compensation (unaudited)		—			—			—		—		31		—			31
Net loss (unaudited)		—			—			—		—		—		(4,261	)		(4,261	)
Balance at March 31, 2018 (unaudited)		54,433,311		$	57,600			10,218,039	$	1	$	1,974	$	(32,949	)	$	(30,974	)

See accompanying notes.

F-5

METACRINE, INC.

Statements of Cash Flows

(in thousands)

	YEARS ENDED DECEMBER 31,						THREE MONTHS ENDED MARCH 31,
	2016			2017			2017			2018
							(unaudited)
Cash flows from operating activities
Net loss	$	(10,404	)	$	(12,263	)	$	(2,859	)	$	(4,261	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		141			169			37			49
Amortization of right-of-use asset		528			580			140			154
Stock-based compensation		20			63			13			31
Issuance of common stock for license rights		48			—			—			—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(137	)		(177	)		98			(96	)
Accounts payable and accrued expenses		832			803			(360	)		533
Deferred revenue		—			1,450			—			(725	)
Lease liability		(606	)		(678	)		(161	)		(180	)
Net cash used in operating activities		(9,578	)		(10,053	)		(3,092	)		(4,495	)
Cash flows from investing activities
Purchases of property and equipment		(43	)		(420	)		—			(276	)
Net cash used in investing activities		(43	)		(420	)		—			(276	)
Cash flows from financing activities
Proceeds from issuance of convertible preferred stock, net of issuance costs		25,574			21,931			—			(20	)
Proceeds from exercise of common stock options		6			338			3			58
Repurchase of unvested common stock		(13	)		(1	)		—			—
Net cash provided by financing activities		25,567			22,268			3			38
Net increase (decrease) in cash and cash equivalents		15,946			11,795			(3,089	)		(4,733	)
Cash and cash equivalents, beginning of period		6,117			22,063			22,063			33,858
Cash and cash equivalents, end of period	$	22,063		$	33,858		$	18,974		$	29,125
Supplemental disclosure of noncash investing and financing activities
Conversion of preferred stock to common stock	$	1,666		$	—		$	—		$	—
Vesting of common stock	$	19		$	93		$	2		$	21
Change in unpaid property and equipment purchases	$	—		$	51		$	10		$	136
Change in unpaid equity issuance costs	$	—		$	120		$	—		$	(20	)
Right-of-use asset and lease liability	$	—		$	—		$	—		$	3,197

See accompanying notes.

F-6

METACRINE, INC.

Notes to Financial Statements

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization

Metacrine, Inc. (the “Company”) was incorporated in the state of Delaware on September 17, 2014 and is based in San Diego, California. The Company is a clinical-stage biopharmaceutical company focused on building an innovative pipeline of best-in-class drugs to treat liver and gastrointestinal diseases.

Liquidity and Capital Resources

From its inception through March 31, 2018, the Company has devoted substantially all its efforts to organizing and staffing, business planning, raising capital, researching, discovering and developing our pipeline in FXR and other drug targets, and general and administrative support for these operations. The Company has incurred net losses and negative cash flows from operations since inception and had an accumulated deficit of $32.9 million as of March 31, 2018. Since inception through March 31, 2018, the Company has funded its operations primarily with the net proceeds from the issuance of convertible preferred stock. The Company expects to incur substantial operating losses for the next several years and will need to obtain additional financing in order to complete clinical trials and launch and commercialize any product candidates for which it receives regulatory approval. The Company plans to continue to fund its losses from operations and capital funding needs through public or private equity or debt financings or other sources. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects. There can be no assurance that such financing will be available or will be at terms acceptable to the Company.

As of March 31, 2018, the Company had cash and cash equivalents of $29.1 million which, when combined with the $65.0 million of gross proceeds from the June 2018 sale of Series C convertible preferred stock (see Note 8), it believes will be sufficient to fund its planned operations for a period of at least twelve months from the date of the issuance of these financial statements.

Use of Estimates

The Company’s financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to revenue recognition, accruals for research and development expenses and equity-based compensation. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Unaudited Interim Financial Information

The accompanying interim balance sheet as of March 31, 2018, the statements of operations and comprehensive loss and cash flows for the three months ended March 31, 2017 and 2018 and the statement of convertible preferred stock and stockholders’ deficit for the three months ended March 31, 2018 and the related footnote disclosures are unaudited. In management’s opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2018 and its results of operations and cash flows for the three months ended March 31, 2017 and 2018 in accordance with GAAP. The results for the three months ended March 31, 2018 are not necessarily indicative of the results expected for the full fiscal year or any other interim period.

F-7

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

Unaudited Pro Forma Balance Sheet Information

The unaudited pro forma balance sheet information as of March 31, 2018 assumes the conversion of all outstanding shares of convertible preferred stock into 54,433,311 shares of the Company’s common stock and the related reclassification of the carrying value of the convertible preferred stock to permanent equity upon completion of the Company’s planned initial public offering (“IPO”). Shares of common stock issued in the IPO and any related net proceeds are excluded from the pro forma information.

Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets.

Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The carrying amounts of the Company’s current financial assets and current financial liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. As of December 31, 2016 and 2017 and March 31, 2018, the Company had no financial assets or liabilities measured at fair value on a recurring basis.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts and money market funds.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

Property and Equipment, Net

Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful life of the related assets (generally three to five years). Leasehold improvements are stated at cost and amortized on a straight-line basis over the lesser of the remaining lease term or the estimated useful life of the leasehold improvements. Repairs and maintenance costs are charged to expense as incurred.

Leases

The Company elected to early adopt Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), as of January 1, 2017 with retrospective application to January 1, 2016. The Company has elected to apply the package of practical expedients allowed by the standard for existing leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right-of-use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease

F-8

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“Topic 606”). The Company determines the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified. The Company recognizes a right-of-use asset for its operating leases with lease terms greater than 12 months. The lease term includes any renewal options and termination options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the incremental borrowing rate for operating leases. The incremental borrowing rate is determined based on the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment. The Company applied the new guidance to its existing sublease at the time of adoption and recognized a right-of-use asset of $1.3 million and lease liability of $1.5 million and recorded a reversal of the previous deferred rent balance under the previous lease guidance of approximately $0.2 million. During the first quarter of 2018, the Company used the guidance for the analysis of its new facility lease.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in research and development and general and administrative expenses in the statements of operations and comprehensive loss.

Impairment of Long-Lived Assets

The Company reviews long-lived assets, such as property and equipment, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value would be assessed using discounted cash flows or other appropriate measures of fair value. The Company has not recognized any impairment losses through March 31, 2018.

Revenue Recognition

Effective January 1, 2017, the Company adopted Topic 606 using the full retrospective transition method. As the Company did not have any revenue contracts prior to the second quarter of 2017, an adjustment to prior periods under this method was not applicable. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity is required to perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Research and Development Expense

All costs of research and development are expensed in the period incurred. Research and development costs primarily consist of salaries and related expenses for personnel, stock-based compensation expense, outside service providers, facilities costs, fees paid to consultants and for other professional services, license fees, depreciation and supplies used in research and development. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the related goods are delivered or services performed.

F-9

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

Patent Expense

Costs related to filing and pursuing patent applications are recorded as general and administrative expenses and expensed as incurred since recoverability of such expenditures is uncertain.

Stock-Based Compensation

Stock-based compensation expense represents the cost of the grant date fair value of employee stock option grants recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The Company accounts for awards to nonemployees using the fair value method. Awards to nonemployees are subject to periodic revaluation over their vesting terms. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and recognizes forfeitures as they occur.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.

Comprehensive Loss

Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss was the same as its reported net loss for all periods presented.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company and its chief operating decision-maker view the Company’s operations and manages its business in one operating segment.

Recent Accounting Pronouncements

In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation-Stock Compensation (“Topic 718”), which simplifies the accounting for nonemployee share-based payment transactions. The amendments in the new guidance specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The new guidance will be effective for the Company in the first quarter of 2019. Early

F-10

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

adoption is permitted, but no sooner than the adoption of Topic 606. The Company does not expect the adoption of this new guidance will have a material impact on its financial statements.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Dilutive common stock equivalents are comprised of convertible preferred stock, unvested common stock subject to repurchase and options outstanding under the Company’s stock option plan. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive securities would be antidilutive.

Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common stock equivalent shares):

	DECEMBER 31,				MARCH 31,
	2016		2017		2017		2018
Convertible preferred stock		36,099,978		54,433,311		36,099,978		54,433,311
Common stock options		3,041,235		818,369		3,271,235		1,897,071
Unvested common stock		2,201,453		3,438,510		1,804,079		3,353,020
Total		41,342,666		58,690,190		41,175,292		59,683,402

Unaudited Pro Forma Net Loss Per Share

The following table summarizes the Company’s unaudited pro forma net loss per share (in thousands, except share and per share data):

	YEAR ENDED DECEMBER 31, 2017			THREE MONTHS ENDED MARCH 31, 2018
Numerator
Net loss and pro forma net loss	$	(12,263	)	$	(4,261	)
Denominator
Shares used to compute net loss per share, basic and diluted		8,422,187			10,047,962
Pro forma adjustments to reflect assumed weighted average effect of conversion of convertible preferred stock		37,707,284			54,433,311
Shares used to compute pro forma net loss per share, basic and diluted		46,129,471			64,481,273
Pro forma net loss per share, basic and diluted	$	(0.27	)	$	(0.07	)

2. Balance Sheet Details

Prepaid expenses and other current assets consist of the following (in thousands):

	DECEMBER 31,				MARCH 31, 2018
	2016		2017
Prepaid clinical costs	$	132	$	115	$	184
Other prepaid expenses and current assets		83		362		389
	$	215	$	477	$	573

F-11

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

Property and equipment consist of the following (in thousands):

	DECEMBER 31,						MARCH 31, 2018
	2016			2017
Laboratory equipment	$	324		$	661		$	932
Computer equipment and software		69			73			100
Furniture and fixtures		—			76			160
Leasehold improvements		40			94			124
		433			904			1,316
Less accumulated depreciation and amortization		(182	)		(351	)		(400	)
	$	251		$	553		$	916

Accrued expenses consist of the following (in thousands):

	DECEMBER 31,				MARCH 31, 2018
	2016		2017
Accrued compensation	$	514	$	671	$	375
Accrued research and development		168		604		332
Other accrued expenses		172		251		350
	$	854	$	1,526	$	1,057

3. Commitments and Contingencies

Operating Leases

2015 Lease

The Company entered into a sublease in April 2015 for its previous corporate headquarters in San Diego, California (the “2015 Lease”) under a noncancelable lease for a three-year period that commenced in April 2015 and terminated effective March 31, 2018. As of December 31, 2016 and 2017, the Company had provided a security deposit of $85,000, which was included in noncurrent assets on the accompanying balance sheets, to secure its obligations under the lease which was refunded in May 2018. As of December 31, 2017, the Company had noncancelable operating lease payments of $0.2 million remaining under this agreement, all of which were paid as of March 31, 2018. Upon the Company’s adoption of Topic 842, as of January 1, 2016, the Company recognized a right-of-use asset and lease liability for the 2015 Lease, which is classified as an operating lease assuming an 8% discount rate.

2017 Lease

The Company entered into a lease in June 2017 for its new corporate headquarters also in San Diego, California (the “2017 Lease”) under a noncancelable lease for the five-year period that commenced in March 2018. Under the terms of the agreement, there is no option to extend the lease. Monthly rental payments are due under the lease and commenced in March 2018 and escalate throughout the term of the lease. As of March 31, 2018, the Company recognized a right-of-use asset and lease liability for the 2017 Lease, which is classified as an operating lease assuming an 8% discount rate. The remaining lease term as of March 31, 2018 is 60 months.

Rent expense was $0.6 million for each of the years ended December 31, 2016 and 2017 and $0.2 million for both the three months ended March 31, 2017 and 2018. The Company paid $0.7 million of cash payments related to its operating lease agreement for each of the years ended December 31, 2016 and 2017 and $0.2 million for each of

F-12

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

the three months ended March 31, 2017 and 2018. Future minimum payments under the 2015 Lease and 2017 Lease are as follows (in thousands):

	DECEMBER 31, 2017		MARCH 31, 2018
Periods ending December 31:
2018	$	738	$	527
2019		715		715
2020		767		767
2021		855		855
2022		876		876
Thereafter		183		183
Total undiscounted lease payments	$	4,134		3,923
Present value adjustment				(726	)
Lease liability				3,197
Less current portion of lease liability				(463	)
Lease liability, net of current portion			$	2,734

License Agreements with the Salk Institute

In January 2015, the Company entered into an exclusive patent license agreement (the “2015 Salk Agreement”) with The Salk Institute for Biological Studies (“The Salk”), pursuant to which the Company licensed certain FXR- and FGF1-related intellectual property. In connection with the 2015 Salk Agreement, the Company paid The Salk an aggregate initial license fee of $0.2 million, which was paid in two equal installments in 2015 and 2016. On November 10, 2016, the 2015 Salk Agreement was amended and restated by two separate agreements: an amended and restated exclusive FXR license agreement for FXR-related intellectual property (the “FXR License Agreement”) and an amended and restated exclusive FGF1 license agreement for FGF1-related intellectual property (the “FGF1 License Agreement”). The FXR License Agreement was subsequently amended in February 2017 and the FGF1 License Agreement was subsequently amended in February and September 2017. In connection with the execution of the FGF1 License Agreement, the Company paid The Salk a fee of $0.2 million in 2016 and paid The Salk a one-time success fee of $0.2 million in 2017 in connection with the sublicense to Novo Nordisk A/S under the research collaboration in 2017 (see Note 5). As of July 2018, the Company has no remaining material rights or obligations under the FGF1 License Agreement.

In connection with the license agreements above, during 2015 and 2016, the Company issued The Salk 313,480 shares and 529,577 shares, respectively, of its common stock, with an aggregate fair value of approximately $51,000.

Pursuant to the FXR License Agreement, The Salk granted the Company an exclusive, worldwide license under certain patents relating to FXR (the “FXR Licensed Patents”) to make, use, offer for sale, import, export and distribute products covered by the FXR Licensed Patents (“FXR Licensed Products”) and a non-exclusive, worldwide license to use certain technical information (“FXR Licensed Information” and together with the FXR Licensed Patents, “FXR Licensed Technology”) to research, develop, test, make, use, offer for sale, import, export and distribute FXR Licensed Products. Starting in January 2017, and annually thereafter, the Company is required to pay The Salk an immaterial annual maintenance fee until the first commercial sale of a FXR Licensed Product. In addition, the Company will be required to pay The Salk up to $6.5 million in milestone payments upon the completion of certain clinical and regulatory milestones. The Company is also obligated to pay The Salk a low single-digit percentage royalty on net sales, with a minimum annual royalty payment due beginning with the first commercial sale of each FXR Licensed Product. The applicable minimum annual royalty payment amount depends

F-13

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

on the number of years that have elapsed since the first commercial sale of an FXR Licensed Product and is in the hundreds of thousands of dollars range. In addition, if the Company chooses to sublicense the FXR Licensed Technology to any third parties, the Company must pay to The Salk a percentage of all sublicensing revenue. The applicable percentage depends on the regulatory status of the FXR Licensed Technology and ranges between the high single-digits to the mid-teens. In addition, in the event of a change of control, the Company will be required to pay The Salk a low single-digit percentage of any payments and consideration that the Company receives in consideration of the change of control. The Company was responsible for reimbursing The Salk for its patent costs incurred in connection with prosecuting and maintaining the FXR Licensed Patents until the Company returned to The Salk its rights to the FXR Licensed Patents in February 2018.

All license and milestone payments to The Salk have been recorded as research and development expense in the accompanying statements of operations and comprehensive loss.

Contingencies

In the event the Company becomes subject to claims or suits arising in the ordinary course of business, the Company would accrue a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

4. Convertible Preferred Stock and Stockholders’ Deficit

Convertible Preferred Stock

The Company’s convertible preferred stock has been classified as temporary equity in the accompanying balance sheets in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities whose redemption is based upon certain change in control events outside of the Company’s control, including liquidation, sale or transfer of control of the Company. The Company has determined not to adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because of the uncertainty of whether or when such events would occur.

The authorized, issued and outstanding shares of convertible preferred stock as of December 31, 2017 and March 31, 2018 consist of the following (in thousands, except share amounts):

	SHARES AUTHORIZED		SHARES ISSUED AND OUTSTANDING		LIQUIDATION PREFERENCE		CARRYING VALUE
Series A		36,099,978		36,099,978	$	36,100	$	35,789
Series B		18,333,333		18,333,333		22,000		21,811
Total		54,433,311		54,433,311	$	58,100	$	57,600

The authorized, issued and outstanding shares of convertible preferred stock as of December 31, 2016 consist of the following (in thousands, except share amounts):

	SHARES AUTHORIZED		SHARES ISSUED AND OUTSTANDING		LIQUIDATION PREFERENCE		CARRYING VALUE
Series A		38,116,667		36,099,978	$	36,100	$	35,789

During 2016, the Company sold an aggregate of 25,616,649 shares of Series A convertible preferred stock at a price of $1.00 per share for gross proceeds of $25.6 million. The Company incurred issuance costs of $43,000. In June 2016, 1,666,666 shares of Series A convertible preferred stock were converted into 333,332 shares of common stock as a result of an investor not meeting its funding obligation in connection with the Series A financing.

F-14

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

In November 2017, the Company sold an aggregate of 18,333,333 shares of Series B convertible preferred stock at a price of $1.20 per share for gross proceeds of $22.0 million. The Company incurred issuance costs of $0.2 million.

Description of Securities

Dividends

Each holder of Series B convertible preferred stock and Series A convertible preferred stock (together, “Series Preferred”) is entitled to receive, in preference to the holders of common stock, non-cumulative dividends at an annual rate of 6.0% of the original issue price only when, as and if declared by the board of directors. Dividends are paid with the following preference: (i) Series B convertible preferred stock, (ii) Series A convertible preferred stock and, finally, (iii) common stock. If dividends are paid to the holders of common stock, the holders of Series Preferred will participate as if they had converted to common stock. As of March 31, 2018, the Company’s board of directors has not declared any dividends.

Liquidation Preferences

Upon any liquidation, dissolution or winding up of the Company, the Series B convertible preferred stock has a liquidation preference of $1.20 per share, plus any declared but unpaid dividends, and the holders of Series B convertible preferred stock shall receive their full liquidation preference in advance of the holders of Series A convertible preferred or common stock. Upon payment of the full liquidation preference to holders of Series B convertible preferred stock, the holders of Series A convertible preferred stock are entitled to receive their full liquidation preference of $1.00 per share, plus any declared but unpaid dividends in preference to the holders of common stock. Thereafter, any remaining assets of the Company will be distributed to the holders of common stock. The Series Preferred would be deemed converted to common stock in the event such conversion would result in a liquidation payment greater than its liquidation preference.

Conversion

The shares of Series Preferred are convertible into an equal number of shares of common stock, at the option of the holder, subject to certain anti-dilution adjustments. Each share of Series Preferred is automatically converted into common stock, (A) at any time upon the affirmative election of the holders of at least 60% of the outstanding shares of the Series Preferred voting together as a single class, or (B) immediately upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of common stock for the account of the Company in which the gross cash proceeds to the Company are at least $50.0 million.

Voting Rights

The holder of each share of Series Preferred is entitled to one vote for each share of common stock into which it would convert and to vote as one class with the common stockholders on all matters. Certain matters require the vote of the holders of at least 60% of the Series Preferred, including material changes to the corporate structure, capitalization and the incurrence of certain corporate obligations.

Founders’ Stock

In October 2014, in conjunction with the founding of the Company, 4,771,876 shares of common stock were issued to the founders (the “Founders’ Stock”) at a price of $0.001 per share. The Founders’ Stock vested 30% in October 2014 and the remaining 70% subsequently vested in equal monthly installments over the subsequent three years. As of December 31, 2016, 927,865 shares were unvested and subject to repurchase by the Company at the lower of the original cost or the fair value of the stock at the time of repurchase. As of December 31, 2017, all of the Founders’ Stock had vested. The repurchase liability for the Founders’ Stock was nominal for all periods presented. For accounting purposes, unvested shares of common stock are not considered outstanding until they vest.

F-15

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

Equity Incentive Plan

In January 2015, the Company adopted the Metacrine, Inc. 2015 Equity Incentive Plan (as amended, the “2015 Plan”), which provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards and stock appreciation rights to its employees, members of its board of directors and consultants. As of December 31, 2017 and March 31, 2018, there were 10,945,185 shares authorized for issuance under the 2015 Plan, of which 2,889,517 shares and 1,547,309 shares, respectively, remained available for future issuance. Recipients of incentive stock options are eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the 2015 Plan is ten years and, in general, the options issued under the 2015 Plan vest over a four-year period from the vesting commencement date. The 2015 Plan allows for early exercise of stock options, which may be subject to repurchase by the Company at the lower of (i) the fair market value at the repurchase date or (ii) the original exercise price.

A summary of the Company’s unvested shares and unvested stock liability is as follows (in thousands, expect share data):

	NUMBER OF UNVESTED SHARES			UNVESTED STOCK LIABILITY
Balance at December 31, 2015		5,969,119		$	41
Early exercised shares		549,932			6
Repurchased shares		(1,327,074	)		(13	)
Vested shares		(2,990,524	)		(20	)
Balance at December 31, 2016		2,201,453			14
Early exercised shares		3,813,953			338
Repurchased shares		(90,568	)		(1	)
Vested shares		(2,486,328	)		(93	)
Balance at December 31, 2017		3,438,510			258
Early exercised shares		263,506			58
Vested shares		(348,996	)		(21	)
Balance at March 31, 2018		3,353,020		$	295

F-16

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

A summary of the Company’s stock option activity is as follows (in thousands, except share and per share data):

	NUMBER OF OUTSTANDING OPTIONS			WEIGHTED AVERAGE EXERCISE PRICE		WEIGHTED AVERAGE REMAINING CONTRACTUAL TERM (IN YEARS)		AGGREGATE INTRINSIC VALUE
Balance at December 31, 2016		3,041,235		$	0.09		9.76	$	5
Granted		1,600,835		$	0.09
Cancelled		(9,748	)	$	0.09
Exercised		(3,813,953	)	$	0.09
Balance at December 31, 2017		818,369		$	0.09		9.40	$	286
Granted		1,342,208		$	0.22
Exercised		(263,506	)	$	0.22
Balance at March 31, 2018		1,897,071		$	0.16		9.57	$	1,017
Vested and expected to vest at December 31, 2017		818,369		$	0.09		9.40	$	286
Exercisable at December 31, 2017		818,369		$	0.09		9.40	$	286
Vested and expected to vest at March 31, 2018		1,897,071		$	0.16		9.57	$	1,017
Exercisable at March 31, 2018		1,897,071		$	0.16		9.57	$	1,017

Stock-Based Compensation Expense

The assumptions used in the Black-Scholes option pricing model to determine the fair value of stock option grants were as follows:

	YEARS ENDED DECEMBER 31,						THREE MONTHS ENDED MARCH 31,
	2016			2017			2017			2018
Risk-free interest rate		1.1	%		2.0% – 2.1	%		2.1	%		2.6% – 2.7	%
Expected volatility		80.1	%		79.7 – 80.9	%		80.1	%		77.4	%
Expected term (in years)		6.1			6.1			6.1			5.3 – 6.1
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities similar to the expected term of the awards.

Expected volatility. Since the Company is not yet a public company and does not have a trading history for its common stock, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Expected term. The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the simplified method, for employees, which is an average of the contractual term of the option and its vesting period.

F-17

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends and, therefore, used an expected dividend yield of zero.

Stock-based compensation expense recognized for all equity awards has been reported in the statements of operations and comprehensive loss as follows (in thousands):

	YEARS ENDED DECEMBER 31,				THREE MONTHS ENDED MARCH 31,
	2016		2017		2017		2018
Research and development	$	3	$	17	$	2	$	12
General and administrative		17		46		11		19
	$	20	$	63	$	13	$	31

The weighted average grant date fair value per share of option grants for the years ended December 31, 2016 and 2017 and the three months ended March 31, 2017 and 2018 was $0.06, $0.06, $0.06 and $0.35, respectively. As of December 31, 2016 and 2017 and March 31, 2018, total unrecognized stock-based compensation cost was $0.2 million, $0.2 million and $0.6 million, respectively, which is expected to be recognized over a remaining weighted average period of approximately 3.7 years, 3.2 years and 3.6 years, respectively.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance consists of the following:

	DECEMBER 31,				MARCH 31, 2018
	2016		2017
Conversion of preferred stock		36,099,978		54,433,311		54,433,311
Common stock options outstanding		3,041,235		818,369		1,897,071
Shares available for issuance under the 2015 Plan		1,490,036		2,889,517		1,547,309
	40,631,249		58,141,197		57,877,691

5. Research Collaboration

Effective July 1, 2017, the Company entered into a research collaboration with Novo Nordisk A/S (“Novo”), pursuant to which it agreed to perform certain research activities related to FGF1 for a period of 12 months, which concluded in July 2018. As consideration for the research activities undertaken under the research collaboration, Novo paid the Company a non-refundable, non-creditable upfront fee of $2.9 million.

The research collaboration is within the scope of Topic 606 as it is a contract with a customer that transfers the output of the Company’s ordinary activities for consideration. In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under the research collaboration, the Company performed the following steps: (i) identified the promised goods or services in the contract; (ii) determined whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measured the transaction price, including any constraints on variable consideration; (iv) allocated the transaction price to the performance obligations; and (v) recognized revenue when (or as) the Company satisfied each performance obligation.

The Company determined the transaction price is equal to the up-front fee of $2.9 million. The research collaboration was deemed to contain a single combined performance obligation comprising services for research work and exclusivity that are not distinct from one another. As the services provided are predominately comprised of

F-18

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

internal research efforts that are deemed to be expended evenly throughout the performance period, the Company is recognizing the revenue on a straight-line basis.

The following table presents a summary of the activity in the Company’s contract liabilities during the year ended December 31, 2017 and the three months ended March 31, 2018 (in thousands):

	DEFERRED REVENUE
Contract liabilities as of January 1, 2017	$	—
Additions: Deferred revenue—current		2,900
Deductions: Revenue recognized		(1,450	)
Balance as of December 31, 2017		1,450
Deductions: Revenue recognized		(725	)
Balance as of March 31, 2018	$	725

6. Income Taxes

A reconciliation of the Company’s effective tax rate and federal statutory rate is summarized as follows (in thousands):    

	YEARS ENDED DECEMBER 31,
	2016			2017
Federal income taxes	$	(3,641	)	$	(4,292	)
State income taxes		(598	)		1
Permanent differences		4			3
Research and development credits		(54	)		(240	)
Stock options		4			22
Other		6			33
Tax reform impact		—			3,670
Change in valuation allowance		4,279			803
	$	—		$	—

Significant components of the Company’s net deferred tax assets are summarized as follows (in thousands):

	DECEMBER 31,
	2016			2017
Deferred tax assets:
Net operating losses	$	6,167		$	6,652
Research and development credits		369			906
Depreciation and amortization		279			114
Other accruals and prepaid expenses		91			36
Valuation allowance		(6,906	)		(7,708	)
Net deferred tax assets	$	—		$	—

At December 31, 2016 and 2017, a valuation allowance of $6.9 million and $7.7 million, respectively, has been established to offset the deferred tax assets, as realization of such assets is uncertain.

At December 31, 2017, the Company had federal and state net operating loss carryforwards of $26.7 million and $15.1 million, respectively. The federal and state loss carryforwards begin to expire in 2034 unless previously

F-19

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

utilized. The Company also has federal and state research credit carryforwards of $0.4 million and $0.6 million, respectively. The federal research and development tax credit carryforwards expire beginning in 2034. The state research and development tax credit carryforwards may be carried forward indefinitely.

The Company has not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company’s formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future. Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the Company’s net operating loss and research and development tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate.

The Company files income tax returns in the United States and California. The Company is subject to income tax examination by federal and California tax authorities for the years beginning in 2014.

The following table summarizes the changes to the Company’s unrecognized tax benefits for the years ended December 31, 2016 and 2017 (in thousands)

	2016		2017
Beginning balance	$	41	$	125
Increases related to prior year positions		84		137
Ending balance	$	125	$	262

As of December 31, 2016 and 2017, the Company has unrecognized tax benefits of $0.1 million and $0.3, respectively. The Company has not recognized interest or penalties related to unrecognized tax benefits. The Company does not expect that there will be a significant change in the unrecognized tax benefits over the next twelve months. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the effective tax rate.

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act includes a number of changes to then-existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. federal corporate tax rate from a maximum of 35% to a flat 21%, effective January 1, 2018. In conjunction with the tax law changes, the Securities and Exchange Commission staff issued Staff Accounting Bulletin 118 (“SAB 118”) to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In these instances, a company can record provisional amounts in its financial statements for the income tax effects for which a reasonable estimate can be determined. For items for which a reasonable estimate cannot be determined, a company should continue to apply ASC 740 based on the provisions of the tax laws that were in effect immediately prior to the Act being enacted. In accordance with SAB 118, the Company has determined that the remeasurement of deferred tax assets and liabilities were provisional amounts and reasonable estimates at December 31, 2017. As a result of the new law, the Company has remeasured its deferred tax assets based on the rates at which they are expected to reverse in the future, resulting in a reduction in the deferred tax asset balance of $3.7 million, which was offset by a reduction in the valuation allowance by a corresponding amount, resulting in no tax expense impact. The aforementioned provisional amounts are based on information available at this time and may change due to a variety of factors, including, among others, (i) anticipated guidance from the U.S. Department of Treasury about implementing the Act, (ii) potential additional guidance from the Securities and Exchange

F-20

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

Commission or the FASB related to the Act and (iii) management’s further assessment of the Act and related regulatory guidance. The Company is not complete in its assessment of the impact of the Act on its business and financial statements. While the effective date of most of the provisions of the Act do not apply until the Company’s tax year beginning January 1, 2018 it will continue the assessment of the impact of the Act on its business and financial statements throughout the one-year measurement period as provided by SAB 118.

7. 401(k) Plan

The Company maintains a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. The Company, at its discretion, may make certain matching contributions to the 401(k) plan. As of March 31, 2018, no contributions to the 401(k) plan have been made by the Company.

8. Subsequent Events

The Company has completed an evaluation of all subsequent events through August 24, 2018 to ensure these financial statements include appropriate disclosure of events both recognized in the financial statements and events which occurred but were not recognized in the financial statements. The Company has concluded that no subsequent event has occurred that requires disclosure except as noted below.

Amended and Restated Certificate of Incorporation

In June 2018, the Company amended and restated its certificate of incorporation to, among other things, (1) increase its authorized shares of common stock from 75,000,000 shares to 106,009,127 shares, (2) increase its authorized shares of convertible preferred stock from 54,433,311 shares to 85,093,688 shares, of which 30,660,377 shares are designated as Series C convertible preferred stock and (3) set forth the rights, preferences and privileges of the Series C convertible preferred stock.

In July 2018, the Company amended its amended and restated certificate of incorporation to increase its authorized shares of common stock from 106,009,127 to 110,509,127.

Sale of Series C Convertible Preferred Stock

In June 2018, pursuant to a Series C convertible preferred stock purchase agreement, the Company issued an aggregate of 30,660,377 shares of its Series C convertible preferred stock at a price of $2.12 per share for gross proceeds of $65.0 million.

Increase in Shares of Common Stock Reserved for Issuance under the 2015 Plan

In June 2018, the Company’s board of directors and stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2015 Plan from 10,945,185 to 14,845,185.

In July 2018, the Company’s board of directors and stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2015 Plan from 14,845,185 to 19,345,185.

Amended License Agreement

In July 2018, the Company amended the FXR License Agreement with The Salk to include within the definition of FXR Licensed Products all of the patents and/or patent applications owned or controlled by the Company as of July 25, 2018 that cover FXR agonists for diagnosis, prevention and/or treatment of disease in humans. The Company is required to use commercially reasonable efforts to achieve certain diligence milestones with respect to the Licensed Products, including with respect to developing, producing and selling Licensed Products. The Company is also required to pay The Salk up to $6.5 million in milestone payments upon the completion of certain clinical and regulatory milestones, certain of which payments the Company may defer under certain circumstances. The Company is also obligated to pay the The Salk a low single-digit percentage royalty on net sales, with a minimum

F-21

METACRINE, INC.

Notes to Financial Statements (continued)

(Information as of March 31, 2018 and thereafter and for the three months ended March 31, 2017 and 2018 is unaudited)

annual royalty payment due beginning with the first commercial sale of each Licensed Product. The applicable minimum annual royalty payment amount depends on the number of years that have elapsed since the first commercial sale of a Licensed Product and is in the hundreds-of-thousands-of-dollars range. In addition, if the Company chooses to sublicense the Licensed Product to any third parties, the Company must pay to The Salk a low single-digit percentage of all sublicensing revenue. In addition, in the event of a change of control, the Company is required to pay The Salk a low single-digit percentage of any payments and consideration that it receives in consideration of the change of control. The Company is no longer responsible for reimbursing The Salk for its patent costs incurred in connection with prosecuting and maintaining the Licensed Patents, which Licensed Patents it returned to The Salk.

F-22

            Shares

Common Stock

PRELIMINARY PROSPECTUS

Joint Book-Running Managers

Jefferies

Evercore ISI

RBC Capital Markets

Co-Manager

Roth Capital Partners

                , 2018

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth all costs and expenses, other than underwriting discounts and commissions, payable by Metacrine, Inc., or the Registrant, in connection with the sale of the common stock being registered. All amounts shown are estimates except for the Securities and Exchange Commission, or SEC, registration fee, the FINRA filing fee and The Nasdaq Global Market listing fee.

	AMOUNT
SEC registration fee	$	*
FINRA filing fee		*
Nasdaq Global Market listing fee		125,000
Printing and engraving expenses		*
Legal fees and expenses		*
Accounting fees and expenses		*
Transfer agent and registrar fees and expenses		*
Miscellaneous expenses		*
Total	$	*

* To be provided by amendment.

Item 14. Indemnification of Directors and Officers.

The Registrant is incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any persons who were, are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who were, are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses (including attorneys’ fees) actually and reasonably incurred.

The Registrant’s amended and restated certificate of incorporation and amended and restated bylaws, which will become effective immediately prior to and upon the completion of this offering, respectively, provide for the indemnification of its directors and officers to the fullest extent permitted under the Delaware General Corporation Law. Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any:

∎ transaction from which the director derives an improper personal benefit;

II-1

∎ act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

∎ unlawful payment of dividends or redemption of shares; or

∎ breach of a director’s duty of loyalty to the corporation or its stockholders.

The Registrant’s amended and restated certificate of incorporation, as currently in effect, includes such a provision, and the Registrant’s amended and restated certificate of incorporation that will become effective immediately prior to the completion of this offering will include such a provision. Expenses incurred by any officer or director in defending any such action, suit or proceeding in advance of its final disposition shall be paid by the Registrant upon delivery to it of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified by the Registrant.

Section 174 of the Delaware General Corporation Law provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.

As permitted by the Delaware General Corporation Law, the Registrant has entered into indemnity agreements with each of its directors and executive officers, that require the Registrant to indemnify such persons against any and all costs and expenses (including attorneys’, witness or other professional fees) actually and reasonably incurred by such persons in connection with any action, suit or proceeding (including derivative actions), whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director or officer or is or was acting or serving as an officer, director, employee or agent of the Registrant or any of its affiliated enterprises. Under these agreements, the Registrant is not required to provided indemnification for certain matters, including:

∎ indemnification beyond that permitted by the Delaware General Corporation Law;

∎ indemnification for any proceeding with respect to the unlawful payment of remuneration to the director or officer;

∎ indemnification for certain proceedings involving a final judgment that the director or officer is required to disgorge profits from the purchase or sale of the Registrant’s stock;

∎ indemnification for proceedings involving a final judgment that the director’s or officer’s conduct was in bad faith, knowingly fraudulent or deliberately dishonest or constituted willful misconduct or a breach of his or her duty of loyalty, but only to the extent of such specific determination;

∎ indemnification for proceedings or claims brought by an officer or director against us or any of the Registrant’s directors, officers, employees or agents, except for claims to establish a right of indemnification or proceedings or claims approved by the Registrant’s board of directors or required by law;

∎ indemnification for settlements the director or officer enters into without the Registrant’s consent; or

∎ indemnification in violation of any undertaking required by the Securities Act of 1933, as amended, or the Securities Act, or in any registration statement filed by the Registrant.

The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder. Except as otherwise disclosed under the heading “Legal Proceedings” in the “Business” section of the prospectus included in this registration statement, there is at present no pending litigation or proceeding involving any of the Registrant’s directors or executive officers as to which indemnification is required or permitted, and the Registrant is not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

The Registrant has an insurance policy in place that covers its officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act, or otherwise.

The Registrant plans to enter into an underwriting agreement which provides that the underwriters are obligated, under some circumstances, to indemnify the Registrant’s directors, officers and controlling persons against specified liabilities, including liabilities under the Securities Act.

II-2

Item 15. Recent sales of unregistered securities.

Set forth below is information regarding securities issued and options granted by us since July 1, 2015 that were not registered under the Securities Act. Also included is the consideration, if any, received by us, for such securities and options and information relating to the Securities Act, or rule of the SEC, under which exemption from registration was claimed.

(1) In January 2015, we entered into a Series A preferred stock purchase agreement with various investors, pursuant to which we issued and sold to such investors an aggregate of 37,766,644 shares of our Series A convertible preferred stock in January 2015, May 2015, June 2015, July 2015, June 2016 and October 2016 at a purchase price of $1.00 per share, and received gross proceeds of approximately $37.8 million, including the conversion of convertible promissory notes.

(2) In December 2016, we issued 529,577 shares of common stock pursuant to stock purchase agreements.

(3) In November 2017, we entered into a Series B preferred stock purchase agreement with various investors, pursuant to which we issued and sold to such investors an aggregate of 18,333,333 shares of our Series B convertible preferred stock at a purchase price of $1.20 per share, and received gross proceeds of approximately $22.0 million.

(4) In June 2018, we entered into a Series C preferred stock purchase agreement with various investors, pursuant to which we issued and sold to such investors an aggregate of 30,660,377 shares of our Series C convertible preferred stock at a purchase price of $2.12 per share, and received gross proceeds of approximately $65.0 million.

(5) From July 1, 2015 to June 30, 2018 we granted stock options under our 2015 Plan, to purchase up to an aggregate of 11,754,336 shares of our common stock to our employees, directors and consultants, at a weighted-average exercise price of $0.08 per share. From July 1, 2015 to the effective date of this registration statement, 8,973,132 shares of common stock were issued upon the exercise of options granted to certain employees, directors and consultants and the payment of $449,759 to us was made.

The offers, sales and issuances of the securities described in paragraphs (1) through (4) were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) (or Regulation D promulgated thereunder) in that the issuance of securities to the accredited investors did not involve a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor under Rule 501 of Regulation D. No underwriters were involved in these transactions.

The offers, sales and issuances of the securities described in paragraph (5) were deemed to be exempt from registration under the Securities Act in reliance on either Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701 or Section 4(a)(2) in that the issuance of securities to the accredited investors did not involve a public offering. The recipients of such securities were our employees, directors or bona fide consultants and received the securities under the 2015 Plan.

Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us.

II-3

Item 16. Exhibits and financial statement schedules.

(a) Exhibits.

The exhibits listed below are filed as part of this registration statement.

EXHIBIT NUMBER	DESCRIPTION OF DOCUMENT
1.1†	Form of Underwriting Agreement.
3.1#	Fourth Amended and Restated Certificate of Incorporation, as currently in effect.
3.2	Form of Amended and Restated Certificate of Incorporation to become effective immediately prior to the completion of this offering.
3.3#	Amended and Restated Bylaws, as currently in effect.
3.4	Form of Amended and Restated Bylaws to become effective upon the completion of this offering.
4.1†	Form of Common Stock Certificate of the Registrant.
4.2#	Amended and Restated Investor Rights Agreement, dated June 5, 2018, by and among the Registrant and certain of its stockholders.
5.1†	Opinion of Cooley LLP.
10.1+	Form of Indemnity Agreement by and between the Registrant and its directors and officers.
10.2+#	Metacrine, Inc. Amended and Restated 2015 Equity Incentive Plan and Forms of Option Grant Notice, Option Agreement and Notice of Exercise thereunder, as amended.
10.3+†	Metacrine, Inc. 2018 Equity Incentive Plan and Forms of Stock Option Grant Notice, Option Agreement and Notice of Exercise thereunder.
10.4+†	Metacrine, Inc. 2018 Employee Stock Purchase Plan.
10.5+†	Metacrine, Inc. Non-Employee Director Compensation Policy.
10.6+	Metacrine, Inc. Severance Benefit Plan
10.7#	Lease Agreement, dated June 16, 2017, by and between the Registrant and ARE-SD Region No. 30 LLC.
10.8+†	Employment Agreement by and between the Registrant and Ken Song.
10.9+†	Employment Agreement by and between the Registrant and Patricia Millican.
10.10*	Amended and Restated Exclusive FXR License Agreement, dated November 10, 2016, by and between the Registrant and The Salk Institute for Biological Studies.
10.11	First Amendment to License Agreement ID 2017-0184, dated February 4, 2017, by and between the Registrant and The Salk Institute for Biological Studies.
10.12*	Second Amendment to Amended and Restated Exclusive FXR License Agreement, dated July 25, 2018, by and between the Registrant and The Salk Institute for Biological Studies.
23.1†	Consent of Independent Registered Public Accounting Firm.
23.2†	Consent of Cooley LLP. Reference is made to Exhibit 5.1.
24.1	Power of Attorney. Reference is made to the signature page hereto.

# Previously filed.

† To be filed by amendment.

+ Indicates management contract or compensatory plan.

* Confidential treatment has been requested for certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

(b) Financial statement schedules.

No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto.

II-4

Item 17. Undertakings.

The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(a) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on the                day of                    , 2018.

METACRINE, INC.
By:
	Ken Song, M.D.
	President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ken Song, M.D., and Patricia Millican, and each of them, as his or her true and lawful attorneys-in-fact and agents, each with the full power of substitution, for him or her and in his or her name, place or stead, in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments), and to sign any registration statement for the same offering covered by this registration statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

SIGNATURE	TITLE	DATE
Ken Song, M.D.	President, Chief Executive Officer and Member of the Board of Directors (Principal Executive Officer)	, 2018
Patricia Millican	Chief Financial Officer (Principal Financial and Accounting Officer)	, 2018
Richard Heyman, Ph.D.	Chairman of the Board of Directors	, 2018
Robert Adelman, M.D.	Member of the Board of Directors	, 2018
Kristina Burow	Member of the Board of Directors	, 2018
Ronald Evans, Ph.D.	Member of the Board of Directors	, 2018
Carol Gallagher, Pharm.D.	Member of the Board of Directors	, 2018

II-6

SIGNATURE	TITLE	DATE
Andrew Guggenhime	Member of the Board of Directors	, 2018
Amir Nashat, Ph.D.	Member of the Board of Directors	, 2018

II-7

EX-3.2

Exhibit 3.2

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION OF

METACRINE, INC.

Ken Song hereby certifies that:

ONE: He is the duly elected and acting Chief Executive Officer of Metacrine, Inc., a Delaware corporation.

TWO: The date of filing of said corporation’s original certificate of incorporation with the Delaware Secretary of State was September 17, 2014.

THREE: The Fourth Amended and Restated Certificate of Incorporation of the corporation is hereby amended and restated to read in its entirety as follows:

I.

The name of this corporation is Metacrine, Inc. (the “Company”).

II.

The address of the registered office of the Company in the State of Delaware is 32 West Loockerman Street, Suite 107 in the City of Dover, State of Delaware, 19904, County of Kent, and the name of its registered agent at such address is Corp2000.

III.

The purpose of the Company is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law (“DGCL”).

IV.

A.    The Company is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total number of shares which the Company is authorized to issue is 210,000,000 shares. 200,000,000 shares shall be Common Stock, each having a par value of $0.0001. 10,000,000 shares shall be Preferred Stock, each having a par value of $0.0001.

B.    The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the Company (the “Board of Directors”) is hereby expressly authorized to provide for the issue of any or all of the unissued and undesignated shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such shares and as may be permitted by the DGCL. The

1.

Board of Directors is also expressly authorized to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of the stock of the Company entitled to vote thereon, without a separate vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any certificate of designation filed with respect to any series of Preferred Stock.

C.    Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Company for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation (this “Certificate of Incorporation”) (including any certificate of designation filed with respect to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series of Preferred Stock are entitled, either separately or together as a class with the holders of one or more other such series of Preferred Stock, to vote thereon by law or pursuant to this Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock).

V.

For the management of the business and for the conduct of the affairs of the Company, and in further definition, limitation and regulation of the powers of the Company, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that:

A.    The management of the business and the conduct of the affairs of the Company shall be vested in its Board of Directors. The number of directors that shall constitute the Board of Directors shall be fixed exclusively by resolutions adopted by a majority of the authorized number of directors constituting the Board of Directors.

B.    Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. The Board of Directors is authorized to assign members of the Board of Directors already in office to such classes at the time the classification becomes effective. At the first annual meeting of stockholders following the initial classification of the Board of Directors, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following such initial classification, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following such initial classification, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting.

2.

Notwithstanding the foregoing provisions of this section, each director shall serve until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

C.    Subject to the rights of any series of Preferred Stock that may be designated from time to time to elect additional directors under specified circumstances, neither the Board of Directors nor any individual director may be removed without cause. Subject to any limitations imposed by applicable law, any individual director or directors may be removed with cause by the affirmative vote of the holders of at least 66 2/3% of the voting power of all then-outstanding shares of capital stock of the Company entitled to vote generally at an election of directors, voting together as a single class.

D.    Subject to any limitations imposed by applicable law and subject to the rights of the holders of any series of Preferred Stock that may be designated from time to time, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders and except as otherwise provided by applicable law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified.

E.    The Board of Directors is expressly empowered to adopt, amend or repeal the Amended and Restated Bylaws of the Company (the “Bylaws”). Any adoption, amendment or repeal of the Bylaws by the Board of Directors shall require the approval of a majority of the authorized number of directors. The stockholders shall also have power to adopt, amend or repeal the Bylaws; provided, however, that, in addition to any vote of the holders of any class or series of stock of the Company required by law or by this Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class.

F.    The directors of the Company need not be elected by written ballot unless the Bylaws so provide.

G.    No action shall be taken by the stockholders of the Company except at an annual or special meeting of stockholders called in accordance with the Bylaws. No action shall be taken by the stockholders of the Company by written consent or electronic transmission.

H.    Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Company shall be given in the manner provided in the Bylaws.

3.

VI.

A.    The liability of a director of the Company for monetary damages shall be eliminated to the fullest extent under applicable law.

B.    To the fullest extent permitted by applicable law, the Company is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Company (and any other persons to which applicable law permits the Company to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise in excess of the indemnification and advancement otherwise permitted by such applicable law. If applicable law is amended after approval by the stockholders of this Article VI to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director to the Company shall be eliminated or limited to the fullest extent permitted by applicable law as so amended.

C.    Any repeal or modification of this Article VI shall only be prospective and shall not affect the rights or protections or increase the liability of any director under this Article VI in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification.

VII.

Unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of the Company; (2) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders; (3) any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the DGCL, the Company’s Certificate of Incorporation or Bylaws; or (4) any action asserting a claim against the Company or any director or officer or other employee of the Company governed by the internal affairs doctrine.

VIII.

A.    The Company reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in Section B of this Article VIII, and all rights conferred upon the stockholders herein are granted subject to this reservation.

B.    Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Company required by law or by this Certificate of Incorporation or any certificate of designation filed with respect to a series of Preferred Stock that may be designated from time to time, subject to the rights of the holders of any series of Preferred Stock, the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of capital stock of the Company entitled to vote

4.

generally in the election of directors, voting together as a single class, shall be required to alter, amend or repeal Articles V, VI or VIII of this Certificate of Incorporation.

* * * *

FOUR: This Certificate of Incorporation has been duly adopted and approved by the Board of Directors and by written consent of the stockholders in accordance with Sections 228, 242 and 245 of the DGCL and written notice of such action has been given as provided in section 228 of the DGCL.

[Signature page follows]

5.

IN WITNESS WHEREOF, Metacrine, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by its Chief Executive Officer this [•] day of [•], 2018.

METACRINE, INC.

/s/

KEN SONG

Chief Executive Officer

6.

EX-3.4

Exhibit 3.4

AMENDED AND RESTATED

BYLAWS

OF

METACRINE, INC.

ARTICLE I

OFFICES

Section 1.    Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle.

Section 2.    Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the corporation’s Board of Directors (the “Board of Directors”), and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II

CORPORATE SEAL

Section 3.    Corporate Seal. The Board of Directors may adopt a corporate seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, “Corporate Seal-Delaware.” Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE III

STOCKHOLDERS’ MEETINGS

Section 4.    Place of Meetings. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (the “DGCL”).

Section 5.    Annual Meetings.

(a)    The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may properly come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporation’s notice of meeting of stockholders (with respect to business other than nominations); (ii) brought specifically by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the

i.

time of giving the stockholder’s notice provided for in Section 5(b) of these Amended and Restated Bylaws (the “Bylaws”), who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 5. For the avoidance of doubt, clause (iii) above shall be the exclusive means for a stockholder to make nominations and submit other business (other than matters properly included in the corporation’s notice of meeting of stockholders and proxy statement under Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the “1934 Act”)) before an annual meeting of stockholders.

(b)    At an annual meeting of the stockholders, only such business shall be conducted as is a proper matter for stockholder action under Delaware law and as shall have been properly brought before the meeting.

(i)    For nominations for the election to the Board of Directors to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, the stockholder must deliver written notice to the Secretary at the principal executive offices of the corporation on a timely basis as set forth in Section 5(b)(iii) of these Bylaws and must update and supplement such written notice on a timely basis as set forth in Section 5(c) of these Bylaws. Such stockholder’s notice shall set forth: (A) as to each nominee such stockholder proposes to nominate at the meeting: (1) the name, age, business address and residence address of such nominee; (2) the principal occupation or employment of such nominee; (3) the class and number of shares of each class of capital stock of the corporation which are owned of record and beneficially by such nominee; (4) the date or dates on which such shares were acquired and the investment intent of such acquisition; (5) with respect to each nominee for election or re-election to the Board of Directors, include a completed and signed questionnaire, representation and agreement required by Section 5(e) of these Bylaws; and (6) such other information concerning such nominee as would be required to be disclosed in a proxy statement soliciting proxies for the election of such nominee as a director in an election contest (even if an election contest is not involved), or that is otherwise required to be disclosed pursuant to Section 14 of the 1934 Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named as a nominee and to serving as a director if elected); and (B) the information required by Section 5(b)(iv) of these Bylaws. The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as an independent director of the corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such proposed nominee.

(ii)    Other than proposals sought to be included in the corporation’s proxy materials pursuant to Rule 14(a)-8 under the 1934 Act, for business other than nominations for the election to the Board of Directors to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, the stockholder must deliver written notice to the Secretary at the principal executive offices of the corporation on a timely basis as set forth in Section 5(b)(iii) of these Bylaws, and must update and supplement such written notice on a timely basis as set forth in Section 5(c) of these Bylaws. Such stockholder’s notice shall set forth: (A) as to each matter such stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and any material interest (including any anticipated benefit of such business to any Proponent (as defined below) other

than solely as a result of its ownership of the corporation’s capital stock, that is material to any Proponent individually, or to the Proponents in the aggregate) in such business of any Proponent; and (B) the information required by Section 5(b)(iv) of these Bylaws.

(iii)    To be timely, the written notice required by Section 5(b)(i) or 5(b)(ii) of these Bylaws must be received by the Secretary at the principal executive offices of the corporation not later than the close of business on the 90^th day nor earlier than the close of business on the 120^th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that, subject to the last sentence of this Section 5(b)(iii), in the event that the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 30 days after the anniversary of the preceding year’s annual meeting, notice by the stockholder to be timely must be so received not earlier than the close of business on the 120^th day prior to such annual meeting and not later than the close of business on the later of the 90^th day prior to such annual meeting or the 10^th day following the day on which public announcement of the date of such meeting is first made. In no event shall an adjournment or a postponement of an annual meeting for which notice has been given, or the public announcement thereof has been made, commence a new time period for the giving of a stockholder’s notice as described above.

(iv)    The written notice required by Section 5(b)(i) or 5(b)(ii) of these Bylaws shall also set forth, as of the date of the notice and as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (each, a “Proponent” and collectively, the “Proponents”): (A) the name and address of each Proponent, as they appear on the corporation’s books; (B) the class, series and number of shares of the corporation that are owned beneficially and of record by each Proponent; (C) a description of any agreement, arrangement or understanding (whether oral or in writing) with respect to such nomination or proposal between or among any Proponent and any of its affiliates or associates, and any others (including their names) acting in concert, or otherwise under the agreement, arrangement or understanding, with any of the foregoing; (D) a representation that the Proponents are holders of record or beneficial owners, as the case may be, of shares of the corporation entitled to vote at the meeting and intend to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice (with respect to a notice under Section 5(b)(i) of these Bylaws) or to propose the business that is specified in the notice (with respect to a notice under Section 5(b)(ii) of these Bylaws); (E) a representation as to whether the Proponents intend to deliver a proxy statement and form of proxy to holders of a sufficient number of holders of the corporation’s voting shares to elect such nominee or nominees (with respect to a notice under Section 5(b)(i) of these Bylaws) or to carry such proposal (with respect to a notice under Section 5(b)(ii) of these Bylaws); (F) to the extent known by any Proponent, the name and address of any other stockholder supporting the proposal on the date of such stockholder’s notice; and (G) a description of all Derivative Transactions (as defined below) by each Proponent during the previous 12 month period, including the date of the transactions and the class, series and number of securities involved in, and the material economic terms of, such Derivative Transactions.

For purposes of Sections 5 and 6 of these Bylaws, a “Derivative Transaction” means any agreement, arrangement, interest or understanding entered into by, or on behalf or for the benefit of, any Proponent or any of its affiliates or associates, whether record or beneficial:

(w)    the value of which is derived in whole or in part from the value of any class or series of shares or other securities of the corporation;

(x)    which otherwise provides any direct or indirect opportunity to gain or share in any gain derived from a change in the value of securities of the corporation;

(y)    the effect or intent of which is to mitigate loss, manage risk or benefit of security value or price changes; or

(z)    which provides the right to vote or increase or decrease the voting power of, such Proponent, or any of its affiliates or associates, with respect to any securities of the corporation,

which agreement, arrangement, interest or understanding may include, without limitation, any option, warrant, debt position, note, bond, convertible security, swap, stock appreciation right, short position, profit interest, hedge, right to dividends, voting agreement, performance-related fee or arrangement to borrow or lend shares (whether or not subject to payment, settlement, exercise or conversion in any such class or series), and any proportionate interest of such Proponent in the securities of the corporation held by any general or limited partnership, or any limited liability company, of which such Proponent is, directly or indirectly, a general partner or managing member.

(c)    A stockholder providing written notice required by Section 5(b)(i) or (ii) of these Bylaws shall update and supplement such notice in writing, if necessary, so that the information provided or required to be provided in such notice is true and correct in all material respects as of (i) the record date for the meeting and (ii) the date that is five business days prior to the meeting and, in the event of any adjournment or postponement thereof, five business days prior to such adjourned or postponed meeting. In the case of an update and supplement pursuant to clause (i) of this Section 5(c), such update and supplement shall be received by the Secretary at the principal executive offices of the corporation not later than five business days after the record date for the meeting. In the case of an update and supplement pursuant to clause (ii) of this Section 5(c), such update and supplement shall be received by the Secretary at the principal executive offices of the corporation not later than two business days prior to the date for the meeting, and, in the event of any adjournment or postponement thereof, two business days prior to such adjourned or postponed meeting.

(d)    Notwithstanding anything in Section 5(b)(iii) of these Bylaws to the contrary, in the event that the number of directors in an Expiring Class (as defined below) is increased and there is no public announcement of the appointment of a director to such class, or, if no appointment was made, of the vacancy in such class, made by the corporation at least 10 days before the last day a stockholder may deliver a notice of nomination in accordance with Section 5(b)(iii) of these Bylaws, a stockholder’s notice required by this Section 5 and which complies with the requirements in Section 5(b)(i) of these Bylaws, other than the timing requirements in Section 5(b)(iii) of these Bylaws, shall also be considered timely, but only with respect to nominees for any new positions in such Expiring Class created by such increase, if it shall be received by the Secretary at the principal executive offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement

is first made by the corporation. For purposes of this Section 5, an “Expiring Class” shall mean a class of directors whose term shall expire at the next annual meeting of stockholders.

(e)    To be eligible to be a nominee for election or re-election as a director of the corporation pursuant to a nomination under clause (iii) of Section 5(a) of these Bylaws, such proposed nominee or a person on such proposed nominee’s behalf must deliver (in accordance with the time periods prescribed for delivery of notice under Section 5(b)(iii) or 5(d) of these Bylaws, as applicable) to the Secretary at the principal executive offices of the corporation a written questionnaire with respect to the background and qualification of such proposed nominee and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the corporation in the questionnaire or (B) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the corporation, with such person’s fiduciary duties under applicable law; (ii) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director of the corporation that has not been disclosed therein; and (iii) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the corporation, and will comply with, all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the corporation.

(f)    A person shall not be eligible for election or re-election as a director unless the person is nominated either in accordance with clause (ii) of Section 5(a) of these Bylaws, or in accordance with clause (iii) of Section 5(a) of these Bylaws. Except as otherwise required by law, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, or the Proponent does not act in accordance with the representations in Sections 5(b)(iv)(D) and 5(b)(iv)(E) of these Bylaws, to declare that such proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded, notwithstanding that proxies in respect of such nominations or such business may have been solicited or received.

(g)    Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders’ meeting, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Bylaws to the 1934 Act or the rules and regulations thereunder are

not intended to and shall not limit the requirements applicable to proposals and/or nominations to be considered pursuant to Section 5(a)(iii) of these Bylaws.

(h)    For purposes of Sections 5 and 6 of these Bylaws,

(i)    “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act; and

(ii)    “affiliates” and “associates” shall have the meanings set forth in Rule 405 under the Securities Act of 1933, as amended (the “1933 Act”).

Section 6.    Special Meetings.

(a)    Special meetings of the stockholders of the corporation may be called, for any purpose as is a proper matter for stockholder action under Delaware law, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption).

(b)    The Board of Directors shall determine the time and place, if any, of such special meeting. Upon determination of the time and place, if any, of the meeting, the Secretary shall cause a notice of meeting to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. No business may be transacted at such special meeting otherwise than specified in the notice of meeting.

(c)    Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice provided for in this paragraph, who shall be entitled to vote at the meeting and who delivers written notice to the Secretary of the corporation setting forth the information required by Section 5(b)(i) of these Bylaws. In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder of record may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation’s notice of meeting, if written notice setting forth the information required by Section 5(b)(i) of these Bylaws shall be received by the Secretary at the principal executive offices of the corporation not later than the close of business on the later of the 90^th day prior to such meeting or the 10^th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. The stockholder shall also update and supplement such information as required under Section 5(c) of these Bylaws. In no event shall an adjournment or a postponement of a special meeting for which notice has been given, or the public announcement thereof has been made, commence a new time period for the giving of a stockholder’s notice as described above.

(d)    Notwithstanding the foregoing provisions of this Section 6, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder with respect to matters set forth in this Section 6. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Bylaws to the 1934 Act or the rules and regulations thereunder are not intended to and shall not limit the requirements applicable to nominations for the election to the Board of Directors to be considered pursuant to Section 6(c) of these Bylaws.

Section 7.    Notice of Meetings. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at any such meeting. If mailed, notice is deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation. If sent via electronic transmission, notice is deemed given as of the sending time recorded at the time of transmission. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

Section 8.    Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the corporation’s Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”), or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute or by applicable stock exchange rules, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of the majority of shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where

otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series.

Section 9.    Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 10.    Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three years from its date of creation unless the proxy provides for a longer period.

Section 11.    Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one votes, his act binds all; (b) if more than one votes, the act of the majority so voting binds all; or (c) if more than one votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of clause (c) of this Section 11 shall be a majority or even-split in interest.

Section 12.    List of Stockholders. The Secretary shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the

number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. The list shall be open to examination of any stockholder during the time of the meeting as provided by law.

Section 13.    Action Without Meeting. No action shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with these Bylaws, and no action shall be taken by the stockholders by written consent or electronic transmission.

Section 14.    Organization.

(a)    At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his or her absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.

(b)    The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

ARTICLE IV

DIRECTORS

Section 15.    Number and Term of Office. The authorized number of directors of the corporation shall be fixed in accordance with the Certificate of Incorporation. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter

as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.

Section 16.    Powers. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.

Section 17.    Classes of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. The Board of Directors is authorized to assign members of the Board of Directors already in office to such classes at the time the classification becomes effective. At the first annual meeting of stockholders following the initial classification of the Board of Directors, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following such initial classification, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following such initial classification, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting.

Notwithstanding the foregoing provisions of this Section 17, each director shall serve until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

Section 18.    Vacancies. Unless otherwise provided in the Certificate of Incorporation, and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, and not by the stockholders, provided, however, that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director’s successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director.

Section 19.    Resignation. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time. If no such specification is made, it shall be deemed effective at the time of delivery to the Secretary. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified.

Section 20.    Removal.

(a)    Subject to the rights of any series of Preferred Stock to elect additional directors under specified circumstances, neither the Board of Directors nor any individual director may be removed without cause.

(b)    Subject to any limitation imposed by law, any individual director or directors may be removed with cause by the affirmative vote of the holders of at least 66 2/3% of the voting power of all then outstanding shares of capital stock of the corporation entitled to vote generally at an election of directors.

Section 21.    Meetings.

(a)    Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for regular meetings of the Board of Directors.

(b)    Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the Chief Executive Officer or a majority of the authorized number of directors.

(c)    Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

(d)    Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least 24 hours before the date and time of the meeting. If notice is sent by U.S. mail, it shall be sent by first class mail, charges prepaid, at least three days before the date of the

meeting. Notice of any meeting may be waived in writing, or by electronic transmission, at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

(e)    Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though it had been transacted at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.

Section 22.    Quorum and Voting.

(a)    Unless the Certificate of Incorporation requires a greater number, and except with respect to questions related to indemnification arising under Section 45 of these Bylaws for which a quorum shall be one-third of the exact number of directors fixed from time to time, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.

(b)    At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.

Section 23.    Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

Section 24.    Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.

Section 25.    Committees.

(a)    Executive Committee. The Board of Directors may appoint an Executive Committee to consist of one or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any Bylaw of the corporation.

(b)    Other Committees. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.

(c)    Term. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of subsections (a) or (b) of this Section 25, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

(d)    Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing or by electronic transmission at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director

attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.

Section 26.    Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.

Section 27.    Lead Independent Director. The Chairman of the Board of Directors, or if the Chairman is not an independent director, one of the independent directors, may be designated by the Board of Directors as lead independent director (“Lead Independent Director”) to serve until replaced by the Board of Directors. The Lead Independent Director will: with the Chairman of the Board of Directors, establish the agenda for regular Board meetings and serve as chairman of Board of Directors meetings in the absence of the Chairman of the Board of Directors; establish the agenda for meetings of the independent directors; coordinate with the committee chairs regarding meeting agendas and informational requirements; preside over meetings of the independent directors; preside over any portions of meetings of the Board of Directors at which the evaluation or compensation of the Chief Executive Officer is presented or discussed; preside over any portions of meetings of the Board of Directors at which the performance of the Board of Directors is presented or discussed; and perform such other duties as may be established or delegated by the Chairman of the Board of Directors.

Section 28.    Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the Lead Independent Director, or if the Lead Independent Director is absent, the Chief Executive Officer (if a director), or, if a Chief Executive Officer is absent, the President (if a director), or if the President is absent, the most senior Vice President (if a director), or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary or other officer or director directed to do so by the Chairman, shall act as secretary of the meeting.

ARTICLE V

OFFICERS

Section 29.    Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer and the Treasurer. The Board of Directors may also appoint one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of

offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.

Section 30.    Tenure and Duties of Officers.

(a)    General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.

(b)    Duties of Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors or the Lead Independent Director has been appointed and is present. Unless an officer has been appointed Chief Executive Officer of the corporation, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. To the extent that a Chief Executive Officer has been appointed and no President has been appointed, all references in these Bylaws to the President shall be deemed references to the Chief Executive Officer. The Chief Executive Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.

(c)    Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors, the Lead Independent Director, or the Chief Executive Officer has been appointed and is present. Unless another officer has been appointed Chief Executive Officer of the corporation, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.

(d)    Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or, if the Chief Executive Officer has not been appointed or is absent, the President shall designate from time to time.

(e)    Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other

duties and have such other powers, as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary or other officer to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

(f)    Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. To the extent that a Chief Financial Officer has been appointed and no Treasurer has been appointed, all references in these Bylaws to the Treasurer shall be deemed references to the Chief Financial Officer. The President may direct the Treasurer, if any, or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

(g)    Duties of Treasurer. Unless another officer has been appointed Chief Financial Officer of the corporation, the Treasurer shall be the chief financial officer of the corporation and shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President, and, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Treasurer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.

Section 31.    Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.

Section 32.    Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.

Section 33.    Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or by the Chief Executive Officer or by other superior officers upon whom such power of removal may have been conferred by the Board of Directors.

ARTICLE VI

EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES

OWNED BY THE CORPORATION

Section 34.    Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation.

All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.

Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

Section 35.    Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.

ARTICLE VII

SHARES OF STOCK

Section 36.    Form and Execution of Certificates. The shares of the corporation shall be represented by certificates, or shall be uncertificated if so provided by resolution or resolutions of the Board of Directors. Certificates for the shares of stock of the corporation, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock represented by certificate in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, the Chief Executive Officer, or the President or any Vice President and by the Chief Financial Officer, Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate

may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.

Section 37.    Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owner’s legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

Section 38.    Transfers.

(a)    Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and, in the case of stock represented by certificate, upon the surrender of a properly endorsed certificate or certificates for a like number of shares.

(b)    The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

Section 39.    Fixing Record Dates.

(a)    In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

(b)    In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the

record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

Section 40.    Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION

Section 41.    Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 36 of these Bylaws), may be signed by the Chairman of the Board of Directors, the Chief Executive Officer, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.

ARTICLE IX

DIVIDENDS

Section 42.    Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.

Section 43.    Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

ARTICLE X

FISCAL YEAR

Section 44.    Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.

ARTICLE XI

INDEMNIFICATION

Section 45.    Indemnification of Directors, Officers, Employees and Other Agents.

(a)    Directors and Officers. The corporation shall indemnify its directors and officers to the extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d).

(b)    Employees and Other Agents. The corporation shall have power to indemnify its employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person (except for officers) or other persons as the Board of Directors shall determine.

(c)    Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding provided, however, that if the DGCL requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in

which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under this Section 45 or otherwise.

Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Section 45, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.

(d)    Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Section 45 shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer. Any right to indemnification or advances granted by this Section 45 to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within 90 days of request therefor. To the extent permitted by law, the claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because the director or officer has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or

officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this Section 45 or otherwise shall be on the corporation.

(e)    Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law.

(f)    Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director or officer, or, if applicable, employee or other agent, and shall inure to the benefit of the heirs, executors and administrators of such a person.

(g)    Insurance. To the fullest extent permitted by the DGCL or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Section 45.

(h)    Amendments. Any repeal or modification of this Section 45 shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.

(i)    Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and officer to the full extent not prohibited by any applicable portion of this Section 45 that shall not have been invalidated, or by any other applicable law. If this Section 45 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and officer to the full extent under any other applicable law.

(j)    Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:

(i)    The term “proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.

(ii)    The term “expenses” shall be broadly construed and shall include, without limitation, court costs, attorneys’ fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.

(iii)    The term the “corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section 45 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

(iv)    References to a “director,” “officer,” “employee,” or “agent” of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.

(v)    References to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to in this Section 45.

ARTICLE XII

NOTICES

Section 46.    Notices.

(a)    Notice to Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Section 7 of these Bylaws. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by U.S. mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means.

(b)    Notice to Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), as otherwise provided in these Bylaws, or by overnight delivery service, facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.

(c)    Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.

(d)    Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.

(e)    Notice to Person With Whom Communication is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

(f)    Notice to Stockholders Sharing an Address. Except as otherwise prohibited under the DGCL, any notice given under the provisions of the DGCL, the Certificate of Incorporation or the Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to the corporation within 60 days of having been given notice by the corporation of its intention to send the single notice. Any consent shall be revocable by the stockholder by written notice to the corporation.

ARTICLE XIII

AMENDMENTS

Section 47.    Amendments. Subject to the limitations set forth in Section 45(h) of these Bylaws or the provisions of the Certificate of Incorporation, the Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the corporation. Any adoption, amendment or repeal of the Bylaws of the corporation by the Board of Directors shall require the approval of a majority of the authorized number of directors. The stockholders also shall have power to adopt, amend or repeal the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by the Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the holders of at least 66 2/3% of the voting power of all of the then-

outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class.

ARTICLE XIV

LOANS TO OFFICERS OR EMPLOYEES

Section 48.    Loans to Officers or Employees. Except as otherwise prohibited by applicable law, the corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.

ARTICLE XV

MISCELLANEOUS

Section 49.    Forum. Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation; (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation or the corporation’s stockholders; (iii) any action asserting a claim against the corporation or any director or officer or other employee of the corporation arising pursuant to any provision of the DGCL, the certificate of incorporation or the Bylaws of the corporation; or (iv) any action asserting a claim against the corporation or any director or officer or other employee of the corporation governed by the internal affairs doctrine.

EX-10.1

Exhibit 10.1

INDEMNITY AGREEMENT

THIS INDEMNITY AGREEMENT (this “Agreement”) dated as of                              , 20    , is made by and between METACRINE, INC., a Delaware corporation (the “Company”), and                                          (“Indemnitee”).

RECITALS

A.    The Company desires to attract and retain the services of highly qualified individuals as directors, officers, employees and agents.

B.    The Company’s Amended and Restated Bylaws (the “Bylaws”) require that the Company indemnify its directors and officers, and empowers the Company to indemnify its employees and other agents, as authorized by the Delaware General Corporation Law, as amended (the “Code”), under which the Company is organized and such Bylaws expressly provide that the indemnification provided therein is not exclusive and contemplates that the Company may enter into separate agreements with its directors, officers and other persons to set forth specific indemnification provisions.

C.    Indemnitee does not regard the protection currently provided by applicable law, the Bylaws, the Company’s other governing documents, and available insurance as adequate under the present circumstances, and the Company has determined that Indemnitee and other directors, officers, employees and agents of the Company may not be willing to serve or continue to serve in such capacities without additional protection.

D.    The Company desires and has requested Indemnitee to serve or continue to serve as a director, officer, employee or agent of the Company, as the case may be, and has proffered this Agreement to Indemnitee as an additional inducement to serve in such capacity.

E.    Indemnitee is willing to serve, or to continue to serve, as a director, officer, employee or agent of the Company, as the case may be, if Indemnitee is furnished the indemnity provided for herein by the Company.

AGREEMENT

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

1.    Definitions.

(a)    Agent. For purposes of this Agreement, the term “Agent” of the Company means any person who: (i) is or was a director, officer, employee, agent, or other fiduciary of the Company or a subsidiary of the Company; or (ii) is or was serving at the request or for the convenience of, or representing the interests of, the Company or a subsidiary of the Company, as a director, officer, employee, agent, or other fiduciary of a foreign or domestic corporation, partnership, joint venture, trust or other enterprise.

1.

(b)    Change in Control. For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the total voting power represented by the Company’s then outstanding Voting Securities, (ii) individuals who on the date of this Agreement are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the members of the Board (provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall be considered as a member of the Incumbent Board), or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all of the Company’s assets.

(c)    Expenses. For purposes of this Agreement, the term “Expenses” shall be broadly construed and shall include, without limitation, all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys’, witness, or other professional fees and related disbursements, and other out-of-pocket costs of whatever nature, actually and reasonably incurred by Indemnitee in connection with the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification under this Agreement, the Code or otherwise. The term “Expenses” shall also include reasonable compensation for time spent by Indemnitee for which he or she is not compensated by the Company or any subsidiary or third party: (i) for any period during which Indemnitee is not an Agent, in the employment of, or providing services for compensation to, the Company or any subsidiary; and (ii) if the rate of compensation and estimated time involved is approved by the directors of the Company who are not parties to any action with respect to which Expenses are incurred, for Indemnitee while an Agent of, employed by, or providing services for compensation to, the Company or any subsidiary.

(d)    Independent Counsel. For purposes of this Agreement, the term “Independent Counsel” means a law firm, or a partner (or, if applicable, member) of such a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company will pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and

2.

all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(e)    Liabilities. For purposes of this Agreement, the term “Liabilities” shall be broadly construed and shall include, without limitation, judgments, damages, deficiencies, liabilities, losses, penalties, excise taxes, fines, assessments and amounts paid in settlement, including any interest and any federal, state, local or foreign taxes imposed as a result of the actual or deemed receipt of any payment under this Agreement.

(f)    Proceedings. For purposes of this Agreement, the term “proceeding” shall be broadly construed and shall include, without limitation, any threatened, pending, or completed action, suit, claim, counterclaim, cross claim, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing, or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, and whether formal or informal in any case, in which Indemnitee was, is or will be involved as a party, potential party, non-party witness, or otherwise by reason of: (i) the fact that Indemnitee is or was a director or officer of the Company; (ii) the fact that any action taken by Indemnitee (or a failure to take action by Indemnitee) or of any action (or failure to act) on Indemnitee’s part while acting as an Agent; or (iii) the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, and in any such case described above, whether or not serving in any such capacity at the time any liability or Expense is incurred for which indemnification, reimbursement, or advancement of Expenses may be provided under this Agreement. If the Indemnitee believes in good faith that a given situation may lead to or culminate in the institution of a proceeding, this shall be considered a proceeding under this paragraph.

(g)    Subsidiary. For purposes of this Agreement, the term “subsidiary” means any corporation, limited liability company, or other entity, of which more than 50% of the outstanding voting securities or equity interests are owned, directly or indirectly, by the Company and one or more of its subsidiaries, and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as an Agent.

(h)    Voting Securities. For purposes of this Agreement, “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.

2.    Agreement to Serve. Indemnitee will serve, or continue to serve, as the case may be, as an Agent, faithfully and to the best of his or her ability, at the will of such entity designated by the Company and at the request of the Company (or under separate agreement, if such agreement exists), in the capacity Indemnitee currently serves such entity, so long as Indemnitee is duly appointed or elected and qualified in accordance with the applicable provisions of the governance documents of such entity, or until such time as Indemnitee tenders his or her resignation in writing; provided, however, that nothing contained in this Agreement is intended as an employment agreement between Indemnitee and the Company or any of its subsidiaries or to create any right to continued employment of Indemnitee with the Company or any of its subsidiaries in any capacity.

3.

The Company acknowledges that it has entered into this Agreement and assumes the obligations imposed on it hereby, in addition to and separate from its obligations to Indemnitee under the Bylaws, to induce Indemnitee to serve, or continue to serve, as an Agent, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an Agent.

3.    Indemnification.

(a)    Indemnification in Third Party Proceedings. Subject to Section 10 below, the Company shall indemnify Indemnitee to the fullest extent permitted by the Code, as the same may be amended from time to time (but, to the fullest extent of the law, only to the extent that such amendment permits Indemnitee to broader indemnification rights than the Code permitted prior to adoption of such amendment), if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any proceeding, other than a proceeding by or in the right of the Company to procure a judgment in its favor, for any and all Expenses and Liabilities (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses and Liabilities) incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of such proceeding, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding had no reasonable cause to believe that Indemnitee’s conduct was unlawful. The parties hereto intend that this Agreement shall provide to the fullest extent permitted by law for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Certificate of Incorporation of the Company, the Bylaws, vote of its stockholders or disinterested directors, or applicable law.

(b)    Indemnification in Derivative Actions and Direct Actions by the Company. Subject to Section 10 below, the Company shall indemnify Indemnitee to the fullest extent permitted by the Code, as the same may be amended from time to time (but, fullest extent permitted by applicable law, only to the extent that such amendment permits Indemnitee to broader indemnification rights than the Code permitted prior to adoption of such amendment), if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any proceeding by or in the right of the Company to procure a judgment in its favor, against any and all Expenses actually and reasonably incurred by Indemnitee in connection with the investigation, defense, settlement, or appeal of such proceedings, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 3(b) in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court competent jurisdiction to be liable to the Company, unless and only to the extent that the Chancery Court of the State of Delaware or any court in which the proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.

4.    Indemnification of Expenses of Successful Party. Notwithstanding any other provision of this Agreement, in circumstances where indemnification is not available under Section 3(a) or 3(b), as the case may be, to the fullest extent permitted by law and to the extent that Indemnitee is a party to (or a participant in) any proceeding and has been successful on the merits or otherwise in defense of any proceeding or in defense of any claim, issue or matter therein,

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in whole or part, including the dismissal of any action without prejudice, the Company shall indemnify Indemnitee against all Expenses and Liabilities in connection with the investigation, defense or appeal of such proceeding. If Indemnitee is not wholly successful in such proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such proceeding, the Company shall indemnify Indemnitee against all Expenses and Liabilities incurred by Indemnitee or on Indemnitee’s behalf in connection with or related to each successfully resolved claim, issue or matter to the fullest extent permitted by law.

5.    Partial Indemnification; Witness Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Expenses and Liabilities incurred by Indemnitee in the investigation, defense, settlement or appeal of a proceeding, but is precluded by applicable law or the specific terms of this Agreement to indemnification for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Notwithstanding any other provision of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of Indemnitee’s acting as an Agent, a witness or otherwise asked to participate in any proceeding to which Indemnitee is not a party, Indemnitee shall be indemnified against all Expenses incurred by Indemnitee or on Indemnitee’s behalf in connection therewith.

6.    Advancement of Expenses. To the extent not prohibited by law, the Company shall advance the Expenses incurred by Indemnitee in connection with any proceeding, and such advancement shall be made within twenty (20) days after the receipt by the Company of a statement or statements requesting such advances (which shall include invoices received by Indemnitee in connection with such Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice) and upon request of the Company, an undertaking to repay the advancement of Expenses if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. Advances shall be unsecured, interest free and without regard to Indemnitee’s ability to repay the Expenses. Advances shall include any and all Expenses incurred by Indemnitee pursuing an action to enforce Indemnitee’s right to indemnification under this Agreement or otherwise and this right of advancement, including expenses incurred preparing and forwarding statements to the Company to support the advances claimed. Indemnitee acknowledges that the execution and delivery of this Agreement shall constitute an undertaking providing that Indemnitee shall, to the fullest extent required by law, repay the advance (without interest) if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. The right to advances under this Section shall continue until final disposition of any proceeding, including any appeal therein. This Section 6 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 10(b).

7.    Notice and Other Indemnification Procedures.

(a)    Notification of Proceeding. Indemnitee will notify the Company in writing promptly upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any proceeding or matter which may be subject to

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indemnification or advancement of Expenses covered hereunder. The written notification to the Company shall include a description of the nature of the proceeding and the facts underlying the proceeding. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights under this Agreement.

(b)    Request for Indemnification Payments. To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification under the terms of this Agreement, and shall request payment thereof by the Company.

(c)    Determination of Right to Indemnification Payments. Upon written request by Indemnitee for indemnification pursuant to the Section 7(b) hereof, a determination with respect to Indemnitee’s entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the Board of Directors: (1) by a majority vote of the disinterested directors, even though less than a quorum, (2) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum, (3) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee, or (4) if so directed by the Board of Directors, by the stockholders of the Company; provided, however, that if there has been a Change in Control, then such determination shall be made by Independent Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). For purposes hereof, disinterested directors are those members of the board of directors of the Company who are not parties to the action, suit or proceeding in respect of which indemnification is sought by Indemnitee. Indemnification payments requested by Indemnitee under Section 3 hereof shall be made by the Company no later than sixty (60) days after receipt of the written request of Indemnitee. Claims for advancement of Expenses shall be made under the provisions of Section 6 herein.

(d)    Application for Enforcement. In the event the Company fails to make timely payments as set forth in Sections 6 or 7(b) above, Indemnitee shall have the right to apply to any court of competent jurisdiction for the purpose of enforcing Indemnitee’s right to indemnification or advancement of Expenses pursuant to this Agreement. In such an enforcement hearing or proceeding, the burden of proof shall be on the Company to prove that indemnification or advancement of Expenses to Indemnitee is not required under this Agreement or permitted by applicable law. Any determination by the Company (including its Board of Directors, a committee thereof, Independent Counsel) or stockholders of the Company, that Indemnitee is not entitled to indemnification hereunder, shall not be a defense by the Company to the action nor create any presumption that Indemnitee is not entitled to indemnification or advancement of Expenses hereunder.

(e)    Indemnification of Certain Expenses. The Company shall indemnify Indemnitee against all Expenses incurred in connection with any hearing or proceeding under this

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Section 7 unless the Company prevails in such hearing or proceeding on the merits in all material respects.

8.    Assumption of Defense. In the event the Company shall be requested by Indemnitee to pay the Expenses of any proceeding, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, or to participate to the extent permissible in such proceeding, with counsel reasonably acceptable to Indemnitee. Upon assumption of the defense by the Company and the retention of such counsel by the Company, the Company shall not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that Indemnitee shall have the right to employ separate counsel in such proceeding at Indemnitee’s sole cost and expense. Notwithstanding the foregoing, if Indemnitee’s counsel delivers a written notice to the Company stating that such counsel has reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or the Company shall not, in fact, have employed counsel or otherwise actively pursued the defense of such proceeding within a reasonable time, then in any such event the fees and Expenses of Indemnitee’s counsel to defend such proceeding shall be subject to the indemnification and advancement of Expenses provisions of this Agreement.

9.    Insurance. To the extent that the Company maintains an insurance policy or policies providing liability insurance for Agents (“D&O Insurance”), Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such Agent under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has D&O Insurance in effect or otherwise potentially available, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

10.    Exceptions.

(a)    Certain Matters. Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee on account of any proceeding with respect to: (i) remuneration paid to Indemnitee if it is determined by final judgment or other final adjudication that such remuneration was in violation of law (and, in this respect, both the Company and Indemnitee have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication, as indicated in Section 10(d) below); (ii) a final judgment rendered against Indemnitee for an accounting, disgorgement or repayment of profits made from the purchase or sale by Indemnitee of securities of the Company against Indemnitee or in connection with a settlement by or on behalf of Indemnitee to the extent it is acknowledged by Indemnitee and the Company that such amount paid in settlement resulted from Indemnitee’s conduct from which Indemnitee received monetary personal profit, pursuant to the provisions of Section 16(b) of the Exchange Act or other provisions of any federal, state or local statute or rules and regulations thereunder; (iii) a final judgment or other final adjudication

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that Indemnitee’s conduct was in bad faith, knowingly fraudulent or deliberately dishonest or constituted willful misconduct (but only to the extent of such specific determination); or (iv) on account of conduct that is established by a final judgment as constituting a breach of Indemnitee’s duty of loyalty to the Company or resulting in any personal profit or advantage to which Indemnitee is not legally entitled. For purposes of the foregoing sentence, a final judgment or other adjudication may be reached in either the underlying proceeding or action in connection with which indemnification is sought or a separate proceeding or action to establish rights and liabilities under this Agreement.

(b)    Claims Initiated by Indemnitee. Any provision herein to the contrary notwithstanding, the Company shall not be obligated to indemnify or advance Expenses to Indemnitee with respect to proceedings or claims initiated or brought by Indemnitee against the Company or its Agents and not by way of defense, except (i) with respect to proceedings brought to establish or enforce a right to indemnification or advancement under this Agreement or under any other agreement, provision in the Bylaws or the Certificate of Incorporation or applicable law, or (ii) with respect to any other proceeding initiated by Indemnitee that is either approved by the Board of Directors or Indemnitee’s participation is required by applicable law. However, indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board of Directors determines it to be appropriate.

(c)    Unauthorized Settlements. Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee under this Agreement for any amounts paid in settlement of a proceeding effected without the Company’s written consent. Neither the Company nor Indemnitee shall unreasonably withhold consent to any proposed settlement; provided, however, that the Company may in any event decline to consent to (or to otherwise admit or agree to any liability for indemnification hereunder in respect of) any proposed settlement if the Company is also a party in such proceeding and determines in good faith that such settlement is not in the best interests of the Company and its stockholders.

(d)    Securities Act Liabilities. Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee or otherwise act in violation of any undertaking appearing in and required by the rules and regulations promulgated under the Securities Act of 1933, as amended (the “Securities Act”), or in any registration statement filed with the SEC under the Securities Act. Indemnitee acknowledges that paragraph (h) of Item 512 of Regulation S-K currently generally requires the Company to undertake in connection with any registration statement filed under the Securities Act to submit the issue of the enforceability of Indemnitee’s rights under this Agreement in connection with any liability under the Securities Act on public policy grounds to a court of appropriate jurisdiction and to be governed by any final adjudication of such issue. Indemnitee specifically agrees that any such undertaking shall supersede the provisions of this Agreement and to be bound by any such undertaking.

(e)    Prior Payments Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify or advance Expenses to Indemnitee under this Agreement for which payment has actually been made to or on

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behalf of Indemnitee under any insurance policy or other indemnity provision, expect with respect to any excess beyond the amount paid under any insurance policy or indemnity policy.

11.    Nonexclusivity and Survival of Rights. The provisions for indemnification and advancement of Expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may at any time be entitled under any provision of applicable law, the Company’s Certificate of Incorporation, the Bylaws or other agreements, both as to action in Indemnitee’s official capacity and Indemnitee’s action as an Agent, in any court in which a proceeding is brought, and Indemnitee’s rights hereunder shall continue after Indemnitee has ceased acting as an Agent and shall inure to the benefit of the heirs, executors, administrators and assigns of Indemnitee. The obligations and duties of the Company to Indemnitee under this Agreement shall be binding on the Company and its successors and assigns until terminated in accordance with its terms. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her corporate status prior to such amendment, alteration or repeal. To the extent that a change in the Code, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company’s Certificate of Incorporation, the Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, by Indemnitee shall not prevent the concurrent assertion or employment of any other right or remedy by Indemnitee.

12.    Term. This Agreement shall continue until and terminate upon the later of: (a) five (5) years after the date that Indemnitee shall have ceased to serve as an Agent; or (b) one (1) year after the final termination of any proceeding, including any appeal then pending, in respect to which Indemnitee was granted rights of indemnification or advancement of Expenses hereunder.

No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against an Indemnitee or an Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five-year period; provided, however, that if any shorter period of limitations is otherwise applicable to such cause of action, such shorter period shall govern.

13.    Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who, at the request and expense of the Company, shall execute all papers required and shall do everything that

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may be reasonably necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

14.    Interpretation of Agreement. It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification and advancement of Expenses to Indemnitee to the fullest extent now or hereafter permitted by law.

15.    Severability. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (a) the validity, legality and enforceability of the remaining provisions of the Agreement (including without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 14 hereof.

16.    Amendment and Waiver. No supplement, modification, amendment, or cancellation of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

17.    Notice. Except as otherwise provided herein, any notice or demand which, by the provisions hereof, is required or which may be given to or served upon the parties hereto shall be in writing and, if by electronic transmission, shall be deemed to have been validly served, given or delivered when sent, if by overnight delivery, courier or personal delivery, shall be deemed to have been validly served, given or delivered upon actual delivery and, if mailed, shall be deemed to have been validly served, given or delivered three (3) business days after deposit in the United States mail, as registered or certified mail, with proper postage prepaid and addressed to the party or parties to be notified at the addresses set forth on the signature page of this Agreement (or such other address(es) as a party may designate for itself by like notice). If to the Company, notices and demands shall be delivered to the attention of the Secretary of the Company.

18.    Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware.

19.    Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement. Only one such counterpart need be produced to evidence the existence of this Agreement.

20.    Headings. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof.

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21.    Entire Agreement. Subject to Section 11 hereof, this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings and negotiations, written and oral, between the parties with respect to the subject matter of this Agreement; provided, however, that this Agreement is a supplement to and in furtherance of the Company’s Certificate of Incorporation, the Bylaws, the Code and any other applicable law, and shall not be deemed a substitute therefor, and does not diminish or abrogate any rights of Indemnitee thereunder.

22.    Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such proceeding; and/or (ii) the relative fault of the Company and Indemnitee in connection with such event(s) and/or transaction(s).

23.    Consent to Jurisdiction. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) agree to appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, an agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

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IN WITNESS WHEREOF, the parties hereto have entered into this Agreement effective as of the date first above written.

METACRINE, INC.
By:
	Name:
	Title:
INDEMNITEE
Signature of Indemnitee
Print or Type Name of Indemnitee

EX-10.6

Exhibit 10.6

METACRINE, INC.

SEVERANCE BENEFIT PLAN

APPROVED BY THE BOARD OF DIRECTORS ON AUGUST 9, 2018

Section 1.    INTRODUCTION.

The Metacrine, Inc. Severance Benefit Plan (the “Plan”) is hereby established effective upon the date of approval by the Board of Directors of Metacrine, Inc. (the “Company”) set forth above (the “Effective Date”). The purpose of the Plan is to provide for the payment of severance benefits to eligible employees of the Company in the event that such employees become subject to involuntary or constructive employment terminations. This Plan document also is the Summary Plan Description for the Plan.

For purposes of the Plan, the following terms are defined as follows:

(a)    “Affiliate” means any corporation (other than the Company) in an “unbroken chain of corporations” beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

(b)     “Base Salary” means base pay (excluding incentive pay, premium pay, commissions, overtime, bonuses and other forms of variable compensation) as in effect prior to any reduction that would give rise to an employee’s right to a resignation for Good Reason (if applicable).

(c)    “Cause” means, with respect to a particular employee, the meaning ascribed to such term in any written employment agreement, offer letter or similar agreement between such employee and the Company defining such term, and, in the absence of such agreement, means with respect to such employee, the occurrence of any of the following events: (i) such employee’s commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) such employee’s attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) such employee’s intentional, material violation of any contract or agreement between the employee and the Company or of any statutory duty owed to the Company; (iv) such employee’s unauthorized use or disclosure of the Company’s confidential information or trade secrets; or (v) such employee’s gross misconduct. The determination whether a termination is for Cause shall be made by the Plan Administrator in its sole and exclusive judgment and discretion.

(d)    “Change in Control” has the meaning ascribed to such term in the Equity Plan.

(e)    “Change in Control Period” means the period commencing three months prior to the Closing of a Change in Control and ending 12 months following the Closing of a Change in Control.

(f)    “Closing” means the initial closing of the Change in Control as defined in the definitive agreement executed in connection with the Change in Control. In the case of a series

of transactions constituting a Change in Control, “Closing” means the first closing that satisfies the threshold of the definition for a Change in Control.

(g)    “Code” means the Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance thereunder.

(h)    “Committee” means the Board of Directors or the Compensation Committee of the Board of Directors of the Company.

(i)    “Company” means Metacrine, Inc. or, following a Change in Control, the surviving entity resulting from such event.

(j)    “Covered Termination” means a termination of employment that is due to (1) a termination by the Company without Cause (and other than as a result of the employee’s death or Disability) or (2) an employee’s resignation for Good Reason.

(k)    “Director” means a member of the Board of Directors of the Company.

(l)    “Disability” means any physical or mental condition which renders an employee incapable of performing the work for which he or she was employed by the Company or similar work offered by the Company. The Disability of an employee shall be established if (i) the employee satisfies the requirements for benefits under the Company’s long-term disability plan or (ii) if no long-term disability plan, the employee satisfies the requirements for Social Security disability benefits.

(m)     “Eligible Employee” means an employee of the Company that meets the requirements to be eligible to receive Plan benefits as set forth in Section 2.

(n)    “Equity Plan” means the Metacrine, Inc. Amended and Restated 2015 Equity Incentive Plan, as amended from time to time; provided that, upon and following the IPO Date, the “Equity Plan” means the Metacrine, Inc. 2018 Equity Incentive Plan, as amended from time to time.

(o)    “Good Reason” for an employee’s resignation means the occurrence of any one or more of the following are undertaken by the Company (or successor to the Company, if applicable) without the employee’s express written consent: (i) a material reduction in a such employee’s annual base salary; provided, however, that Good Reason will not be deemed to have occurred in the event of a reduction in such employee’s annual base salary that is pursuant to a salary reduction program affecting substantially all of the employees of the Company and that does not adversely affect such employee to a greater extent than other similarly situated employees; (ii) a material reduction in such employee’s authority, duties or responsibilities; provided, however, that a change in job position (including a change in title) shall not be deemed a “material reduction” in and of itself unless the employee’s new duties are materially reduced from the employee’s prior duties; (iii) a relocation of such employee’s principal place of employment with the Company (or successor to the Company, if applicable) to a place that increases such employee’s one-way commute by more than 50 miles as compared to such employee’s then-current principal place of employment immediately prior to such relocation, except for required travel by the employee on the Company’s business to an extent substantially consistent with employee’s business travel

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obligations prior to the effective date of the Change in Control; or (iv) a material breach by the Company of any provision of this Plan or any other material agreement between such employee and the Company concerning the terms and conditions of such employee’s employment or service with the Company, provided, however, that in each case (i) through (iv) above, in order for the employee’s resignation to be deemed to have been for Good Reason, the employee must first give the Company written notice of the action or omission giving rise to “Good Reason” within 30 days after the first occurrence thereof; the Company must fail to reasonably cure such action or omission within 30 days after receipt of such notice (the “Cure Period”), and the employee’s resignation must be effective not later than 30 days after the expiration of such Cure Period.

(p)    “IPO Date” means the date of the underwriting agreement between the Company and the underwriter(s) managing the initial public offering of the Company’s Common Stock, pursuant to which the Common Stock is priced for the initial public offering.

(q)    “Participation Agreement” means an agreement between an employee and the Company in substantially the form of APPENDIX A attached hereto, and which may include such other terms as the Committee deems necessary or advisable in the administration of the Plan.

(r)    “Plan Administrator” means the Committee prior to the Closing and the Representative upon and following the Closing, as applicable.

(s)    “Representative” means one or more members of the Committee or other persons or entities designated by the Committee prior to or in connection with a Change in Control that will have authority to administer and interpret the Plan upon and following the Closing as provided in Section 8(a).

(t)    “Section 409A” means Section 409A of the Code and any state law of similar effect.

Section 2.    ELIGIBILITY FOR BENEFITS.

(a)    Eligible Employee. Each employee of the Company is eligible to participate in the Plan provided (i) such employee has signed and returned such Participation Agreement to the Company within 30 days following the date on which it is first provided to such employee; and (ii) such employee meets the other Plan eligibility requirements set forth in this Section 2. The determination of whether an employee is an Eligible Employee shall be made by the Plan Administrator, in its sole discretion, and such determination shall be binding and conclusive on all persons.

(b)    Release Requirement. Except as otherwise provided in an individual Participation Agreement, in order to be eligible to receive benefits under the Plan, the employee also must execute a general waiver and release, in such a form as provided by the Company (the “Release”), within the applicable time period set forth therein, and such Release must become effective in accordance with its terms, which must occur in no event more than 60 days following the date of the applicable Covered Termination.

(c)    Plan Benefits Provided In Lieu of Individual Agreement Benefits. This Plan shall supersede any change in control or severance benefit plan, policy or practice previously

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maintained by the Company with respect to an Eligible Employee and any change in control or severance benefits in any individually negotiated employment contract or other agreement between the Company and an Eligible Employee, with the exception of any provisions contained in any employment contract or option or stock award agreement between the Company and an Eligible Employee or any equity incentive plan, stock or option award agreement or other change in control or severance plan maintained by the Company and applicable to such Eligible Employee (an “Individual Agreement”) that would provide more advantageous benefits to the Eligible Employee, in which case, the Eligible Employee shall be eligible for the benefits under both this Plan and the Individual Agreement, to the extent such benefits in the Individual Agreement are not duplicative of the benefits under this Plan.

(d)    Exceptions to Severance Benefit Entitlement. An employee who otherwise is an Eligible Employee will not receive severance benefits under the Plan in the following circumstances, as determined by the Plan Administrator in its sole discretion:

(1)    The employee is terminated by the Company for any reason (including due to the employee’s death or disability) or voluntarily terminates employment with the Company in any manner, and in either case, such termination does not constitute a Covered Termination. Voluntary terminations include, but are not limited to, resignation, retirement or failure to return from a leave of absence on the scheduled date.

(2)    The employee voluntarily terminates employment with the Company in order to accept employment with another entity that is wholly or partly owned (directly or indirectly) by the Company or an Affiliate.

(3)    The employee is offered an identical or substantially equivalent or comparable position with the Company or an Affiliate. For purposes of the foregoing, a “substantially equivalent or comparable position” is one that provides the employee substantially the same level of responsibility and compensation and would not give rise to the employee’s right to a resignation for Good Reason.

(4)    The employee is offered immediate reemployment by a successor to the Company or an Affiliate or by a purchaser of the Company’s assets, as the case may be, following a Change in Control and the terms of such reemployment would not give rise to the employee’s right to a resignation for Good Reason. For purposes of the foregoing, “immediate reemployment” means that the employee’s employment with the successor to the Company or an Affiliate or the purchaser of its assets, as the case may be, results in uninterrupted employment such that the employee does not incur a lapse in pay or benefits as a result of the change in ownership of the Company or the sale of its assets. For the avoidance of doubt, an employee who becomes immediately reemployed as described in this Section 2(d)(4) by a successor to the Company or an Affiliate or by a purchaser of the Company’s assets, as the case may be, following a Change in Control shall continue to be an Eligible Employee following the date of such reemployment.

(5)    The employee is rehired by the Company or an Affiliate and recommences employment prior to the date severance benefits under the Plan are scheduled to commence.

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(e)    Termination or Reduction of Severance Benefits. An Eligible Employee’s right to receive severance benefits under this Plan shall terminate immediately if, at any time prior to or during the period for which the Eligible Employee is receiving severance benefits under the Plan, the Eligible Employee, without the prior written approval of the Plan Administrator willfully breaches any material statutory, common law, or contractual obligation to the Company or an Affiliate (including, without limitation, the contractual obligations set forth in any confidentiality, non-disclosure and developments agreement, non-competition, non-solicitation, or similar type agreement between the Eligible Employee and the Company, as applicable).

Section 3.    AMOUNT OF BENEFITS.

(a)    Benefits in Participation Agreement. Benefits under the Plan shall be provided to an Eligible Employee as set forth in the Participation Agreement.

(b)    Additional Benefits. Notwithstanding the foregoing, the Company may, in its sole discretion, provide benefits to individuals who are not Eligible Employees (“Non-Eligible Employees”) chosen by the Plan Administrator, in its sole discretion, and the provision of any such benefits to a Non-Eligible Employee shall in no way obligate the Company to provide such benefits to any other individual, even if similarly situated. If benefits under the Plan are provided to a Non-Eligible Employee, references in the Plan to “Eligible Employee” (and similar references) shall be deemed to refer to such Non-Eligible Employee.

(c)    Certain Reductions. In addition to Section 2(e) above, the Company, in its sole discretion, shall have the authority to reduce an Eligible Employee’s severance benefits, in whole or in part, by any other severance benefits, pay and benefits provided during a period following written notice of a business closing or mass layoff, pay and benefits in lieu of such notice, or other similar benefits payable to the Eligible Employee by the Company or an Affiliate that become payable in connection with the Eligible Employee’s termination of employment pursuant to (i) any applicable legal requirement, including, without limitation, the Worker Adjustment and Retraining Notification Act or any other similar state law or (ii) any Company policy or practice providing for the Eligible Employee to remain on the payroll for a limited period of time after being given notice of the termination of the Eligible Employee’s employment, and the Plan Administrator shall so construe and implement the terms of the Plan. Any such reductions that the Company determines to make pursuant to this Section 3(c) shall be made such that any severance benefit under the Plan shall be reduced solely by any similar type of benefit under such legal requirement, agreement, policy or practice (i.e., any cash severance benefits under the Plan shall be reduced solely by any cash payments or severance benefits under such legal requirement, agreement, policy or practice). The Company’s decision to apply such reductions to the severance benefits of one Eligible Employee and the amount of such reductions shall in no way obligate the Company to apply the same reductions in the same amounts to the severance benefits of any other Eligible Employee. In the Company’s sole discretion, such reductions may be applied on a retroactive basis, with severance benefits previously paid being re-characterized as payments pursuant to the Company’s statutory obligation.

(d)    Parachute Payments. If any payment or benefit an Eligible Employee will or may receive from the Company or otherwise (a “Payment”) would (i) constitute a “parachute

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payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then any such Payment shall be equal to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment (after reduction) being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount (i.e., the amount determined by clause (x) or by clause (y)), after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Eligible Employee’s receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in a Payment is required pursuant to the preceding sentence and the Reduced Amount is determined pursuant to clause (x) of the preceding sentence, the reduction shall occur in the manner (the “Reduction Method”) that results in the greatest economic benefit for the Eligible Employee. If more than one method of reduction will result in the same economic benefit, the items so reduced will be reduced pro rata (the “Pro Rata Reduction Method”).

Notwithstanding any provisions in this Section above to the contrary, if the Reduction Method or the Pro Rata Reduction Method would result in any portion of the Payment being subject to taxes pursuant to Section 409A that would not otherwise be subject to taxes pursuant to Section 409A, then the Reduction Method and/or the Pro Rata Reduction Method, as the case may be, shall be modified so as to avoid the imposition of taxes pursuant to Section 409A as follows: (A) as a first priority, the modification shall preserve to the greatest extent possible, the greatest economic benefit for the Eligible Employee as determined on an after-tax basis; (B) as a second priority, Payments that are contingent on future events (e.g., being terminated without Cause), shall be reduced (or eliminated) before Payments that are not contingent on future events; and (C) as a third priority, Payments that are “deferred compensation” within the meaning of Section 409A shall be reduced (or eliminated) before Payments that are not deferred compensation within the meaning of Section 409A.

The Company shall appoint a nationally recognized accounting or law firm to make the determinations required by this Section. The Company shall bear all expenses with respect to the determinations by such accounting or law firm required to be made hereunder. The Company shall use commercially reasonable efforts to cause the accounting or law firm engaged to make the determinations hereunder to provide its calculations, together with detailed supporting documentation, to Eligible Employee and the Company within 15 calendar days after the date on which Eligible Employee’s right to a Payment becomes reasonably likely to occur (if requested at that time by Eligible Employee or the Company) or such other time as requested by Eligible Employee or the Company.

If the Eligible Employee receives a Payment for which the Reduced Amount was determined pursuant to clause (x) above and the Internal Revenue Service determines thereafter that some portion of the Payment is subject to the Excise Tax, Eligible Employee agrees to promptly return to the Company a sufficient amount of the Payment (after reduction pursuant to clause (x) above) so that no portion of the remaining Payment is subject to the Excise Tax. For the avoidance of doubt, if the Reduced Amount was determined pursuant to clause (y) above, the Eligible Employee shall have no obligation to return any portion of the Payment pursuant to the preceding sentence.

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Section 4.    RETURN OF COMPANY PROPERTY.

An Eligible Employee will not be entitled to any severance benefit under the Plan unless and until the Eligible Employee returns all Company Property. For this purpose, “Company Property” means all Company documents (and all copies thereof) and other Company property which the Eligible Employee had in his or her possession at any time, including, but not limited to, Company files, notes, drawings, records, plans, forecasts, reports, studies, analyses, proposals, agreements, financial information, research and development information, sales and marketing information, operational and personnel information, specifications, code, software, databases, computer-recorded information, tangible property and equipment (including, but not limited to, computers, facsimile machines, mobile telephones, servers), credit cards, entry cards, identification badges and keys; and any materials of any kind which contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part).

Section 5.    TIME OF PAYMENT AND FORM OF BENEFITS.

The Company reserves the right in the Participation Agreement to specify whether payments under the Plan will be paid in a single sum, in installments, or in any other form and to determine the timing of such payments. All such payments under the Plan will be subject to applicable withholding for federal, state and local taxes. All benefits provided under the Plan are intended to satisfy the requirements for an exemption from application of Section 409A to the maximum extent that an exemption is available and any ambiguities herein shall be interpreted accordingly; provided, however, that to the extent such an exemption is not available, the benefits provided under the Plan are intended to comply with the requirements of Section 409A to the extent necessary to avoid adverse personal tax consequences and any ambiguities herein shall be interpreted accordingly.

Notwithstanding anything to the contrary set forth herein, any payments and benefits provided under the Plan that constitute “deferred compensation” within the meaning of Section 409A shall not commence in connection with an Eligible Employee’s termination of employment unless and until the Eligible Employee has also incurred a “separation from service,” as such term is defined in Treasury Regulations Section 1.409A-1(h) (“Separation from Service”), unless the Company reasonably determines that such amounts may be provided to the Eligible Employee without causing the Eligible Employee to incur the adverse personal tax consequences under Section 409A.

It is intended that (i) each installment of any benefits payable under the Plan to an Eligible Employee be regarded as a separate “payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2)(i), (ii) all payments of any such benefits under the Plan satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9)(iii), and (iii) any such benefits consisting of COBRA premiums also satisfy, to the greatest extent possible, the exemption from the application of Section 409A provided under Treasury Regulations Section 1.409A-1(b)(9)(v). However, if the Company determines that any severance benefits payable under the Plan constitute “deferred compensation” under Section 409A and the Eligible Employee is a “specified employee” of the Company, as such term is defined in Section 409A(a)(2)(B)(i),

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then, solely to the extent necessary to avoid the imposition of the adverse personal tax consequences under Section 409A, (A) the timing of such severance benefit payments shall be delayed until the earlier of (1) the date that is six months and one day after the Eligible Employee’s Separation from Service and (2) the date of the Eligible Employee’s death (such applicable date, the “Delayed Initial Payment Date”), and (B) the Company shall (1) pay the Eligible Employee a lump sum amount equal to the sum of the severance benefit payments that the Eligible Employee would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the severance benefits had not been delayed pursuant to this paragraph and (2) commence paying the balance, if any, of the severance benefits in accordance with the applicable payment schedule.

In no event shall payment of any severance benefits under the Plan be made prior to an Eligible Employee’s termination date or prior to the effective date of the Release. If the Company determines that any severance payments or benefits provided under the Plan constitute “deferred compensation” under Section 409A, and the Eligible Employee’s Separation from Service occurs at a time during the calendar year when the Release could become effective in the calendar year following the calendar year in which the Eligible Employee’s Separation from Service occurs, then regardless of when the Release is returned to the Company and becomes effective, the Release will not be deemed effective, solely for purposes of the timing of payment of severance benefits under this Plan, any earlier than the latest permitted effective date (the “Release Deadline”). If the Company determines that any severance payments or benefits provided under the Plan constitute “deferred compensation” under Section 409A, then except to the extent that severance payments may be delayed until the Delayed Initial Payment Date pursuant to the preceding paragraph, on the first regular payroll date following the effective date of an Eligible Employee’s Release, the Company shall (1) pay the Eligible Employee a lump sum amount equal to the sum of the severance benefit payments that the Eligible Employee would otherwise have received through such payroll date but for the delay in payment related to the effectiveness of the Release and (2) commence paying the balance, if any, of the severance benefits in accordance with the applicable payment schedule.

All payments under the Plan shall be subject to applicable withholding for federal, state and local taxes.

Section 6.    TRANSFER AND ASSIGNMENT.

The rights and obligations of an Eligible Employee under this Plan may not be transferred or assigned without the prior written consent of the Company. This Plan shall be binding upon any entity or person who is a successor by merger, acquisition, consolidation or otherwise to the business formerly carried on by the Company without regard to whether or not such entity or person actively assumes the obligations hereunder and without regard to whether or not a Change in Control occurs.

Section 7.    RIGHT TO INTERPRET AND ADMINISTER PLAN; AMENDMENT AND TERMINATION.

(a)    Interpretation and Administration. Prior to the Closing, the Committee shall be the Plan Administrator and shall have the exclusive discretion and authority to establish rules, forms, and procedures for the administration of the Plan and to construe and interpret the

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Plan and to decide any and all questions of fact, interpretation, definition, computation or administration arising in connection with the operation of the Plan, including, but not limited to, the eligibility to participate in the Plan and amount of benefits paid under the Plan. The rules, interpretations, computations and other actions of the Committee shall be binding and conclusive on all persons. Upon and after the Closing, the Plan will be interpreted and administered in good faith by the Representative who shall be the Plan Administrator during such period. All actions taken by the Representative in interpreting the terms of the Plan and administering the Plan upon and after the Closing will be final and binding on all Eligible Employees. Any references in this Plan to the “Committee” or “Plan Administrator” with respect to periods following the Closing shall mean the Representative.

(b)    Amendment. The Plan Administrator reserves the right to amend this Plan at any time; provided, however, that any amendment of the Plan will not be effective as to a particular employee who is or may be adversely impacted by such amendment or termination and has an effective Participation Agreement without the written consent of such employee.

(c)    Termination. Unless otherwise extended by the Committee, the Plan will automatically terminate following satisfaction of all the Company’s obligations under the Plan.

Section 8.    NO IMPLIED EMPLOYMENT CONTRACT.

The Plan shall not be deemed (i) to give any employee or other person any right to be retained in the employ of the Company or (ii) to interfere with the right of the Company to discharge any employee or other person at any time, with or without cause, which right is hereby reserved. This Plan does not modify the at-will employment status of any Eligible Employee.

Section 9.    LEGAL CONSTRUCTION.

This Plan is intended to be governed by and shall be construed in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”) and, to the extent not preempted by ERISA, the laws of the State of California.

Section 10.    CLAIMS, INQUIRIES AND APPEALS.

(a)    Applications for Benefits and Inquiries. Any application for benefits, inquiries about the Plan or inquiries about present or future rights under the Plan must be submitted to the Plan Administrator in writing by an applicant (or his or her authorized representative). The Plan Administrator is:

Metacrine, Inc.

Compensation Committee of the Board of Directors or Representative

Attention to: Chief Financial Officer

3985 Sorrento Valley Blvd., Suite C

San Diego, California 92121

(b)    Denial of Claims. In the event that any application for benefits is denied in whole or in part, the Plan Administrator must provide the applicant with written or electronic notice of the denial of the application, and of the applicant’s right to review the denial. Any

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electronic notice will comply with the regulations of the U.S. Department of Labor. The notice of denial will be set forth in a manner designed to be understood by the applicant and will include the following:

(1)    the specific reason or reasons for the denial;

(2)    references to the specific Plan provisions upon which the denial is based;

(3)    a description of any additional information or material that the Plan Administrator needs to complete the review and an explanation of why such information or material is necessary; and

(4)    an explanation of the Plan’s review procedures and the time limits applicable to such procedures, including a statement of the applicant’s right to bring a civil action under Section 502(a) of ERISA following a denial on review of the claim, as described in Section 10(d) below.

This notice of denial will be given to the applicant within 90 days after the Plan Administrator receives the application, unless special circumstances require an extension of time, in which case, the Plan Administrator has up to an additional 90 days for processing the application. If an extension of time for processing is required, written notice of the extension will be furnished to the applicant before the end of the initial 90 day period.

This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the application.

(c)    Request for a Review. Any person (or that person’s authorized representative) for whom an application for benefits is denied, in whole or in part, may appeal the denial by submitting a request for a review to the Plan Administrator within 60 days after the application is denied. A request for a review shall be in writing and shall be addressed to:

Metacrine, Inc.

Compensation Committee of the Board of Directors or Representative

Attention to: Chief Financial Officer

3985 Sorrento Valley Blvd., Suite C

San Diego, California 92121

A request for review must set forth all of the grounds on which it is based, all facts in support of the request and any other matters that the applicant feels are pertinent. The applicant (or his or her representative) shall have the opportunity to submit (or the Plan Administrator may require the applicant to submit) written comments, documents, records, and other information relating to his or her claim. The applicant (or his or her representative) shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to his or her claim. The review shall take into account all comments, documents, records and other information submitted by the applicant (or his or her representative) relating to the claim,

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without regard to whether such information was submitted or considered in the initial benefit determination.

(d)    Decision on Review. The Plan Administrator will act on each request for review within 60 days after receipt of the request, unless special circumstances require an extension of time (not to exceed an additional 60 days), for processing the request for a review. If an extension for review is required, written notice of the extension will be furnished to the applicant within the initial 60 day period. This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the review. The Plan Administrator will give prompt, written or electronic notice of its decision to the applicant. Any electronic notice will comply with the regulations of the U.S. Department of Labor. In the event that the Plan Administrator confirms the denial of the application for benefits in whole or in part, the notice will set forth, in a manner calculated to be understood by the applicant, the following:

(1)    the specific reason or reasons for the denial;

(2)    references to the specific Plan provisions upon which the denial is based;

(3)    a statement that the applicant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to his or her claim; and

(4)    a statement of the applicant’s right to bring a civil action under Section 502(a) of ERISA.

(e)    Rules and Procedures. The Plan Administrator will establish rules and procedures, consistent with the Plan and with ERISA, as necessary and appropriate in carrying out its responsibilities in reviewing benefit claims. The Plan Administrator may require an applicant who wishes to submit additional information in connection with an appeal from the denial of benefits to do so at the applicant’s own expense.

(f)    Exhaustion of Remedies. No legal action for benefits under the Plan may be brought until the applicant (i) has submitted a written application for benefits in accordance with the procedures described by Section 10(a) above, (ii) has been notified by the Plan Administrator that the application is denied, (iii) has filed a written request for a review of the application in accordance with the appeal procedure described in Section 10(c) above, and (iv) has been notified that the Plan Administrator has denied the appeal. Notwithstanding the foregoing, if the Plan Administrator does not respond to an Eligible Employee’s claim or appeal within the relevant time limits specified in this Section 10, the Eligible Employee may bring legal action for benefits under the Plan pursuant to Section 502(a) of ERISA.

Section 11.    BASIS OF PAYMENTS TO AND FROM PLAN.

The Plan shall be unfunded, and all cash payments under the Plan shall be paid only from the general assets of the Company.

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Section 12.    OTHER PLAN INFORMATION.

(a)    Employer and Plan Identification Numbers. The Employer Identification Number assigned to the Company (which is the “Plan Sponsor” as that term is used in ERISA) by the Internal Revenue Service is 47-2297384. The Plan Number assigned to the Plan by the Plan Sponsor pursuant to the instructions of the Internal Revenue Service is 502.

(b)    Ending Date for Plan’s Fiscal Year. The date of the end of the fiscal year for the purpose of maintaining the Plan’s records is December 31.

(c)    Agent for the Service of Legal Process. The agent for the service of legal process with respect to the Plan is:

Metacrine, Inc.

Attention to: Chief Financial Officer

3985 Sorrento Valley Blvd., Suite C

San Diego, California 92121

In addition, service of legal process may be made upon the Plan Administrator.

(d)    Plan Sponsor. The “Plan Sponsor” is:

Metacrine, Inc.

3985 Sorrento Valley Blvd., Suite C

San Diego, California 92121

(858)369-7800

(e)    Plan Administrator. The Plan Administrator is the Committee prior to the Closing and the Representative upon and following the Closing. The Plan Administrator’s contact information is:

Metacrine, Inc.

Compensation Committee of the Board of Directors or Representative

3985 Sorrento Valley Blvd., Suite C

San Diego, California 92121

The Plan Administrator is the named fiduciary charged with the responsibility for administering the Plan.

Section 13.    STATEMENT OF ERISA RIGHTS.

Participants in this Plan (which is a welfare benefit plan sponsored by Metacrine, Inc.) are entitled to certain rights and protections under ERISA. If you are an Eligible Employee, you are considered a participant in the Plan and, under ERISA, you are entitled to:

(a)    Receive Information About Your Plan and Benefits

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(1)    Examine, without charge, at the Plan Administrator’s office and at other specified locations, such as worksites, all documents governing the Plan and a copy of the latest annual report (Form 5500 Series), if applicable, filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration;

(2)    Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan and copies of the latest annual report (Form 5500 Series), if applicable, and an updated (as necessary) Summary Plan Description. The Administrator may make a reasonable charge for the copies; and

(3)    Receive a summary of the Plan’s annual financial report, if applicable. The Plan Administrator is required by law to furnish each Eligible Employee with a copy of this summary annual report.

(b)    Prudent Actions by Plan Fiduciaries. In addition to creating rights for Plan Eligible Employees, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate the Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Eligible Employees and beneficiaries. No one, including your employer, your union or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a Plan benefit or exercising your rights under ERISA.

(c)    Enforce Your Rights. If your claim for a Plan benefit is denied or ignored, in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of Plan documents or the latest annual report from the Plan, if applicable, and do not receive them within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator.

If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or Federal court.

If you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

(d)    Assistance with Your Questions. If you have any questions about the Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the Division of

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Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.

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APPENDIX A

PARTICIPATION AGREEMENT

METACRINE, INC.

SEVERANCE BENEFIT PLAN

PARTICIPATION AGREEMENT

Name:                                              

Section 1.    ELIGIBILITY.

You have been designated as eligible to participate in the Metacrine, Inc. Severance Benefit Plan (the “Plan”), a copy of which is attached as EXHIBIT A to this Participation Agreement (the “Agreement”). Capitalized terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan. You will receive the benefits set forth below if you meet all the eligibility requirements set forth in the Plan, including, without limitation, executing the required Release within the applicable time period set forth therein and provided that such Release becomes effective in accordance with its terms. Notwithstanding the schedule for provision of benefits as set forth below, the schedule and timing of payment of any benefits under this Agreement is subject to any delay in payment that may be required under Section 5 of the Plan.

Section 2.    CHANGE IN CONTROL SEVERANCE BENEFITS.

If you are terminated in a Covered Termination that occurs during the Change in Control Period, you will receive the severance benefits set forth in this Section 2. All severance benefits described herein are subject to standard deductions and withholdings.

(a)    Base Salary. You shall receive a cash payment equal to your Base Salary (ignoring any decrease that forms the basis for your resignation for Good Reason, if applicable), for [______]¹ months following the date of termination (the “Severance Period”). Upon and following the IPO Date the Severance Period shall be [______]² months following the date of termination. The Base Salary payment will be paid to you in a lump sum cash payment no later than the second payroll cycle following the later of (i) the effective date of the Release or (ii) the Closing, but in any event not later than March 15 of the year following the year in which the Covered Termination occurs.

(b)    Bonus Payment. You will be entitled to the annual target cash bonus established for you, if any, pursuant to the annual performance bonus or annual variable compensation plan established by the Board of Directors or Committee (or any authorized committee or designee thereof) for the year in which the Covered Termination occurs. If at the time of the Covered Termination you are eligible for the annual target cash bonus for the year in which the Covered Termination occurs, but the target percentage (or target dollar amount, if specified as such in the applicable bonus plan) for such bonus has not yet been established for such year, the target percentage shall be the target percentage established for you for the preceding year (but adjusted, if necessary for your position for the year in which the Covered Termination occurs).

¹  12 months for CEO, 9 months for C-Level Executives, and 6 months for VPs

²  18 months for CEO, 12 months for C-Level Executives, and 9 months for VPs

For the avoidance of doubt, the amount of the annual target bonus to which you are entitled under this Section 2(b) will be calculated (1) assuming all articulated performance goals for such bonus (including, but not limited to, corporate and individual performance, if applicable), for the year of the Covered Termination was achieved at target levels; (2) as if you had provided services for the entire year for which the bonus relates; and (3) ignoring any reduction in your Base Salary that would give rise to your right to resignation for Good Reason (such bonus to which you are entitled under this Section 2(b), the “Annual Target Bonus Severance Payment”). The Annual Target Bonus Severance Payment shall be paid in a lump sum cash payment no later than the second payroll cycle following the later of (i) the effective date of the Release or (ii) the Closing, but in any event not later than March 15 of the year following the year in which the Covered Termination occurs.

(c)    Payment of Continued Group Health Plan Benefits. If you timely elect continued group health plan continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) following your Covered Termination date, the Company shall pay directly to the carrier the full amount of your COBRA premiums on behalf of you for your continued coverage under the Company’s group health plans, including coverage for your eligible dependents, until the earliest of (i) the end of the Severance Period following the date of your Covered Termination, (ii) the expiration of your eligibility for the continuation coverage under COBRA, or (iii) the date when you become eligible for substantially equivalent health insurance coverage in connection with new employment (such period from your termination date through the earliest of (i) through (iii), the “COBRA Payment Period”). Upon the conclusion of such period of insurance premium payments made by the Company, you will be responsible for the entire payment of premiums (or payment for the cost of coverage) required under COBRA for the duration of your eligible COBRA coverage period, if any. For purposes of this Section, (1) references to COBRA shall be deemed to refer also to analogous provisions of state law and (2) any applicable insurance premiums that are paid by the Company shall not include any amounts payable by you under an Internal Revenue Code Section 125 health care reimbursement plan, which amounts, if any, are your sole responsibility.

Notwithstanding the foregoing, if at any time the Company determines, in its sole discretion, that it cannot provide the COBRA premium benefits without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), then in lieu of paying COBRA premiums directly to the carrier on your behalf, the Company will instead pay you on the last day of each remaining month of the COBRA Payment Period a fully taxable cash payment equal to the value of your monthly COBRA premium for the first month of COBRA coverage, subject to applicable tax withholding (such amount, the “Special Severance Payment”), such Special Severance Payment to be made without regard to your election of COBRA coverage or payment of COBRA premiums and without regard to your continued eligibility for COBRA coverage during the COBRA Payment Period. Such Special Severance Payment shall end upon expiration of the COBRA Payment Period.

(d)    Equity Acceleration. The vesting and exercisability of each outstanding unvested stock option and other stock award, as applicable, that you hold covering Company common stock (each, an “Equity Award”) shall be accelerated in full and any reacquisition or repurchase rights held by the Company in respect of common stock issued pursuant to any Equity Award granted to you shall lapse in full. For purposes of determining the number of shares that

will vest pursuant to the foregoing provision with respect to any performance based vesting Equity Award for which the performance period has not ended and that has multiple vesting levels depending upon the level of performance, vesting acceleration with respect to any ongoing performance period(s) shall occur with respect to the number of shares subject to the award as if the applicable performance criteria had been attained at a 100% level or, if greater, based on actual performance as of your Covered Termination. If necessary to give effect to this Section 2(d), if your Covered Termination occurs prior to a Change in Control, all of the Equity Awards you hold as of immediately prior to your Covered Termination shall remain outstanding after your Covered Termination for at least until the earlier of (i) 3 months after your Covered Termination or (ii) the Closing, if sooner. Notwithstanding anything to the contrary set forth herein, your Equity Awards shall remain subject to the terms of the applicable Company plan and award documents under which such Equity Award was granted, including any provision for earlier termination of such Equity Awards.

Section 3.     NON-CHANGE IN CONTROL SEVERANCE BENEFITS.

Upon and following the IPO Date, if you are terminated in a Covered Termination that occurs at a time that is not during the Change in Control Period, you will receive the cash payment described in Section 2(a) above and the COBRA benefits described in Section 2(c) above, but the Severance Period for purposes of calculating such benefits shall be [______]³ months following the date of termination. You shall not be eligible to receive any other benefits under the Plan except a described in Section 2(a) and Section 2(c) above. All severance benefits described herein are subject to standard deductions and withholdings.

For the avoidance of doubt, in no event shall you be entitled to benefits under both Section 2 and this Section 3. If you are eligible for severance benefits under both Section 2 and this Section 3, you shall receive the benefits set forth in Section 2 and such benefits shall be reduced by any benefits previously provided to you under Section 3.

Section 4.    ACKNOWLEDGEMENTS.

As a condition to participation in the Plan, you hereby acknowledge each of the following:

(a)    The benefits that may be provided to you under this Agreement are subject to certain reductions and termination under Section 2 and Section 3 of the Plan.

(b)    Your eligibility for and receipt of any severance benefits to which you may become entitled as described in Section 2 or Section 3 above is expressly contingent upon your compliance with the terms and conditions of the Release and the terms and conditions of your [Proprietary Information, Inventions, and Non-Solicitation Agreement] (or similar agreement) with the Company, as may be amended from time to time (the “Proprietary Agreement”). Severance benefits under this Agreement shall immediately cease in the event of your violation of the provisions of the Release or the Proprietary Agreement.

(c)    Except as set forth in Section 2 of the Plan with respect to an Individual Agreement to the extent such Individual Agreement provides more advantageous benefits to you,

³  12 months for CEO, 9 months for C-Level Executives, and 6 months for VPs

this Agreement and the Plan supersede and replace any change in control or severance benefits under any Individual Agreement.

To accept the terms of this Agreement and participate in the Plan, please sign and date this Agreement in the space provided below and return it to _____________________ no later than _________, 2018⁴.

Metacrine, Inc.

By:

Ken Song, M.D.

Chief Executive Officer

Eligible Employee

[Insert Name]

Date:

⁴  Note to draft: This date should be 30 days after the Participation Agreement is delivered to the employee.

EXHIBIT A

SEVERANCE BENEFIT PLAN

EX-10.10

Exhibit 10.10

***Text Omitted and Filed Separately

with the Securities and Exchange Commission.

Confidential Treatment Requested

Under 17 C.F.R. Sections 200.80(c) and Rule 24b-2

AMENDED AND RESTATED EXCLUSIVE FXR LICENSE AGREEMENT

This Amended and Restated Exclusive FXR License Agreement (the “Agreement”) is made and entered into as of November 10, 2016 (the “Effective Date”) by and between The Salk Institute for Biological Studies, San Diego, California, a nonprofit public benefit corporation organized under the laws of the State of California (“Salk”) with an address at 10010 North Torrey Pines Road, San Diego, California 92037 and Metacrine, Inc., a corporation organized under the laws of the State of Delaware (“Licensee”) with an address at 12780 El Camino Real, Suite #301, San Diego, CA 92130, and together with the Amended and Restated Exclusive FGF1 Agreement (the “FGF1 Agreement”); amends and restates in its entirety the EXCLUSIVE PATENT LICENSE AGREEMENT between Salk and Licensee dated January 12, 2015 (the “Original Effective Date”), as amended December 21, 2015 (Salk Reference Number 2016- 0241, the “First Amendment”) (as so amended Salk Reference Number 2015-0002, the “Original License Agreement”), effective as of the Original Effective Date. Salk and Licensee shall be individually referred to herein as “Party” and collectively referred to herein as the “Parties.”

Whereas, Salk is the owner by assignment from the Inventors of certain intellectual property as disclosed to Salk in certain invention disclosures, pertaining to “Analogs of Fexaramine and Methods of Making and Using” (Salk Ref No. RD1361); “FXR Agonists and Methods for Making and Using” (Salk Ref No. RD1382); “Intestinal FXR Agonism Enhances GLP-1 Signaling to Restore Pancreatic Beta Cell Functions” (Salk Ref No. S2015-007) (“Inventions”);, and Technical Information pertaining to such Inventions , all of which were developed by Drs. Ronald Evans and Annette Atkins, employees of the Howard Hughes Medical Institute (“HHMI”) and faculty members at Salk, and Michael Downes, Jae Myoung Suh, Thomas Baiga, and Sungsoon Fang (the “Inventors”);

Whereas, the foregoing Inventions are claimed and described in patents and patent applications listed in Exhibit A, and further defined herein as Licensed Patent Rights;

Whereas, the discovery and development of the Inventions and the Licensed Patent Rights listed in Exhibit A and the Technical Information listed in Exhibit B were sponsored in part by the National Institutes of Health and, as a consequence, Salk is subject to obligations to the Federal Government as set forth in 35 U.S.C. §200 et seq.;

Whereas, Salk desires to have the Licensed Patent Rights and the Technical Information utilized in the public interest;

Whereas, Licensee has represented to Salk, to induce Salk to enter into this Agreement, that Licensee is experienced in the development, production, manufacture, marketing, sale and/or use of products or services similar to those covered by the Licensed Technology and that

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Licensee shall commit itself to a thorough, vigorous and diligent program of exploiting the Licensed Patent Rights and Technical Information so that public utilization results therefrom, as more fully provided in this Agreement;

Whereas, the Parties entered into the Original License Agreement and pursuant to Section 14.3 thereof, now wish to amend and restate the Original License Agreement in its entirety, through this Agreement together with the FGF1 Agreement between the Parties dated as of the Effective Date;

Whereas, pursuant to this Agreement and the FGF1 Agreement, Licensee wishes to retain, and Salk wishes to honor, the licenses granted pursuant to the Original License Agreement to Licensee on the Original Effective Date to the Licensed Patent Rights and Technical Information, and pursuant to this Agreement, to grant a license to the Licensed Patent Rights in and to Salk’s FXR intellectual property listed in Exhibit A and certain Technical Information listed in Exhibit B, in the Field, subject to the terms and conditions hereinafter set forth in this Agreement; and

Now, Therefore, in consideration of the promises and the mutual covenants contained herein, the Parties hereto, intending to be legally bound, agree as follows:

1. DEFINITIONS.

For purposes of this Agreement, the following words and phrases shall have the following meanings. Other capitalized terms shall have the meaning assigned to them in this License Agreement:

1.1      “Affiliate” shall mean any legal entity (including, but not limited to, a corporation, partnership, or limited liability company) that controls, is controlled by or is under common control with Licensee. For the purposes of this definition, the term “control” means (i) beneficial ownership of at least fifty percent (50%) of the voting securities of a corporation or other business organization with voting securities, or (ii) a fifty (50%) or greater interest in the net assets or profits of a partnership or other business organization without voting securities, or (iii) the ability to elect a majority of the members of the board of directors or other managing authority of such entity.

1.2        “Change of Control” shall mean:

(a)         Acquisition or change, in one transaction or series of related transactions, of ownership—directly or indirectly, beneficially or of record—by any person or group (within the meaning of the Exchange Act and the rules of the SEC or equivalent body under a different jurisdiction) of the capital stock or membership or equity interests of the Licensee representing

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more than 50% of either the aggregate ordinary voting power or the aggregate equity value represented by the issued and outstanding capital stock or membership or equity interests of the Licensee, excluding bona fide financing transactions involving the issuance by Licensee of shares of its capital stock prior to November 10, 2016; and/or

(b)      The direct or indirect sale, transfer or other disposition of all or substantially all the Licensee’s assets and/or business to which this Agreement relates, in one transaction or in a series of related transactions; and/or

(c)      The consolidation or merger of Licensee with a third party by operation of law or otherwise.

1.3        “BLA” shall mean a Biologic License Application as defined in the United States Food, Drug and Cosmetic Act, filed with the FDA pursuant to Part 600 of Title 21 of the U.S. Code of Federal Regulations, including any amendments thereto. References herein to BLA shall include, to the extent applicable, all other similar filings (including, without limitation, counterparts of any of the foregoing) in any country or region in the Territory.

1.4        “Claim” is defined in Section 7.1(a).

1.5        “Combination Product” shall mean a product containing at least one Licensed Product sold in a package with at least one additional active ingredient that is not a Licensed Product or a Licensed Product sold in a package with a proprietary delivery system.

1.6        “Commercial Sale” shall mean any transaction, following receipt of all necessary government approvals to market a Licensed Product, that transfers to a purchaser, for value, physical possession of and title to such Licensed Product, after which transfer the seller has no right or power to determine the purchaser’s resale price. Any such transfer of possession and title to an Affiliate or Sublicensee shall not constitute a Commercial Sale unless the Affiliate or Sublicensee is an end user of the Licensed Product.

1.7        “Development Plan” is defined in Section 3.2.

1.8        “Diligence Milestones” is defined in Section 3.1.

1.9        “Distributor” shall mean a third party which purchases Licensed Products(s) from Licensee or one of its Affiliate(s) or Sublicensee(s) for further re-sale, but which does not have a Sublicense to manufacture Licensed Products(s), except to the extent such a Sublicense is necessary for such third party (i) to perform final packaging of Licensed Products(s) (ii) to enable a regulatory filing and/or to conduct a confirmatory clinical trial of a Licensed Products(s) to support a regulatory filing in such third party’s territory after such Licensed Products(s) has been approved in a major market.

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1.10        “FDA” shall mean the United States Food and Drug Administration.

1.11        “Field” shall mean shall mean diagnosis, prevention, and/or treatment of disease in humans.

1.12        “HHMI Indemnitees” is defined in Section 7.1(c).

1.13        “HHMI License” is defined in Section 2.5.

1.14        “Indemnitees” is defined in Section 7.1(a).

1.15        “Initial Regulatory Filing” shall mean any of the following filed with the FDA or any foreign regulatory authority required before initiation of clinical testing in humans. For clarity, this definition will include (a) the filing of an Investigational New Drug Application, as defined in the United States Food, Drug and Cosmetic Act, filed with the FDA pursuant to Part 312 of Title 21 of the U.S. Code of Federal Regulations, (b) the filing of an Abbreviated New Drug Application as defined in the United States Food, Drug and Cosmetic Act, filed with the FDA pursuant to Part 314 of Title 21 of the U.S. Code of Federal Regulations, (c) the filing of a BLA, and (d) any counterparts to any of the foregoing that are required in any other country or region in the Territory before beginning clinical testing in humans in such country or region.

1.16       “Licensed Patent Rights” shall mean

(a)       The United States and foreign patents and/or patent applications listed in

Exhibit A;

(b)       Any applications that claim the benefit of priority of those patents and/or patent applications listed in Exhibit A hereof, including (i) continuations, divisionals, substitutions, reexaminations, reissues, requests for continued examination or renewals, or (ii) continuations-in-part but only the claims thereof that are directed to the subject matter specifically described in any of those patents and/or patent applications listed in Exhibit A (collectively “Continuing Applications”); and

(c)       United States and foreign patents issued from the patent applications listed in Exhibit A and from Continuing Applications.

1.17       “Licensed Patent Products” shall mean any product or part thereof or service which is:

(a)       The manufacture, use, sale, offer for sale or import of which product or part thereof or service is covered in whole or in part by any Valid Claim contained in the

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Licensed Patent Rights in the country in which any such product or part thereof is made, used or sold or in which any such service is used or sold; or

(b)      Manufactured by using a process or is employed to practice a process which is covered in whole or in part by any Valid Claim included in the Licensed Patent Rights in the country in which any such process is used or in which such product or part thereof or service is used or sold.

1.18       “Licensed Other Product” shall mean any Licensed Patent Product which is no longer covered by the Licensed Patent Rights, and any product, process or service that is discovered, developed, made, made for, used, imported, leased, sold or offered for sale by Licensee or its Affiliates or Sublicensees that is not a Licensed Patent Product and involves the use or incorporation of Technical Information.

1.19       “Licensed Product” shall mean Licensed Patent Products and/or Licensed Other Product.

1.20       “Licensed Technology” shall mean Licensed Patent Rights and / or Technical Information.

1.21       “NDA” shall mean a New Drug Application, Marketing Application Authorization or similar application or submission for regulatory approval of a Licensed Product filed with the FDA, or its foreign equivalent thereof, to obtain marketing approval for a pharmaceutical product in the applicable country or group of countries.

1.22       “Net Sales” shall mean all gross revenue invoiced by Licensee, its Affiliates and Sublicensees for the Commercial Sales of Licensed Products to third parties that are not Sublicensees (including without limitation Distributors and wholesalers).

(a)      Net Sales excludes the following items in each case to the extent actually incurred or allowed and not already deducted, credited or otherwise reflected in the amount invoiced (but only as they pertain to the making, using, importing or selling of Licensed Products, are included in gross revenue, and are separately stated on each invoice) (“Qualifying Costs”):

[…***…]

***Confidential Treatment Requested  

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[…***…]

(b)         In no case will the Qualifying Costs exceed the fair market value, attributable to the Commercial Sales. For clarity and regardless of the foregoing, no deductions shall be made for commissions, whether they are with independent sales agencies or regularly employed by Licensee or its Affiliates (or, in the case of Sublicenses, the Sublicensee or its affiliates) and on its payroll, or for cost of collections.

(c)         Upon Salk’s request, but not more than once in any calendar year, Licensee shall provide Salk with all documentation substantiating any deduction set forth above.

(d)         In the event the Licensed Product is sold as part of a Combination Product, the Net Sales from the Combination Product, for the purposes of determining royalty payments, shall be determined by multiplying the Net Sales (as defined above) of the Combination Product, by the fraction, A/(A+B) where A is the average sale price of the Licensed Product when sold separately in finished form and B is the average sale price of the other product(s) or proprietary delivery system sold separately in finished form or where A+B is the average sale price of the Licensed Product and other product(s) and the delivery system together, as the case may be. In the event that such average sale price cannot be determined for both the Licensed Product and such other product(s) or proprietary system in combination, Net Sales for purposes of determining royalty payments shall be the average sale price of the Licensed Product when sold separately in finished form. For clarity, in no event shall the provisions of Sections 3.4(a)(i) and 3.4(b)(i) be applied to Royalties on Net Sales of a Combination Product.

***Confidential Treatment Requested  

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(e)      Net Sales shall not include revenue received by Licensee (or any of its Affiliates) from transactions with an Affiliate or Sublicensee, where the Licensed Product in question will be resold to an independent third-party Distributor, agent or end user by the Affiliate or Sublicensee (such revenue to be included at the time of such later sale or transfer for value of Licensed Products by such Affiliate or Sublicensee to an independent third party Distributor or end user).

(f)      Net Sales shall not include units of Licensed Product disposed of by Licensee for purposes directly related to pre-clinical or clinical studies, regulatory approval or clearance, sampling programs, compassionate use programs and/or charitable donations that are reasonable or customary in the trade, except when the recipient is charged for such Licensed Product.

(g)      For clarity no deductions shall be made for commissions paid to individuals whether they are with independent sales agencies or regularly employed by Licensee or its Affiliates (or, in the case of Sublicenses, the Sublicensee or its Affiliates) and on its payroll, or for cost of collections.

1.23       “New Agreement” is defined in Section 10.3(a)(iv).

1.24       “Patent Challenge” shall mean a challenge to the validity, patentability, enforceability and / or non-infringement of any of the Licensed Patent Rights or otherwise opposing any of the Licensed Patent Rights.

1.25       “Patent Costs” shall mean out-of-pocket expenses incurred by Salk in connection with the preparation, filing, prosecution, maintenance, reexamination matters, and interference proceedings of patent applications and patents, including the fees and expenses of external attorneys and patent agents, filing fees and maintenance fees, but excluding costs associated with any patent infringement actions, to the extent related to the Licensed Patent Rights. For clarity, costs related to patent infringement actions shall be apportioned in accordance with Section 8.7.

1.26       “Post-Term Patent Costs” is defined in Section 8.2(b).

1.27       “Qualifying Costs” is defined in Section 1.22 (a).

1.28       “Required Sublicense Provisions” is defined in Section 2.2(c).

1.29       “Retroactive Price Reductions” shall mean […***…].

1.30       “Royalties” is defined in Section 4.4.

***Confidential Treatment Requested  

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1.31      “Stock Issuance Agreement” is defined in Section 4.1.

1.32      “Sublicense(s)” shall mean any agreement(s) or combination of agreements however captioned and regardless of how the conveyances are referred to therein, in which Licensee: (a) grants or otherwise conveys any of the rights licensed hereunder; (b) agrees not to assert any of the rights licensed hereunder; (c) has obtained agreement not to practice any right licensed hereunder; (d) permits the making, offering for sale using, selling or importing of Licensed Products by a third party; (e) provides a third party development, manufacturing, marketing, distribution or acquisition rights for Licensed Products; and/or (f) grants an option or other future right to obtain any of the foregoing, in each case regardless of how such person or entity is referred to therein. For clarification, (i) to the extent that Licensee, its Affiliates or other Sublicensees do not receive consideration beyond the fair market value of Licensed Products supplied, in no event shall “Sublicense(s)” include agreement(s) with manufacturers, suppliers, or Distributors or the like or other service arrangements entered into for purposes of distribution, supply, and/or manufacturing or similar arrangements of the Licensed Product; and (ii) arrangements entered into for the purposes of funding product development in exchange for development, manufacturing, marketing or distribution rights are Sublicenses.

1.33      “Sublicensee(s)” shall mean each person or entity other than Licensee (or any Affiliate) that is a party to a Sublicense and obtains rights thereunder.

1.34      “Sublicensing Revenue” shall mean any payments and consideration that Licensee or its Affiliates receives from Sublicensee(s) in consideration of a Sublicense, whether paid upon execution of the Sublicense or at any time thereafter, including without limitation license fees, milestone payments, license maintenance fees, any premiums paid on an equity investment (i.e., amounts that exceed market value of equity), and any other payments but excluding Royalties paid to Licensee by Sublicensee based upon Net Sales of Licensed Products by the Sublicensee in an amount equal to the rate set forth in Section 4.4. Sublicensing Revenue will not be subject to apportionment or reduction of any kind for any reason prior to calculation of Salk’s share; however, Licensee may deduct from Sublicensing Revenue the following amounts accompanied by competent documentary evidence:

[…***…]

***Confidential Treatment Requested

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[…***…]

1.35       “Technical Information” shall mean the research and development data, results, technology, and information in a tangible form, including information, practices, techniques, methods, processes, developments, specifications, formulations, formulae, algorithms, test data (including pharmacological, biological, chemical, biochemical, toxicological, preclinical and clinical test data), analytical and quality control data, stability data, including but not limited to target, mechanism of action, or structure-activity relationship information, and includes products that are identified and chemically or biologically modified one or multiple times after screening other study data and procedures whether or not patented, existing as of the Original Effective Date of this Agreement, owned or controlled by Salk, and which are specifically identified in Exhibit B attached.

1.36       “Term” shall have the meaning set forth in Section 10.1 hereof.

1.37       “Territory” shall mean worldwide, except for only the United States and Europe for the Patent Rights in the patent applications listed for case Salk Ref No. S13018, and only the United States for the Patent Rights in the patent applications listed for Salk Ref No. S14005.

1.38       “Valid Claim” shall mean on a country by country basis: (a) a claim of any issued, unexpired patent included in the Licensed Patent Rights that has not been revoked or held unenforceable or invalid by a decision of a court or governmental agency of competent jurisdiction from which no appeal can be taken, or with respect to which an appeal is not taken within the time allowed for appeal, and that has not been disclaimed or admitted to be invalid or unenforceable through reissue, disclaimer or otherwise; or (b) a claim of any pending or published patent application included in Licensed Patent Rights that has not been cancelled, withdrawn or abandoned and that has not been pending for more than ten (10) years from the filing date of the earliest patent application that is within the same patent family as such pending or published application, provided however that the rights granted to Licensee and its Affiliates include rights under all such pending claims in Licensed Patent Rights during such pendency. For purposes of clarification, if a claim in an application has been pending for more than ten (10) years from the earliest such pending or published application within the same such patent family’s priority date, and a patent subsequently issues containing such claim, then upon issuance of the patent, the claim shall thereafter be considered a Valid Claim.

2. GRANT OF RIGHTS.

***Confidential Treatment Requested

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2.1       Subject to the terms and conditions of this Agreement and Licensee’s compliance therewith, but subject always to Licensee’s right to cure under Section 10.2(b)(i), Salk hereby grants to Licensee, to the extent it may lawfully do so, and Licensee hereby accepts:

(a)      an exclusive, non-transferable (except as expressly provided in 14.1), and royalty-bearing license under the Licensed Patent Rights in the Field and the Territory to make, have made, use, have used, offer for sale, sell, import, export and distribute Licensed Products and practice under the Licensed Patent Rights in the Field and the Territory; and

(b)      a non-exclusive, non-transferable (except as expressly provided in 14.1) and royalty-bearing license, in the Field and the Territory to use the Technical Information to research, develop, test, make, have made, use, offer for sale, sell, import, export, distribute and manufacture royalty-bearing Licensed Products.

(c)      Subject to the terms and conditions of this Agreement and Licensee’s compliance with this Agreement, but subject always to Licensee’s right to cure under Section 10.2(b)(i), Licensee shall have the right to grant one or more Sublicenses, through multiple layers, under its rights under Sections 2.1(a) and (b), under the conditions set forth in Section 2.2 (b).

Salk does not grant any other rights or licenses other than those expressly stated above in this Section 2.1.

2.2        Affiliates and Sublicenses.

(a)      Subject to the terms and conditions of this Agreement and Licensee’s compliance with this Agreement, but subject always to Licensee’s right to cure under Section 10.2(b)(i), Licensee may extend the license granted herein to one or more of its Affiliates, provided that each such Affiliate agrees in writing to be bound by this Agreement to the same extent as Licensee. Licensee shall deliver to Salk such Affiliates’ written agreement within […***…] following execution. Licensee agrees to be fully responsible for the performance of its Affiliates hereunder.

(b)      Subject to the terms and conditions of this Agreement and Licensee’s compliance with this Agreement, but subject always to Licensee’s right to cure under Section 10.2(b)(i), Licensee shall have the right to enter into Sublicenses, upon prior written consent of Salk for each Sublicense, which such consent shall not be unreasonably withheld, except that no prior written consent shall be required for any sublicensing arrangement with […***…]

***Confidential Treatment Requested

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[…***…]. Any and all such Sublicense agreements must be in writing, shall be consistent with the terms of this Agreement, and may allow further sublicensing so long as any further Sublicense agreement complies with all requirements for a Sublicense agreement granted by Licensee as set forth in this Section 2.2.

(c)      Licensee agrees that any Sublicense granted by Licensee shall include a royalty rate upon Net Sales in a rate at least equal to the rate set forth in Section 4.4 and shall provide that the rights of and obligations to Salk under Sections 2.3, 2.6, 3, 4, 5, 6, 7, 8, 9, 10, 14.8, and 14.9 of this Agreement, the rights of and obligations to HHMI under Sections 2.5, 6.1(b), 7.1(c), 14.8(b) and 14.12 of this Agreement (collectively, the “Required Sublicense Provisions”), as applicable, shall be binding upon the Sublicensee as if such Sublicensee were the Licensee hereunder with respect to such Required Sublicense Provisions.

(d)      Licensee agrees to forward to Salk a complete and unredacted copy of any and all Sublicenses and each modification or termination thereof written in the English language, within […***…] of the effective date for any Sublicense and/or any modification or termination thereof. Salk’s receipt of the copy of the Sublicense, however, will not constitute an approval of the Sublicense nor a waiver of any right of Salk or obligation of Licensee under this Agreement. Failure to provide such copy will be considered a material breach of this Agreement. Except as set forth in Section 10.3(a)(iv), the rights of any Sublicensee shall terminate upon termination of this Agreement.

(e)      In the event that Licensee experiences or causes any of the default, bankruptcy, or insolvency events described in Sections 10.2(b) or 14.4, all payments due to Licensee from its Affiliates or Sublicensees under the Sublicense will, upon notice from Salk to such Affiliate or Sublicensee, become payable directly to Salk for the account of Licensee.

(f)      Licensee’s execution of a Sublicense will not relieve Licensee of any of its obligations under this Agreement. Licensee is primarily liable to Salk for any act or omission of an Affiliate or Sublicensee that would be a breach of this Agreement, and Licensee will be deemed to be in breach of this Agreement as a result of such act or omission. Licensee is responsible for timely enforcement of Sublicenses and Licensee shall be responsible for any breach of a Sublicense.

2.3       Government Rights. The license granted hereby is subject to the applicable rights of the United States government, if any, as set forth in 35 U.S.C. §200, et seq. Among other things, pursuant to this law, the United States government may have acquired a nonexclusive, nontransferable, paid up license to practice or have practiced, for or on behalf of the United States, the Inventions described in the Licensed Technology and Licensed Products throughout the world. To the extent required pursuant to 35 U.S.C. §200, et seq., Licensed Products

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produced for sale in the United States shall be manufactured substantially in the United States (unless a waiver under 35 U.S.C. §204 is granted by the appropriate United States government agencies, and Salk will assist Licensee in obtaining such a waiver on Licensee’s request). Licensee will ensure all obligations of these provisions are met.

2.4       Access to Technical Information. The Technical Information specifically identified in Exhibit B was selected in Salk’s sole discretion for Licensee to use solely for the purpose permitted in Section 2.1.

2.5       HHMI Rights. Licensee (for itself, its Affiliates and Sublicensees) acknowledges that it has been informed that certain of the Licensed Patent Rights and Technical Information were conceived and developed, at least in part, by employees of HHMI and that Salk has granted, or will grant, HHMI a paid-up, non-exclusive, irrevocable license to use and practice such Licensed Patent Rights and Technical Information for HHMI’s research purposes, but with no right to assign or sublicense (the “HHMI License”). The license granted in this Agreement is explicitly made subject to the HHMI License.

2.6       Research and Educational Use. Salk reserves a royalty-free, non-exclusive right, on behalf of itself and all other non-profit research institutions, to practice and have practiced under the Licensed Patent Rights and to use the Technical Information for research, teaching, and educational purposes. Licensee agrees that, notwithstanding any other provision of this Agreement, it has no right to enforce the Licensed Patent Rights against any such institution. Salk and any such other institution have the right to publish any information included in the Licensed Patent Rights and Technical Information.

2.7       No Additional Rights.

(a)      Nothing in this Agreement shall be construed as a sale of the Licensed Patent Rights or Technical Information, or to confer any rights, titles, or interests upon Licensee, whether, by implication, estoppel or otherwise as to any technology or patent rights of Salk or any other entity other than the rights expressly granted to the Licensed Patent Rights and Technical Information in the Field and Territory, regardless of whether such technology or patent rights shall be dominant or subordinate to any Licensed Patent Rights, and Salk reserves all such rights, titles, and interests.

(b)      For clarity, and not to limit the breadth of Section 2.7(a), no Party is obliged to grant or enter into a license under the Licensed Patent Rights or Technical Information in any other field of use outside the Field, but if the Parties were to agree to do so, this new license grant and rights shall be the subject of a separate agreement and shall require Licensee’s submission of evidence, satisfactory to Salk, demonstrating Licensee’s willingness and ability to

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develop and commercialize in such other field of use. Salk has no obligation to negotiate such agreement.

3. Diligence in Commercialization.

3.1      Commercial Development Obligation. In order to maintain in force the license granted hereunder, Licensee shall use commercially reasonable efforts and diligence to develop Licensed Technology, as promptly as is reasonably and commercially feasible, and thereafter to produce and sell reasonable quantities of Licensed Products in order to bring the Licensed Products to market as soon as practicable. The parties hereto acknowledge and agree that achievement of each of the performance milestones described in Section 3.4 of this Agreement (the “Diligence Milestones”) on or before the dates set forth therein shall be evidence of compliance by Licensee with its commercial development obligations hereunder for the time periods specified in Section 3.4. In the event Salk, at any time, has a reasonable basis to believe that Licensee is not using reasonable efforts and diligence as required hereunder, Salk shall provide Licensee with a written notice that specifies the basis for such belief. Upon such notice, Licensee has […***…] to respond in writing with proof of diligence and/or a plan for cure to Salk’s satisfaction or Salk has the right to terminate the Agreement.

3.2       Development Plan. Licensee will deliver to Salk, prior to the Original Effective Date, a copy of an initial development plan for the Licensed Technology (the “Development Plan”) which shall be incorporated in Exhibit C. The purpose of the Development Plan is (a) to demonstrate Licensee’s capability to bring the Licensed Technology to commercialization, (b) to project the timeline for completing the necessary tasks, and (c) to measure Licensee’s progress against the projections, and (d) to form the basis for the Diligence Milestones. The Development Plan will include, at a minimum, information describing how, and when, the Diligence Milestones will be achieved for each Licensed Technology.

3.3       Progress Reports.

(a)      Licensee will provide to Salk on or before […***…] a written report of its progress with respect to the research, development and commercialization of Licensed Technology (the “Progress Report”). Each Progress Report will describe, where relevant, Licensee’s progress toward commercialization of Licensed Technology, including work completed, key scientific discoveries, summary of work-in-progress, current schedule of anticipated events or milestones, market plans for introduction of Licensed Products, and significant corporate transactions involving Licensed Technology, Licensed Patent Rights, or Technical Information. Each Progress Report must include, at a minimum:

(i)      Date of Progress Report and time covered by such report.

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(ii)      Major research and commercialization activities completed by Licensee, its Affiliates or its Sublicensees since the most recent Progress Report.

(iii)      Significant research and development projects currently being performed by Licensee, its Affiliates or its Sublicensees at the time Progress Report is submitted, and projected date of completion.

(iv)      Significant development activities to be undertaken by Licensee, its Affiliates or its Sublicensees during the next calendar year.

(v)      Significant changes to previous Progress Reports submitted to Salk, including the reasons for the changes and future variables that may cause additional changes.

(b)      Repeated failure to achieve objectives in the Development Plan may be treated as a material breach of this Agreement and a cause for termination in accordance with Section 10.2.

3.4       Diligence Milestones.

(a)      Licensee will use commercially reasonable efforts to achieve each of the Diligence Milestones in this Section 3.4 by the applicable completion date listed in the table below for the applicable Licensed Technology.

    (i)       (ii)       (iii)       (iv)       (v) […***…];   […***…];   […***…];   […***…]; and   […***…].

(b)    The Parties understand that the development timeline and the commercialization of Licensed Products will depend on a variety of factors, some of which may

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be difficult to predict due to unforeseen problems. If there is a change in regulatory guidelines, opinions or standards, if a new standard of care is introduced during the development which affects the development strategy for a product, or if there are unexpected findings (safety or efficacy) in either clinical studies, pre-clinical studies or chemistry, manufacturing, and controls (CMC) development that delays clinical development of Licensed Product or that requires a clinical study to be repeated by Licensee or its Sublicensee which affects ability to achieve the milestones set forth above, the parties agree that Licensee may extend the deadline for any Diligence Milestone, and all subsequent Diligence Milestones, up to […***…], upon the payment of […***…], provided that such notice is given to Salk within […***…] prior to the then-current Diligence Milestone date. Licensee may further extend the target date of any Diligence Milestone (together with all subsequent Diligence Milestone) for up to […***…] upon payment of […***…]. If Licensee does not achieve the Diligence Milestones by the extended date, Salk shall have the right to terminate this Agreement in accordance with Section 10.2(b)(i).

3.5      U.S. Manufacture. If and to the extent required by applicable United States laws and regulations, Licensee agrees that Licensed Products will be manufactured in the United States or its territories, subject to such waivers as may be required by or obtained from the United States Department of Health and Human Services or any successor agency or designee.

3.6      Foreign Registration. Licensee agrees to register this Agreement with any foreign governmental agency that requires such registration, and Licensee shall pay all costs and legal fees in connection therewith. In addition, Licensee shall assure that all foreign laws affecting this Agreement or the sale of Licensed Products are fully satisfied.

4.         LICENSE CONSIDERATION. In consideration of the rights, privileges and license granted by Salk hereunder, Licensee shall pay royalties and other monetary consideration as set forth in this Section 4.

4.1      Equity Issuance. On or about the Original Effective Date, Licensee issued Three Hundred Thirteen Thousand Four Hundred Eighty (313,480) shares of Common Stock of Licensee (“Common Stock”), under the Original Agreement, which was equal to […***…] of the outstanding shares of Licensee as of the Original Effective Date on a Fully Diluted Basis(as defined below). […***…] shares of such Common Stock issued under the Original Agreement, which is equal to […***…of the outstanding shares of Licensee as of the Original Effective Date on a

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Fully Diluted Basis (the “FXR Shares”) is partial consideration for the rights granted to Licensee under Section 2.1 of this Agreement and is nonrefundable and noncreditable against Royalties, pursuant to the terms of the Stock Issuance Agreement attached hereto as Exhibit E (the “Prior Stock Issuance Agreement”). Licensee further agrees that in connection with each sale of Equity Securities (as defined below), whether in one transaction or a series of transactions, which occurs after the Original Effective Date until Licensee receives aggregate gross proceeds from the sale of Equity Securities of […***…] (the “Funding Threshold”), and subject to the terms of a new Stock Issuance Agreement in the form attached hereto as Exhibit F (the “New Stock Issuance Agreement”), Licensee shall issue to Salk such additional number of shares of Common Stock as necessary so that the FXR Shares together with the additional shares issued pursuant to the New Stock Issuance Agreement shall be equal to […***…] (the “Agreed Percentage”) of all outstanding shares of Licensee on a Fully Diluted Basis (as defined below) as of the date of each such issuance of Equity Securities until Licensee has received total gross proceeds from sales of Equity Securities in an amount equal to the Funding Threshold. If Licensee issues debt or other securities (other than Equity Securities) convertible into Equity Securities, then the Equity Securities shall be deemed sold, and payment received for issuance of such Equity Securities, when such Equity Securities are issued upon conversion of such debt or other securities. For clarification, if the gross proceeds from the Company’s sale of Equity Securities exceed the Funding Threshold, the shares issuable hereunder shall be issued only with respect to the first […***…] of Equity Securities issued by the Company. The term “Equity Securities” shall mean any equity securities of Licensee, including, without limitation, equity securities of Licensee issued upon conversion of convertible debt of Licensee. The term “Fully Diluted Basis” shall mean (i) all of the issued and outstanding shares of Common Stock, preferred stock (calculated on an as-converted to Common Stock basis) and other capital stock or equity security of Licensee (calculated on an as-converted to Common Stock basis); (ii) any security convertible, with or without consideration, into any Common Stock, preferred stock or other equity security of Licensee; (iii) any security carrying any warrant or right to subscribe to or purchase any Common Stock, preferred stock or other equity security of Licensee; and (iv) any issued and outstanding options and warrants to purchase Common Stock, preferred stock or other equity security of Licensee (calculated on an as-exercised, as converted to Common Stock basis).

4.2       Annual Maintenance Fees.

(a)      Licensee will pay to Salk a non-refundable and non-creditable annual maintenance fees commencing on […***…] and annually thereafter until the first Commercial Sales occur, as follows:

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(i) Years 1-5: […***…];

and

(ii) Year 6 and each anniversary thereafter: […***…].

(b)    The annual maintenance fee for any such year will be paid to Salk no later than […***…] of the calendar year (with the first such payment to be made not later than […***…]) and shall not be prorated.

4.3       Milestone Payments.

(a)    Licensee will pay to Salk, non-refundable and non-creditable milestone payments for the […***…] Licensed Product, upon the first occurrence of each of the following, whether achieved by Licensee, or any of its Affiliates or any Sublicensee:

(i)      […***…];

(ii)     […***…];

(iii)    […***…];

(iv)    […***…]; and

(v)     […***…].

(b)    Licensee will pay to Salk, non-refundable and non-creditable milestone payments for each of the […***…] and […***…] Licensed Products, for each indication, upon the first occurrence of each of the following, whether achieved by Licensee, or any of its Affiliates or any Sublicensee:

(i)     […***…];

(ii)    […***…];

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(iii)    […***…];

(iv)    […***…]; and

(v)     […***…].

(c)    For clarity, no milestone payments shall be due under this Section 4.3 with respect to any Licensed Products other than the […***…] Licensed Products as provided above. The aggregate total milestone payments payable under Section 4.3(a) shall not exceed $[…***…] and under Section 4.3(b) shall not exceed $[…***…]. The aggregate total milestone payments payable under Section 4.3(a) and (b) shall not exceed $6.5 million. In the event that a milestone payment is received by Licensee from a Sublicensee for attaining any of the milestones listed above, Licensee shall pay to Salk an amount equal to the milestone that was achieved and the remainder of the payment from a Sublicensee will be deemed Sublicense Revenue and subject to the provisions in Section 4.5. For example, if a Sublicensee pays Licensee a milestone payment of […***…] Dollars for the milestone in 4.3(a)(i), Licensee will owe Salk […***…] Dollars for the achievement of the milestone plus, if the Sublicense is granted after the Initial Regulatory Filing as described in Section 4.5(b), an additional […***…] Dollars in Sublicense Revenue, which is equal to […***…] of the remaining […***…] Dollars paid by Sublicensee to Licensee.

(d)    Licensee shall notify Salk of the occurrence of each milestone event above whether achieved by Licensee, Affiliate, or any Sublicensee, and shall make such milestone payments within […***…] after the occurrence of each such milestone event. In the event that any milestone is not achieved for an applicable Licensed Product, and a subsequent milestone is then achieved for such Licensed Product, then all previous milestones that were not paid shall be due at such time as the subsequent milestone is achieved.

4.4    Royalty Payments. Licensee shall pay to Salk, during the Term of this Agreement and in accordance with Section 9.2, on a country-by-country and Licensed Product- by-Licensed Product basis a royalty on Net Sales (“Royalties”), whether achieved by Licensee, or any of its Affiliates or any Sublicensee, as follows:

(a)    […***…]; and

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(b)    […***…].

(c)    If Licensee, in its reasonable judgment, elects to enter into a license or similar agreement with one or more third parties, and pay royalties in order to avoid infringement of third party patent rights in one or more countries by the manufacture, use or sale of a Licensed Product, and Licensee actually pays royalties to those third parties, then Licensee shall have the right to credit […***…] of such third party royalty payments against the earned Royalties owing to Salk under this Section 4.4 with respect to sales of Licensed Product in such country; provided that in no event shall the effective Royalty rate on Net Sales for Licensed Patent Products payable to Salk in any quarterly period be less than […***…], and that in no event shall the effective Royalty rate on Net Sales for Licensed Other Products payable to Salk in any quarterly period be less than […***…] as a result of this Section 4.4(c).

(d)    If the manufacture, use, sale, offer for sale or import of a Licensed Product is not covered by a Valid Claim in a particular country, then the royalties payable with respect to such Licensed Product in such country during the Term shall be adjusted by multiplying the royalties payable with respect to such country calculated in accordance with Section 4.4(a) and 4.4(b) by […***…].

(e)    Upon expiration of the Term for a Licensed Product in a given country, the license granted to Licensee with respect to such Licensed Product in such country shall become a perpetual, fully paid license in such country, and Net Sales shall thereafter exclude sales of such Licensed Product in such country, unless sooner terminated as provided in this Agreement.

4.5    Sublicensing Revenue. Licensee shall pay to Salk, in accordance with Section 9.2, a portion of all Sublicensing Revenue received by Licensee during the Term of this Agreement, as follows:

(a)    […***…] of such Sublicensing Revenue received in respect of any Sublicense granted prior to an Initial Regulatory Filing for the Licensed Product that is sublicensed; or

(b)    […***…] of such Sublicensing Revenue received in respect of any Sublicense granted after an Initial Regulatory Filing for the Licensed Product that is sublicensed; provided, however, that Sublicensing Revenue that is in the form of milestone payments shall be subject to the provisions of Section 4.3, as applicable.

4.6    Minimum Annual Royalty. Beginning with the first Commercial Sale of each Licensed Product (whether such Commercial Sale is by Licensee, or any of its Affiliates or

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Sublicensees), Licensee shall pay to Salk a minimum Royalty with respect to such Licensed Product, per calendar year during the Term, as follows:

(a)    […***…]; and

(b)    […***…].

The minimum Royalty for any calendar year will be paid to Salk (less credit for the earned Royalties previously paid by Licensee on Net Sales made in such calendar year) no later than […***…] of the subsequent calendar year and will be provided with the financial report described in Section 9.2. For the calendar year in which the first Commercial Sale occurs, the minimum royalty shall be prorated to reflect the remaining time period left in such calendar year.

4.7    Change of Control Fee. In the event of Licensee Change of Control, Licensee will pay to Salk […***…] of any payments and consideration that Licensee receives in consideration of the Change of Control, whether paid upon execution of the Change of Control or at any time thereafter. Payments to Salk shall be made within […***…] days upon receipt of payment by Licensee. For the avoidance of doubt, any Change of Control payment is separate and distinct from Salk’s rights and consideration as a holder of Common Stock as provided in Section 4.1 of this Agreement. For clarity any sale, transfer or other disposition to a single person or group of all the Licensee’s assets and/or business that relate to both this Agreement and the FGF Agreement shall not be subject to the Change of Control Fee in accordance with this Section 4.7.

5.        OWNERSHIP OF INTELLECTUAL PROPERTY. Licensee (for itself, its Affiliates and Sublicensees) acknowledges and agrees that Salk is and shall remain (as to Licensee) the sole owner(s) of the Licensed Technology, subject to Salk’s obligations to HHMI and further subject to the rights of the Federal Government as set forth in 35 U.S.C. §200 et seq., and that Licensee (including its Affiliates and Sublicensees) has no rights in or to the Licensed Technology other than the rights specifically granted herein.

6. DISCLAIMERS.

6.1    Limited Warranty. Salk represents that, as of the Effective Date, (a) it has the lawful right to grant the licenses set forth in Section 2.1 to Licensee; (b) the Inventors listed in the recitals have assigned their entire right, title and interest in the Inventions claimed by the Licensed Patent Rights to Salk either directly or via assignment through HHMI, as

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applicable; and (c) to the best of Salk’s Office of Technology Development’s knowledge it has not granted any rights to any third party inconsistent with the rights granted to Licensee hereunder.

6.2         Except as expressly set forth in this Agreement, and without limiting the generality of Section 6.3, nothing herein shall be construed as, and Salk does not:

(a)         warrant or represent as to the validity, enforceability or scope of any Licensed Patent Rights;

(b)         warrant or represent that using, making, selling, importing or otherwise disposing of any product or performing any process pursuant to any rights granted in this Agreement is or will be free from infringement, directly or indirectly, of any patent, copyright or other right of any third party under the laws of the United States or any other jurisdiction;

(c)         warrant or represent that the exploitation of the Licensed Technology will be successful; or

(d)         grant by implication, estoppel or otherwise any licenses under any patent application, patent, material or any other right of Salk other person other than as provided in Section 2 hereof.

6.3         No Warranty.    EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, SALK PROVIDES LICENSEE THE RIGHTS GRANTED IN THIS AGREEMENT “AS IS” AND “WITH ALL FAULTS”AND SALK MAKES NO REPRESENTATION AND EXTENDS NO WARRANTY OF ANY KIND, EITHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING, BUT NOT LIMITED TO, WARRANTIES AS TO TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR ARISING OUT OF ANY COURSE OF DEALING.

6.4         Disclaimer of Liability.    IN NO EVENT SHALL SALK BE LIABLE TO LICENSEE, ITS AFFILIATES OR SUBLICENSEES, OR ANY THIRD PARTY, FOR ANY CONSEQUENTIAL, INDIRECT, PUNITIVE, EXEMPLARY, SPECIAL OR INCIDENTAL DAMAGES, INCLUDING ANY LOST PROFITS OR LOSS OF DATA, ATTORNEYS’ AND EXPERTS’ FEES, AND COURT COSTS (EVEN IF SALK HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, FEES OR COSTS), ARISING FROM OR RELATING TO THIS AGREEMENT OR THE LICENSED PATENT RIGHTS, TECHNICAL INFORMATION, OR THE LICENSED TECHNOLOGY, INCLUDING THE MANUFACTURE, USE OR SALE OF THE PRODUCT(S) AND SERVICE(S) LICENSED UNDER THIS AGREEMENT. LICENSEE ASSUMES ALL RESPONSIBILITY AND LIABILITY    FOR    LOSS    OR DAMAGE    CAUSED    BY A PRODUCT THAT IS

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MANUFACTURED, USED OR SOLD BY LICENSEE WHICH IS A LICENSED PRODUCT HEREUNDER. SALK’S TOTAL CUMULATIVE LIABILITY IN CONNECTION WITH THIS AGREEMENT AND THE LICENSED TECHNOLOGY, WHETHER IN CONTRACT OR TORT OR OTHERWISE, WILL NOT EXCEED THE AMOUNT OF FEES PAID TO SALK UNDER THIS AGREEMENT WITHIN THE TWELVE MONTHS PRECEDING THE CLAIM.

7. INDEMNIFICATION AND INSURANCE.

7.1         Salk Indemnification.

(a)         Subject to the provisions in this Section 7.1(a), Licensee will indemnify, defend (by counsel acceptable to the party being indemnified) and hold harmless Salk, its trustees, officers, employees and agents, and the sponsors of the research (that are not Licensee, its Affiliates, or Sublicensees) that led to the Licensed Patent Rights and Technical Information and the Inventors of the Licensed Patent Rights (other than HHMI Indemnitees as defined in Section 7.1(b)) (hereinafter the “Indemnitees”) from and against any liability, cost, expense, damage, deficiency, loss, or obligation, of any kind or nature (including, without limitation, reasonable attorney’s fees and other costs and expenses of defense) based upon, arising out of, or otherwise relating to any claims, suits, demands, judgments or causes of action brought by any third party (collectively, “Claims”) directly or indirectly based upon, arising out of or otherwise relating to this Agreement or any activities of Licensee, its Affiliates, its Sublicensees, or their respective agents or representatives, concerning the Licensed Patent Rights, Technical Information, Licensed Technology, or Licensed Products, including, but not limited to, (i) the research, development, manufacture, storage, offering for sale, sale or other distribution, or any other use of Licensed Patent Rights, Technical Information, Licensed Technology, or Licensed Products, or exercise of rights granted hereunder, by Licensee, its Affiliates, its Sublicensees, or their respective Distributors, agents or representatives; (ii) the use by end-users and other third parties of Licensed Products, Licensed Patent Rights, Technical Information, or Licensed Technology distributed by Licensee, its Affiliates, its Sublicensees, or their respective Distributors, agents or representatives, including but not limited to any cause of action relating to product liability; (iii) infringement or alleged infringement of a third party’s intellectual property by the research, development, manufacture, storage, offering for sale, sale or other distribution, or any other use, of the Licensed Patent Rights, Technical Information, Licensed Technology, or Licensed Products by Licensee, its Affiliates, its Sublicensees, or their respective Distributors, agents or representatives, (iv) any representation, warranty or statement by Licensee or its Affiliates, Sublicensees, or their respective Distributors, agents or representatives, concerning the Indemnitees, Licensed Patent Rights, Technical Information, Licensed Technology or Licensed Products, or (v) clinical trials or studies conducted by or on behalf of Licensee, its Affiliates, Sublicensees, assignees or vendors or associated third parties relating to

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the Licensed Patent Rights, Technical Information, Licensed Technology or Licensed Products, such as Claims by or on behalf of a human subject of any such trial or study; except to the extent that any such Claim is determined with finality by a court of competent jurisdiction to result solely from the gross negligence or willful misconduct of an Indemnitee.

(b)         In the event any Claim against an Indemnitee arises, the Indemnitee that intends to claim indemnification under this Section 7.1(a) shall: (i) promptly notify Licensee in writing of any Claim to which the Indemnitee intends to claim such indemnification, (ii) give Licensee sole control of the defense thereof, at Licensee’s sole expense, with counsel reasonably acceptable to Salk and (iii) provide Licensee with reasonable assistance and information with respect to such Claim, at Licensee’s sole expense. Notwithstanding the foregoing, any delay or failure to provide prompt notice to Licensee of any Claim shall not affect the rights of the Indemnitee unless, and then only to the extent that, such delay or failure is prejudicial to the Licensee. Salk will have the right to participate in the defense of any Claim with its own counsel and at its own expense. No settlement, consent judgment or other voluntary final disposition of any Claim may be entered into without the prior written consent of Salk, which consent shall not be unreasonably withheld. Licensee has no obligation to indemnify any Indemnitee in connection with any settlement made without Licensee’s written consent. Notwithstanding any other provision of this Agreement, Licensee’s obligation to defend, indemnify and hold harmless the Indemnitees under this paragraph will not be subject to any limitation or exclusion of liability or damages or otherwise limited in any way.

(c)         HHMI Indemnification.    HHMI and its trustees, officers, employees and agents (the “HHMI Indemnitees”) will be indemnified, defended by counsel reasonably acceptable to HHMI, and held harmless by Licensee from and against any claim, liability, cost, expense, damage, deficiency, loss or obligation, of any kind or nature (including, without limitation, reasonable attorney’s fees and other costs and expenses of defense) (collectively, “HHMI Claims”), based upon, arising out of or otherwise relating to this Agreement or any Sublicense(s), including, without limitation, any cause of action relating to product liability. The previous sentence will not apply to any HHMI Claim that is determined with finality by a court of competent jurisdiction to result solely from the gross negligence or willful misconduct of an HHMI Indemnitee. Notwithstanding any other provision of this Agreement, Licensee’s obligation to defend, indemnify and hold harmless the HHMI Indemnitees under this paragraph will not be subject to any limitation or exclusion of liability or damages or otherwise limited in any way. For clarity, acts conducted under the HHMI License are not subject to indemnification under this Section 7.1(b).

7.2         Insurance.

(a)         Licensee shall maintain, and shall require its Affiliates and Sublicensees to maintain, continuously and without interruption during the Term (as defined in Section 10.1),

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comprehensive general liability insurance, including products liability insurance, with reputable and financially secure insurance carriers with ratings of at least A-as rated by A.M. Best to cover the activities of Licensee, its Affiliates and its Sublicensees. Such insurance shall be written to cover claims incurred, discovered, manifested or made during or after the expiration of this Agreement. Alternatively, Licensee, its Affiliates and its Sublicensee may be entitled to self-insure in satisfaction of all or part of the insurance requirements of this Section 7.2 on commercially reasonable terms, which must be pre-approved by Salk in writing; however, no pre-approval by Salk shall be required for self-insurance by any entity with cash assets of at least […***…]. Such insurance shall have a minimum limit of […***…] per specific occurrence and a minimum limit of […***…] for aggregate liability insurance. In addition, not less than […***…] before the earlier date upon which Licensee or its Affiliates or Sublicensees (i) […***…], or (ii) […***…], Licensee shall maintain and shall require its Affiliates and Sublicensees to maintain, continuously and without interruption during the remainder of the Term products liability insurance, in each case subject to the requirements specified above, with a minimum limit of […***…] for aggregate liability insurance. All insurance required hereunder shall be primary coverage.

(b)         Licensee, on behalf of itself and its insurance carriers, waives any and all rights of subrogation against Salk and HHMI. Licensee shall be responsible for obtaining such waiver of subrogation from its insurance carriers.

(c)         Licensee shall name Salk and HHMI as “additional insureds” on any commercial general liability and product liability insurance policies maintained by Licensee, its Affiliates and Sublicensees in accordance with Section 7.2(a).

(d)         Within […***…] calendar days of the Effective Date of this Agreement, Licensee shall furnish a Certificate of Insurance evidencing primary coverage and additional insured requirements and provide Salk with copies of subsequent annual Certificates of Insurance. Licensee shall provide Salk with written notice at least fifteen (15) calendar days prior to the cancellation, non-renewal or material change in such insurance; if Licensee does not obtain replacement insurance providing comparable coverage within such fifteen (15) day period, Salk shall have the right to terminate this Agreement effective at the end of such fifteen (15) day period without notice or any additional waiting periods. It is the intention of the Parties hereto that Licensee shall, throughout the term of this Agreement, continuously and without interruption, maintain in force the required insurance coverages set forth in this Section.    Failure

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of Licensee to comply with this requirement shall be considered a material breach of the Agreement.

(e)         Licensee shall maintain insurance as required by this Section 7.2 beyond the expiration or termination of this Agreement during any period that any Licensed Technology, process or service relating to, or developed pursuant to, this Agreement is being commercially distributed or sold by Licensee or a Sublicensee, Affiliate, Distributor, or agent of Licensee, and thereafter for a period of […***…] years. The minimum amounts of insurance coverage required hereunder shall not be construed to create a limit of Licensee’s liability with respect to its indemnification under this Agreement. Failure of Licensee to comply with the requirements of this Section 7.2 shall be considered a material breach of the Agreement.

8. PROSECUTION AND MAINTENANCE OF LICENSED PATENT RIGHTS.

8.1         Prosecution and Maintenance

(a)         Salk has applied or shall apply for, shall seek prompt issuance of, and shall maintain during the Term the Licensed Patent Rights in the United States and in such foreign countries as may be designated by Licensee in a written notice to Salk within a reasonable time in advance of the required foreign filing dates. Licensee shall have the opportunity to advise and cooperate with Salk in the prosecution, filing and maintenance of such patents. Notwithstanding Licensee’s obligations of payment of Patent Costs in Section 8.2 hereof, Salk shall select all outside counsel for prosecution of the Licensed Patent Rights and such counsel shall represent Salk in such prosecution. Salk shall instruct the patent attorneys prosecuting any of the Licensed Patent Rights to: (i) provide Licensee or its patent counsel with copies of all documentation and correspondence sent to, filed with, or to be sent to or filed with, patent offices in any and all countries, (ii) provide Licensee or its patent counsel with a reasonable opportunity to review and comment upon all filings with such patent offices, (iii) give good faith consideration to Licensee’s or its patent counsel’s comments prior to submitting such responses to such patent offices and (iv) incorporate in any such filings any comments provided by Licensee or its patent counsel with respect to any such filings prior to their submission to such patent offices if and to the extent that such comments do not narrow the scope of the claims in the Licensed Patent Rights. In the event of any disagreement between Licensee and Salk with respect to prosecution and maintenance matters, Salk shall have full control over prosecution and maintenance of the patent applications and patents contained in the Licensed Patent Rights.

(b)         Licensee shall immediately notify Salk of a change in its entity status under 37 C.F.R. Section 1.27. Licensee acknowledges that Licensee’s entity status may change due to a change in the number of its employees or if any rights under Licensed Patent Rights have been transferred to or released from an Affiliate or Sublicensee.

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(c)         Salk, at Licensee’s request and expense, shall apply for an extension of the term of any patent in the Licensed Patent Rights under the U.S. Drug Price Competition and Patent Term Restoration Act.

8.2         Patent Costs.

(a)         All Patent Costs incurred after the Effective Date shall be paid by Licensee within […***…] days after receipt of Salk’s invoice therefor providing a reasonably detailed description of the Patent Costs. Additionally, Licensee shall be liable to Salk for all of Salk’s Patent Costs associated with actions that will be taken by patent counsel after the Term of this Agreement but in response to any instructions that were sent during the Term of this Agreement from Salk to patent counsel relating to the Licensed Patent Rights, to the extent such instructions were requested by Licensee in response to a specific office action or notice from a patent office and are fully implemented within […***…] days after the end of the Term (the “Post-Term Patent Costs”).

(b)         Within […***…] days after receiving an invoice from Salk, Licensee will reimburse Salk for all Patent Costs related to Licensed Patent Rights. Payments pursuant to this Section 8.2 are not creditable against any other amounts due under this agreement. Pursuant to Section 9.5, late payments shall be subject to an additional charge. The payment of such late charges shall not prevent Salk from exercising any other rights it may have as a consequence of the lateness of any payment. Failure to pay within […***…] days will be considered a material breach of this Agreement.

(c)         Licensee may elect to surrender any Licensed Patent Rights in any country by providing to Salk written notice of such intent at least […***…] days prior to such surrender. Such notice shall be provided as set forth in Section 13. Such notice shall not relieve Licensee from responsibility to reimburse Salk for Patent Costs incurred prior to the expiration of the […***…] day notice period (or such longer period specified in Licensee’s notice). In the event Licensee elects to surrender any Licensed Patent Rights in a country, such patent application or patent shall, following such surrender, be excluded from the definition of the Licensed Patent Rights and from the scope of the license granted under this Agreement, and all rights relating thereto shall revert to Salk and may be freely licensed by Salk.

8.3         Infringement of Licensed Patent Rights.    Each Party will promptly notify the other if it believes a third party infringes any of the Licensed Patent Rights or if a third party files a declaratory judgment action with respect to any Licensed Patent Rights. During the Term of this Agreement and if Licensee is diligently developing Licensed Technology, Licensee may have the right to institute a suit against or defend any declaratory judgment action initiated by this third party as provided in Section 8.4 through and including Section 8.6.

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8.4         Licensee Suit.

(a)         So long as Licensee remains the exclusive Licensee of the Licensed Patent Rights in the Field in the Territory, Licensee, to the extent permitted by law, shall have the right, under its own control and at its own expense, to prosecute any third party infringement of the Licensed Patent Rights in the Field in the Territory, subject to Section 8.5 below. If required by law, Salk shall permit any action under this Section 8.4 to be brought in its name, including being joined as a party-plaintiff, provided that Licensee shall hold Salk harmless from, and indemnify Salk against, any costs, expenses, or liability that Salk incurs in connection with such action.

(b)         Prior to commencing any such action, Licensee shall consult with Salk and shall consider the views of Salk regarding the advisability of the proposed action and its effect on the public interest. Licensee shall not enter into any settlement, consent judgment, or other voluntary final disposition of any infringement action under this Section without the prior written consent of Salk. Licensee’s selection of counsel (to represent Licensee and Salk in such an action) shall be subject to Salk’s approval, which shall not be unreasonably withheld.

8.5         Salk Suit.    In the event that Licensee is unsuccessful in persuading the alleged infringer to desist or fails to have initiated an infringement action within a reasonable time after Licensee first becomes aware of the basis for such action, Salk shall have the right, at its sole discretion, to prosecute such infringement under its sole control and at its sole expense, and any recovery obtained shall belong to Salk.

8.6         Declaratory Judgment Actions.    In the event that a Patent Challenge is brought against Salk or Licensee by a third party, Salk, at its option, shall have the right within […***…] days after commencement of such action to take over the sole defense of the action at its own expense. If Salk does not exercise this right, Licensee may take over the sole defense of the action at Licensee’s sole expense, subject to Sections 8.7.

8.7         Recovery.    Any recovery obtained in an action brought by Licensee under Sections 8.4 and 8.6 shall be distributed, in the order specified, as follows:

(a)         each Party shall be reimbursed for any expenses incurred in the action;

(b)         any payment for past sales will be deemed Net Sales, and Licensee will pay Salk Royalties as specified in Section 4.4;

(c)         any payment for future sales will be deemed a payment under a Sublicense, and Licensee will pay Salk Sublicense Revenue as specified in Section 4.5;

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(d)         as to special or punitive damages, the Parties shall share equally in any award; and

(e)         Licensee and Salk will negotiate in good faith appropriate compensation to Salk for any non-cash settlement or non-cash cross-license.

8.8         Abandonment of Suit.    If either Salk or Licensee commences a suit and then wants to abandon the suit, it will give timely notice to the other Party. The other Party may continue prosecution of the suit after Salk and Licensee agree on the sharing of expenses and any recovery in the suit.

8.9         Marking.    Licensee agrees to mark, and to require all Affiliates and Sublicensees to mark, any Licensed Products (or their containers or labels) made, sold or otherwise distributed by it or them with any notice of patent rights necessary or desirable under applicable law (Including the numbers of issued U.S. patents included in the Licensed Patent Rights) to enable the Licensed Patent Rights to be enforced to their full extent in any country where Licensed Products are made, used, sold or offered for sale.

8.10         Patent Challenge by Licensee.    If Licensee or any of its Affiliates brings a Patent Challenge against Salk, or assists others in bringing a Patent Challenge against Salk (except as required under court order or subpoena), then Salk may immediately terminate this Agreement. Alternatively, if Salk does not choose to exercise its rights to terminate this Agreement pursuant to this Section 8.10 then the Royalties and any Sublicense Revenue percentages set forth in Section 4 above shall automatically double in value, to include all royalty minimums and floors, for the remainder of the Term. In the event that such a Patent Challenge is successful, Licensee will have no right to recoup any Royalties paid during the period of the Patent Challenge. In the event that a Patent Challenge is unsuccessful, Licensee shall reimburse Salk for all fees and costs incurred in its defense against the Patent Challenge. During the pendency of the Patent Challenge, Licensee shall continue to pay to Salk all Royalties and other financial obligations required under this Agreement, including Patent Costs. The effective date of such increase in Royalty and Sublicense Revenue percentages shall be the date of the first Patent Challenge.

8.11         Patent Challenge by Sublicensee.    If a Sublicensee brings a Patent Challenge or assists another party in bringing a Patent Challenge (except as required under a court order or subpoena), then Salk may send a written demand to Licensee to terminate such Sublicense. If Licensee fails to so terminate such Sublicense within […***…] days after Salk’s demand, Salk may immediately terminate this Agreement.

9. REPORTING, VERIFICATION AND PAYMENT.

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9.1         Books and Records.    Licensee agrees to keep, and shall cause its Affiliates and Sublicensees to keep, complete and accurate records of scientific research and any amounts payable to Salk in relation to this Agreement. Such financial records shall be kept in accordance with generally accepted accounting practices and shall include all information to permit Salk and its representatives to confirm the accuracy of all payments due Salk hereunder, including but not limited to Royalty payments, Sublicensing Revenue, milestone achievement and fulfillment of diligence obligations.

9.2         Financial Reports.    Within […***…] days after each March 31, June 30, September 30 and December 31, beginning upon the earlier of (i) the first Commercial Sale of Licensed Products or (ii) the first receipt by Licensee of Sublicensing Revenue, Licensee shall deliver to Salk, along with all amounts due Salk under Sections 4.4 and 4.5, true, accurate and detailed written reports (even if there are no sales) sufficient to enable Salk to satisfy reporting requirements of the U.S. Government and for Salk to ascertain progress by Licensee toward meeting this Agreement’s diligence requirements. Such reports shall include the following information in a form as illustrated in Exhibit D and will set out, for the relevant […***…] period:

(a)         Number of Licensed Products manufactured and sold by Licensee and all its Affiliates and any Sublicensee with respect to which Royalties are payable pursuant to Section 4.4;

(b)         Total billings for all such Licensed Products;

(c)         Accounting for all Licensed Products used or sold or otherwise transferred by Licensee and all Sublicensees;

(d)         Deductions set forth in Section 1.22;

(e)         Total Royalties due;

(f)         Names and addresses of Sublicensees; and

(g)         Total Sublicensing Revenue received during such three (3) month period and total amount of payment due pursuant to Section 4.5.

With each report, Licensee will include any earned Royalty payment due to Salk for the completed three (3) month period. Licensee shall report to Salk the date of the first Commercial Sale of a Licensed Product within […***…] days of occurrence in each country. Progress Reports showing records of research, development, and commercialization are to be provided in accordance with Section 3.4.

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9.3         Audit.    On reasonable written notice, Salk, at its own expense, shall have the right to have an independent party inspect and audit the books and records of Licensee, its Affiliates and its Sublicensees during usual business hours for the sole purpose of, and only to the extent necessary for, determining the correctness of Royalty payments, Sublicensing Revenue and milestone achievement under this Agreement. Such examination with respect to any fiscal year shall not take place later than […***…] following the end of such year, and not more than once in any calendar year. The expense of any such audit shall be borne by Salk; provided, however, that, if the audit discloses an error in excess of […***…] in favor of Licensee, then Licensee shall pay, in addition to the amount of any underpayment (and interest calculated in accordance with Section 9.5), the documented costs of the audit or inspection within […***…] days of receiving notice thereof from Salk. For the avoidance of doubt, in the event and to the extent that any Sublicensee limits Licensee audit rights, Licensee and Salk shall coordinate the performance of audits of such Sublicensee.

9.4         Taxes.    Taxes imposed by any governmental agency on any activities by Licensee shall be paid by Licensee without deduction from any payment due to Salk hereunder.

9.5         Late Payments.    Late payments shall be subject to a charge of […***…] per month or the maximum permitted by law, whichever is greater. The payment of such late charges shall not prevent Salk from exercising any other rights it may have as a consequence of the lateness of any payment.

9.6         Foreign Payments.    Any payments in any foreign country shall be payable to Salk in the United States in United States Dollars. Dollar amounts shall be calculated using the foreign exchange rate, as published by the Wall Street Journal, in effect for such foreign currency on the last business day of each quarter for which a report is required.

9.7         No Refunds.    No payments made under this Agreement will be refunded or are creditable.

10. TERM AND TERMINATION.

10.1       Term.    Unless earlier terminated under this Section 10, this Agreement shall become effective on the Effective Date and expire on the later of (i) the life of the applicable patent(s) included in the Licensed Patent Rights, in the country where Licensed Products are sold, on a country-by-country basis, or (ii) the expiration of the last to expire government exclusivity for the Licensed Products in such country, or (iii) ten (10) years from the date of Commercial Sale of any Licensed Product (the “Term”).

10.2       Termination

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(a)    Termination by Licensee. Licensee may initiate termination of this Agreement by giving written notice to Salk. Ninety (90) days after such notice, the Agreement will be deemed terminated.

(i)    Licensee shall pay, in accordance with this Agreement, all amounts due as well as all non-cancellable costs incurred by Salk prior to such ninetieth (90th) day; and

(ii)    Licensee shall submit a report of the type described in Section 9.2,

(b)    Termination for Default. Salk shall have the right to terminate this Agreement, immediately upon written notice, if:

(i)    Licensee defaults (A) in its reporting or payment obligations under Sections 4 or 9 or its indemnification obligations under Section 7.1 and such default has not been cured within thirty (30) days after receiving written notice thereof from Salk, (B) in its insurance obligations under Section 7.2 and such default has not been cured within fifteen (15) business days of written notice thereof by Salk, or (C) in the performance of any of the other obligations herein contained and such default has not been cured within sixty (60) days after receiving written notice thereof from Salk; or

(ii)    Licensee ceases to carry out its business, seeks bankruptcy protection, becomes and remains bankrupt or insolvent, applies for or consents to the appointment of a trustee, receiver or liquidator of its assets or seeks relief under any law for the aid of debtors.

(iii)    For clarity, Licensee shall continue to be obligated to compensate Salk for any amounts owed, as provided for under any term of this Agreement, during the cure period of such default.

The failure or delay of Salk to exercise its rights of termination shall not be deemed to be a waiver of any right Salk might have, nor shall such failure preclude Salk from exercising or enforcing said right upon any subsequent failure by Licensee.

10.3    Consequences of Expiration or Termination.

(a)    In the event of termination of this Agreement for any reason whatsoever:

(i)    Licensee shall not thereby be discharged from any liability or obligation to Salk that became due or payable prior to the effective date of such expiration or termination, including but not limited to Licensee’s obligations arising prior to such termination and to pay Royalties.

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(ii)    The rights and obligations of the Parties under Sections 1, 5, 6, 9.1, 10, 11, 13, 14 and any other provision that by its nature is intended to survive shall survive any expiration or termination of this Agreement.

(iii)    Subject to Section 10.3(b) and any surviving licenses, all licenses and rights granted herein to Licensee, its Affiliates, and Sublicensees shall terminate.

(iv)    Subject to Section 10.3(b), in any Sublicense, Salk will stand in the place of Licensee with respect to the Sublicensee for a period of ninety (90) days (and such Sublicense shall not terminate during such ninety (90) day period) during which time Sublicensee and Salk will negotiate and execute a new, direct license between Sublicensee and Salk (each a “New Agreement”). Salk agrees to negotiate such New Agreement directly with Sublicensee in good faith under reasonable terms and conditions. If no New Agreement is completed within the ninety (90) day period, the Sublicense will terminate.

(b)    In the event of termination of the Agreement by Licensee:

(i)    The provisions of Section 10.3(a)(i)-(iv) shall apply; and

(ii)    If Licensee, its Affiliates or its Sublicensees then possess Licensed Products, have started the manufacture thereof or have accepted orders therefor, Licensee, its Affiliates and Sublicensees shall have the right, for up to one hundred twenty (120) days following the date of termination, to sell their inventories thereof, complete the manufacture thereof and market such fully manufactured Licensed Products, in order to fulfill such accepted orders, subject to the obligation of Licensee to pay Salk the payments therefor as provided in Section 3 of this Agreement.

(iii)    Subject to Section 10.3(b)(ii), Licensee shall promptly return all materials, samples, documents, information, and other materials which embody or disclose Licensed Patent Rights or any Technical Information; provided, however, that Licensee shall not be obligated to provide Salk with proprietary information which Licensee can show through contemporaneous written records that it independently developed.

(c)    In the event of expiration of this Agreement:

(i)    The provisions of Section 10.3(a)(i) and Section 10.3(a)(ii) shall apply, and Licensee maintains responsibility for Post-Term Patent Costs; and

(ii)    The license to Licensee with respect to applicable Licensed Products in the applicable country in the Territory shall be fully-paid-up, perpetual and irrevocable.

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11. CONFIDENTIAL INFORMATION.

All information with respect to the Licensed Patent Rights and the Technical Information communicated by Salk to Licensee, including, without limitation, information contained in patent applications, shall be received in strict confidence by Licensee, its Affiliates and Sublicensees, used only for the purposes of this Agreement and not disclosed by Licensee, its Affiliates and Sublicensees or their respective agents or employees without the prior written consent of Salk, unless such information (i) was in the public domain or publicly known at the time of disclosure, (ii) later became part of the public domain or publicly known through no act or omission of the recipient party, its employees, agents, successors or assigns, (iii) was lawfully disclosed to the recipient by a third party having the right to disclose it, (iv) was already known by the recipient at the time of disclosure and the recipient can so demonstrate by competent written proof or (v) is required to be disclosed to a governmental agency pursuant to such agency’s rules and regulations in order to secure regulatory approval, provided that Licensee shall first give notice to Salk of such disclosure and shall have made a reasonable effort to maintain the confidentiality of such information. Nothing contained herein shall prevent Licensee from disclosing information to its Affiliates or Sublicensees so long as such Affiliates or Sublicensees agree to be bound by confidentiality provisions at least as stringent as the provisions of this Section 11.

12. CHOICE OF LAW; DISPUTE RESOLUTION.

12.1    Governing Law. This Agreement is made in accordance with and shall be governed and construed in accordance with the laws of the State of California, as applied to contracts executed and performed entirely within the State of California, without regard to conflicts of laws rules.

12.2    Venue. The Parties hereby irrevocably submit to the jurisdiction of a court of competent jurisdiction in the State of California, San Diego County, and, by execution and delivery of this Agreement, each (a) accepts, generally and unconditionally, the jurisdiction of such court and any related appellate court, and (b) irrevocably waives any objection it may now or hereafter have as to the venue of any such suit, action or proceeding brought in such court or that such court is an inconvenient forum.

12.3    Dispute Resolution. If a dispute arises between the Parties relating to the interpretation or performance of this Agreement or the grounds for the termination thereof, the Parties agree to hold a meeting, attended by individuals with decision-making authority regarding the dispute, to attempt in good faith to negotiate a resolution of the dispute prior to pursuing other available remedies. If the dispute remains unresolved […***…] days after the first meeting for the purpose of dispute resolution, then each Party shall have the right to

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pursue other remedies legally available to resolve     the dispute.    Nothing herein shall limit a Party’s right to seek injunctive or other equitable relief from a court of competent jurisdiction.

13. NOTICES.

(a)                  Except as otherwise provided, payments to be made hereunder to Salk shall be made by wiring the required amount to Salk’s bank in accordance with Salk’s instructions or by mailing or sending by commercial courier checks for the required amount to Salk’s address. Except as otherwise provided, notices and reports provided for herein shall effectively be given by mailing the same by certified or registered mail or by delivery by commercial courier, in each case properly addressed with charges prepaid. For the purposes of making payments and giving notices, the addresses of the Parties hereto are as follows:

For Salk:
	Office of Technology Development
	Salk Institute for Biological Studies
	10010 N Torrey Pines Rd
	La Jolla, California 92037 U.S.A.
	Attn: Business Manager
	Email: OTD@salk.edu
	Telefax: 858-450-0509
With a copy to:
	Finance Department
	Salk Institute for Biological Studies
	10010 N Torrey Pines Rd
	La Jolla, California 92037 U.S.A.
	Attn: Senior Director of Finance
For Licensee:
	Metacrine, Inc.
	12780 El Camino Real,
	Suite #301,
	San Diego, CA 92130
	Attn: CEO
With a copy to:
	Cooley LLP
	4401 Eastgate Mall
	San Diego, CA 92121-1909

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Attn: Thomas Coll

or to such subsequent addresses as either Party may furnish the other by giving notice thereof as provided in this Section 13.

(b)    Any payments to Salk hereunder by wire transfer shall be directed as follows:

Send wire to:

	[…***…]
Swift No.:	[…***…]
Credit to:	Salk Institute for Biological Studies, San Diego California, 10010 North Torrey Pines Road La Jolla, CA 92037
Account No.:	[…***…] (ABA#): […***…]
Additional Message:	Sender’s name, purpose of wire, & Attn: Business
	Manager (OTD@salk.edu)
Email notification:	finance@salk.edu

14. MISCELLANEOUS.

14.1    Assignment in the Event of Change of Control. Except as expressly set forth in this Section 14.1, this Agreement is not assignable by the Licensee under any other circumstances and any attempt to assign will be null and void. Notwithstanding the foregoing and only in conformity with this Section 14.1, Licensee may assign this entire Agreement and delegate all its rights and obligations hereunder in connection with a Change of Control, provided that:

(a)    Licensee notifies Salk in writing at least […***…] days prior to the effective date of any such Change of Control, which notification shall include the new assignee’s contact information; and

(b)    Licensee provides to Salk a copy of all assignment documents and agreements related to such Change of Control within […***…] days following such Change of Control; and

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(c)    On or before the effective date of such Change of Control the new assignee agrees in writing to Salk to be bound by all terms and conditions of this Agreement and thereafter the term “Licensee” in this Agreement will mean the assignee; and

(d)    Licensee has paid Salk the Change of Control fee in accordance with Section 4.7.

(e)    Upon Salk’s receipt of the full amount of the Change of Control fee, whether paid to Licensee at the time of execution or thereafter as described in Section 4.7, Licensee will be released of liability under this Agreement.

14.2    Headings. The headings used in this Agreement are for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

14.3    Amendment. No amendment or modification hereof shall be valid or binding upon the Parties unless made in writing and signed by both Parties.

14.4    Bankruptcy. Licensee agrees to provide notice to Salk (a) of its intention to file a voluntary petition in bankruptcy, said notice to be received by Salk at least […***…] days prior to filing such petition, or (b) where known to Licensee, of another party’s intention to file an involuntary petition in bankruptcy for Licensee, said notice to be received by Salk promptly following Licensee becoming aware of such intention. Salk may terminate this Agreement upon receipt of such notice at its sole discretion. Unless otherwise provided by law, Licensee’s failure to provide such notice to Salk will be deemed a material, pre-petition, incurable breach of this Agreement and the Agreement will terminate automatically on the date of filing such voluntary or involuntary petition in bankruptcy. Notwithstanding the above, Licensee agrees to provide notice to Salk upon filing a voluntary petition in bankruptcy.

14.5    Export Control. Licensee agrees that, with respect to the performance of this Agreement or the practice of the rights granted by Salk hereunder, it shall comply with any and all applicable United States export control laws and regulations, as well as any and all embargoes and/or other restrictions imposed by the Treasury Department’s Office of Foreign Asset Controls.

14.6    Force Majeure. Any delays in performance by any Party under this Agreement (other than the payment of monies due) shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the Party affected, including, but not limited to, acts of god, embargoes, governmental restrictions, strikes or other concerted acts of workers, fire, flood, explosion, riots, wars, civil disorder, rebellion or sabotage.

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The party suffering such occurrence shall immediately notify the other Party, and any time for performance hereunder shall be extended by the actual time of delay caused by the occurrence.

14.7    Independent Contractors. The Parties agree that this Agreement constitutes an arm’s length business transaction and does not create a fiduciary relationship. The Parties acknowledge that they consulted, or had the opportunity to investigate and/or consult, with their legal counsel and/or other advisors with respect to the Licensed Patent Rights and the terms of this Agreement.

14.8    Use of Names.

(a)    Use of Salk’s Name. Except as otherwise provided herein or required by law, Licensee may not use the name of Salk or of any Salk employee, or any images of Salk’s buildings or campus, or any Salk trademarks or logos, in a manner that reasonably could imply a relationship with Licensee other than as Licensor or an endorsement of a commercial product or service. Except as otherwise provided herein or required by law, Licensee will not originate any publication, news release or other public announcement, written or oral, whether in the public press or otherwise, relating to this Agreement or to the performance hereunder, without the prior written approval of Salk, which approval will not be unreasonably withheld. Such planned publication, news release or other public announcement shall be provided […***…] days in advance for approval by Salk. Notwithstanding the foregoing, Salk agrees that Licensee (and its Affiliates and Sublicensees) may make known in any publication, news release or other public announcement that the Licensed Patent Rights were developed at Salk by Dr. Ronald Evans and other scientists in his laboratory, that Licensee, its Affiliates and the Sublicensees are licensed under the Licensed Patent Rights or that products are offered under license from Salk. For the avoidance of doubt, Licensee may disclose this Agreement to its investors, acquirers, financial sources, Affiliates, Sublicensees, licensors, commercial partners and service providers in connection with commercial development of Licensed Technology; provided, that, License may only disclose the financial terms and milestones of this Agreement to the extent necessary to accountants, banks, investors and financing sources and their respective advisors and to any third party (and its affiliates, accountants, bankers, investors and advisors) in connection with a proposed merger, acquisition, licensing, collaboration or similar transaction or otherwise required by law (e.g., securities regulations and tax regulations).

(b)    Use of HHMI’s Name. Licensee acknowledges that, under HHMI policy, Licensee may not use the name of HHMI or of any HHMI employee (including Dr. Ronald Evans) in manner that reasonably could constitute an endorsement of a commercial product or service; but that use for other purposes, even if commercially motivated, is permitted provided that (1) the use is limited to accurately reporting factual events or occurrences, and (2) any reference to the name of HHMI or any HHMI employee(s) in press releases or similar materials intended for public release is approved by HHMI in advance.

***Confidential Treatment Requested  

37

License Agreement 2017-0184

Salk_METACRINE

Salk Ref Nos. RD1361, RD1382, 2015-007

14.9    Publication. Licensee agrees that Salk (including its faculty members and employees) have a right to publish in accordance with its general policies, and that this Agreement shall not restrict, in any fashion, Salk’s right to publish.

14.10    Severability. If any term, condition or provision of this Agreement is held to be unenforceable for any reason by a court having proper jurisdiction, it shall, if possible, be interpreted rather than voided, in order to achieve the intent of the Parties to this Agreement to the extent possible. In any event, all other terms, conditions and provisions of this Agreement shall be deemed valid and enforceable to the full extent of the law.

14.11    Waiver. None of the terms, covenants and conditions of this Agreement can be waived except by the written consent of the Party waiving compliance. Waiver of one term, covenant or condition, shall not be construed as waiver of any other term, covenant or condition.

14.12    Intended Third Party Beneficiary - HHMI. HHMI is not a party to this Agreement and has no liability to Licensee, its Affiliates or Sublicensees or any user of anything covered by this Agreement, but HHMI is an intended third-party beneficiary of this Agreement, and certain of its provisions are for the benefit of HHMI and are enforceable by HHMI in its own name.

14.13    Entire Agreement. This Agreement and the Exhibits attached hereto contain the entire agreement and understanding between the Parties with respect to the subject matter hereof, and merge all prior discussions, representations and negotiations with respect to the subject matter of this Agreement. Without limiting the foregoing, the Original Agreement is hereby superseded and is of no further force or effect.

14.14    Electronic Copy. The Parties to this Agreement agree that a copy of the original signature (including an electronic copy) may be used for any and all purposes for which the original signature may have been used. The Parties further waive any right to challenge the admissibility or authenticity of this document based solely on the absence of an original signature.

14.15    Interpretation.

(a)    The words “herein” or “hereunder” refer to this Agreement.

(b)    The    words    “include(ing)”     or    “e.g.”    mean    “include(ing) without limitation.”

License Agreement 2017-0182

Salk_Metacrine, Inc.

Salk Ref No. RD1238, RD1295, RD1364, RD1381, S2015-013, and S2016-014

(c)    Except where the content otherwise requires, “or” means “and/or.”

(d)    References to any statute or regulation mean such statute or regulation as may be amended from time to time.

[Remainder of page intentionally left blank]

License Agreement 2017-0182

Salk_Metacrine, Inc.

Salk Ref No. RD1238, RD1295, RD1364, RD1381, S2015-013, and S2016-014

In Witness Whereof, the parties hereto have executed this Agreement by their duly authorized officers or representatives.

The Salk Institute for Biological Studies

By:	/s/ Michelle A. Booden
	Michelle A. Booden, Ph.D.

Title:   Senior Director, Office of Technology Development

Licensee

By: /s/ Ken Song

Name:	Ken Song
Title:	President and CEO

License Agreement 2017-0182

Salk_Metacrine, Inc.

Salk Ref No. RD1238, RD1295, RD1364, RD1381, S2015-013, and S2016-014

Exhibit A

LICENSED PATENT RIGHTS

[…***…]

***Confidential Treatment Requested    

41

License Agreement 2017-0184

SalkMETACRINE

Salk Ref Nos. RD1361, RD1382, 2015-007

[…***…]

***Confidential Treatment Requested    

42

License Agreement 2017-0184

SalkMETACRINE

Salk Ref Nos. RD1361, RD1382, 2015-007

Exhibit B

TECHNICAL INFORMATION

[…***…]

***Confidential Treatment Requested  

43

License Agreement 2017-0184

SalkMETACRINE

Salk Ref Nos. RD1361, RD1382, 2015-007

[…***…]

***Confidential Treatment Requested  

44

License Agreement 2017-0184

SalkMETACRINE

Salk Ref Nos. RD1361, RD1382, 2015-007

[…***…]

***Confidential Treatment Requested  

45

License Agreement 2017-0184

SalkMETACRINE

Salk Ref Nos. RD1361, RD1382, 2015-007

[…***…]

***Confidential Treatment Requested  

[…***…]

***Confidential Treatment Requested  

[…***…]

***Confidential Treatment Requested  

46

License Agreement 2017-0184

SalkMETACRINE

Salk Ref Nos. RD1361, RD1382, 2015-007

[…***…]

***Confidential Treatment Requested  

47

License Agreement 2017-0184

SalkMETACRINE

Salk Ref Nos. RD1361, RD1382, 2015-007

[…***…]

***Confidential Treatment Requested  

48

License Agreement 2017-0184

SalkMETACRINE

Salk Ref Nos. RD1361, RD1382, 2015-007

Exhibit C

DEVELOPMENT PLAN

            […***…]

***Confidential Treatment Requested  

49

License Agreement 2017-0184

SalkMETACRINE

Salk Ref Nos. RD1361, RD1382, 2015-007

Exhibit D

Sample Financial Report

Licensee name:

Reporting period:

Date of report:

Financial Reporting Form

Licensed   Product	No. units sold that are   subject to Royalties   (including by Affiliates   and Sublicensees)	Invoiced        price per        unit	Gross sales	Allowable        deductions	Net        Sales
Product name
Product name
Product name
Product name
Total

Total net sales	$
Royalty rate
Royalty due	$

Total Royalty due: $                                    

Names and addresses of Sublicensees:

Total Sublicensing Revenue: $

Report prepared by:

Title:

Data:

50

License Agreement 2017-0184

SalkMETACRINE

Salk Ref Nos. RD1361, RD1382, 2015-007

Exhibit E

Prior Stock Issuance Agreement

METACRINE, INC.

STOCK ISSUANCE AGREEMENT

THIS STOCK ISSUANCE AGREEMENT (the “Agreement”) is made as of the 12th day of January, 2015, by and between METACRINE, INC., a Delaware corporation (the “Company”), and THE SALK INSTITUTE FOR BIOLOGICAL STUDIES, a nonprofit public benefit corporation organized under the laws of the State of California (“Recipient”).

WHEREAS, the Company desires to issue, and Recipient desires to acquire, stock of the Company as herein described, on the terms and conditions hereinafter set forth;

NOW, THEREFORE, IT IS AGREED between the parties as follows:

1.         Issuance of Stock.    Recipient hereby agrees to acquire from the Company, and the Company hereby agrees to issue to Recipient, an aggregate of […***…^*] shares of the Common Stock of the Company (the “Stock”) in consideration of that certain Exclusive Patent License Agreement, dated as of January 12, 2015 by and between Recipient and the Company (together, the “Licensing Agreement”).

2.         Limitations on Transfer.    Recipient shall not assign, hypothecate, donate, encumber or otherwise dispose of any interest in the Stock except in compliance with the provisions herein and applicable securities laws. Furthermore, the Stock shall be subject to any right of first refusal in favor of the Company or its assignees that may be contained in the Company’s Bylaws. The Company shall not be required (a) to transfer on its books any shares of Stock of the Company which shall have been transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares shall have been so transferred.

3.         Restrictive Legends.    All certificates representing the Stock shall have endorsed thereon legends in substantially the following forms (in addition to any other legend which may be required by other agreements between the parties hereto):

(a)         “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.”

(b)         “THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S) AS PROVIDED IN THE BYLAWS OF THE COMPANY.”

(c)         Any legend required by appropriate blue sky officials.

***Confidential Treatment Requested  

4.         Investment Representations. In connection with the acquisition of the Stock, Recipient represents to the Company the following:

(a)         Recipient is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Stock. Recipient is acquiring the Stock for investment for Recipient’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act of 1933, as amended (the “Act”).

(b)         Recipient is an accredited investor within the meaning of Regulation D under the Act.

(c)         Recipient understands that the Stock has not been registered under the Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Recipient’s investment intent as expressed herein.

(d)         Recipient further acknowledges and understands that the Stock must be held indefinitely unless the Stock is subsequently registered under the Act or an exemption from such registration is available. Recipient further acknowledges and understands that the Company is under no obligation to register the Stock. Recipient understands that the certificate evidencing the Stock will be imprinted with a legend which prohibits the transfer of the Stock unless the Stock is registered or such registration is not required in the opinion of counsel for the Company.

(e)         Recipient is familiar with the provisions of Rule 144, under the Act, as in effect from time to time, which, in substance, permit limited public resale of “restricted securities” acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions.

The Stock may be resold by Recipient in certain limited circumstances subject to the provisions of Rule 144, which requires, among other things: (i) the availability of certain public information about the Company and (ii) the resale occurring following the required holding period under Rule 144 after Recipient has acquired, and made full payment of (within the meaning of Rule 144), the securities to be sold.

(f)         Recipient further understands that at the time Recipient wishes to sell the Stock there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, Recipient would be precluded from selling the Stock under Rule 144 even if the minimum holding period requirement had been satisfied.

(g)         Recipient further warrants and represents that Recipient has either (i) preexisting personal or business relationships, with the Company or any of its officers, directors or controlling persons, or (ii) the capacity to protect her own interests in connection with the acquisition of the Stock by virtue of the business or financial expertise of himself or of professional advisors to Recipient who are unaffiliated with and who are not compensated by the Company or any of its affiliates, directly or indirectly.

5.         Market Stand-Off Agreement.    Recipient shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Stock (or other securities) of the Company held by Recipient immediately before the effective date of the registration statement for such offering (other than those included in the registration) during the 180-day period following the effective date of the Company’s first firm commitment underwritten public offering of its Common Stock registered under the Act (or such longer period, as the underwriters or the Company shall request in order to facilitate compliance with NASD Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation), provided that all officers and directors of the Company and holders of at least one percent (1%) of the Company’s voting securities are bound by and have entered into similar agreements.

6.         Miscellaneous.

(a)         Notices.    Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or sent by electronic mail or fax or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to the other party hereto at its address hereinafter shown below its signature or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.

(b)         Successors and Assigns.    This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, be binding upon Recipient, Recipient’s successors, and assigns.

(c)         Attorneys’ Fees; Specific Performance.    Recipient shall reimburse the Company for all costs incurred by the Company in enforcing the performance of, or protecting its rights under, any part of this Agreement, including reasonable costs of investigation and attorneys’ fees.

(d)         Governing Law; Venue.    This Agreement shall be governed by and construed in accordance with the laws of the State of California. The parties agree that any action brought by either party to interpret or enforce any provision of this Agreement shall be brought in, and each party agrees to, and does hereby, submit to the jurisdiction and venue of, the appropriate state or federal court for the district encompassing the Company’s principal place of business.

(e)         Further Execution.    The parties agree to take all such further action(s) as may reasonably be necessary to carry out and consummate this Agreement as soon as practicable, and to take whatever steps may be necessary to obtain any governmental approval in connection with or otherwise qualify the issuance of the securities that are the subject of this Agreement.

(f)        Entire Agreement; Amendment.    This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes and merges all prior agreements or understandings, whether written or oral. This Agreement may not

be amended, modified or revoked, in whole or in part, except by an agreement in writing signed by each of the parties hereto.

(g)         Severability.    If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

(h)         Counterparts.    This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

(i)         California Corporate Securities Law.    THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION BEING AVAILABLE.

[THIS SPACE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

METACRINE, INC.
By:	/s/ Jackie Hernandez 1/14/2015
	Jackie Hernandez
	Acting President

Address:  c/o Cooley LLP
	ATTN: Thomas A. Coll           4401 Eastgate Mall
	San Diego, CA 92121
THE SALK INSTITUTE FOR BIOLOGICAL  STUDIES

By:	/s/ Marsha A. Chandler
	Marsha A. Chandler
	Executive Vice President

Address:	Office of Technology
	Development
	Salk Institute for Biological Studies 10010 N Torrey Pines Rd
	La Jolla, California 92037 U.S.A.

METACRINE, INC.

STOCK ISSUANCE AGREEMENT

THIS STOCK ISSUANCE AGREEMENT (the “Agreement”) is made as of the 29th day of May, 2015, by and between METACRINE, INC., a Delaware corporation (the “Company”), and THE SALK INSTITUTE FOR BIOLOGICAL STUDIES, a nonprofit public benefit corporation organized under the laws of the State of California (“Recipient”).

WHEREAS, the Company desires to issue, and Recipient desires to acquire, stock of the Company as herein described, on the terms and conditions hereinafter set forth;

NOW, THEREFORE, IT IS AGREED between the parties as follows:

1.         Issuance of Stock.    Recipient hereby agrees to acquire from the Company, and the Company hereby agrees to issue to Recipient, an aggregate of […***…] shares of the Common Stock of the Company (the “Stock”) in consideration of that certain Exclusive Patent License Agreement, dated as of January 12, 2015 by and between Recipient and the Company (together, the “Licensing Agreement”).

2.         Limitations on Transfer.    Recipient shall not assign, hypothecate, donate, encumber or otherwise dispose of any interest in the Stock except in compliance with the provisions herein and applicable securities laws. Furthermore, the Stock shall be subject to any right of first refusal in favor of the Company or its assignees that may be contained in the Company’s Bylaws. The Company shall not be required (a) to transfer on its books any shares of Stock of the Company which shall have been transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares shall have been so transferred.

3.         Restrictive Legends.    All certificates representing the Stock shall have endorsed thereon legends in substantially the following forms (in addition to any other legend which may be required by other agreements between the parties hereto):

(a)         “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.”

(b)         “THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S) AS PROVIDED IN THE BYLAWS OF THE COMPANY.”

***Confidential Treatment Requested  

(c)         Any legend required by appropriate blue sky officials.

4.         Investment Representations. In connection with the acquisition of the Stock, Recipient represents to the Company the following:

(a)         Recipient is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Stock. Recipient is acquiring the Stock for investment for Recipient’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act of 1933, as amended (the “Act”).

(b)         Recipient is an accredited investor within the meaning of Regulation D under the Act.

(c)         Recipient understands that the Stock has not been registered under the Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Recipient’s investment intent as expressed herein.

(d)         Recipient further acknowledges and understands that the Stock must be held indefinitely unless the Stock is subsequently registered under the Act or an exemption from such registration is available. Recipient further acknowledges and understands that the Company is under no obligation to register the Stock. Recipient understands that the certificate evidencing the Stock will be imprinted with a legend which prohibits the transfer of the Stock unless the Stock is registered or such registration is not required in the opinion of counsel for the Company.

(e)         Recipient is familiar with the provisions of Rule 144, under the Act, as in effect from time to time, which, in substance, permit limited public resale of “restricted securities” acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions.

The Stock may be resold by Recipient in certain limited circumstances subject to the provisions of Rule 144, which requires, among other things: (i) the availability of certain public information about the Company and (ii) the resale occurring following the required holding period under Rule 144 after Recipient has acquired, and made full payment of (within the meaning of Rule 144), the securities to be sold.

(f)         Recipient further understands that at the time Recipient wishes to sell the Stock there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, Recipient would be precluded from selling the Stock under Rule 144 even if the minimum holding period requirement had been satisfied.

(g)         Recipient further warrants and represents that Recipient has either (i) preexisting personal or business relationships, with the Company or any of its officers, directors or controlling persons, or (ii) the capacity to protect her own interests in connection with the acquisition of the Stock by virtue of the business or financial expertise of himself or of professional advisors to Recipient who are unaffiliated with and who are not compensated by the Company or any of its affiliates, directly or indirectly.

5.         Market Stand-Off Agreement. Recipient shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Stock (or other securities) of the Company held by Recipient immediately before the effective date of the registration statement for such offering (other than those included in the registration) during the 180-day period following the effective date of the Company’s first firm commitment underwritten public offering of its Common Stock registered under the Act (or such longer period, as the underwriters or the Company shall request in order to facilitate compliance with NASD Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation), provided that all officers and directors of the Company and holders of at least one percent (1%) of the Company’s voting securities are bound by and have entered into similar agreements.

6.         Miscellaneous.

(a)         Notices.    Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or sent by electronic mail or fax or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to the other party hereto at its address hereinafter shown below its signature or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.

(b)         Successors and Assigns.    This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, be binding upon Recipient, Recipient’s successors, and assigns.

(c)         Attorneys’ Fees; Specific Performance.    Recipient shall reimburse the Company for all costs incurred by the Company in enforcing the performance of, or protecting its rights under, any part of this Agreement, including reasonable costs of investigation and attorneys’ fees.

(d)         Governing Law; Venue.    This Agreement shall be governed by and construed in accordance with the laws of the State of California. The parties agree that any action brought by either party to interpret or enforce any provision of this Agreement shall be brought in, and each party agrees to, and does hereby, submit to the jurisdiction and venue of, the appropriate state or federal court for the district encompassing the Company’s principal place of business.

(e)         Further Execution.    The parties agree to take all such further action(s) as may reasonably be necessary to carry out and consummate this Agreement as soon as practicable, and to take whatever steps may be necessary to obtain any governmental approval in connection with or otherwise qualify the issuance of the securities that are the subject of this Agreement.

(f)         Entire Agreement; Amendment.    This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes and merges all prior agreements or understandings, whether written or oral. This Agreement may not

be amended, modified or revoked, in whole or in part, except by an agreement in writing signed by each of the parties hereto.

(g)         Severability.    If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

(h)         Counterparts.    This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

(i)         California Corporate Securities Law.    THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION BEING AVAILABLE.

[THIS SPACE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

METACRINE, INC.

By: /s/ Neil McDonnell

Name: Neil McDonnell

Title: Chief Executive Officer

Address:	12780 El Camino Real #301
	San Diego, CA 92130

THE SALK INSTITUTE FOR BIOLOGICAL STUDIES
By:	/s/ Kim Witmer
Name: Kim Witmer
Title: Senior Vice President and Chief Financial Officer

Address:   Office of Technology

Development

Salk Institute for Biological Studies

10010 N Torrey Pines Rd

La Jolla, California 92037 U.S.A.

Exhibit F

New Stock Issuance Agreement

METACRINE, INC.

STOCK ISSUANCE AGREEMENT

THIS STOCK ISSUANCE AGREEMENT (the “Agreement”) is made as of the 22 day of December, 2016, by and between METACRINE, INC., a Delaware corporation (the “Company”), and THE SALK INSTITUTE FOR BIOLOGICAL STUDIES, SAN DIEGO, CALIFORNIA, a nonprofit public benefit corporation organized under the laws of the State of California (“Recipient”).

WHEREAS, the Company desires to issue, and Recipient desires to acquire, stock of the Company as herein described, on the terms and conditions hereinafter set forth.

NOW, THEREFORE, IT IS AGREED between the parties as follows:

1.         Issuance of Stock.    Recipient hereby agrees to acquire from the Company, and the Company hereby agrees to issue to Recipient, (i) an aggregate of […***…^*] shares of the Common Stock of the Company (the “FGF1 Stock”) in consideration of that certain Amended and Restated Exclusive FGF1 License Agreement, dated as of November 10, 2016, by and between Recipient and the Company (the “FGF1 Licensing Agreement”), and (ii) an aggregate of […***…] shares of the Common Stock of the Company (together with the FGF1 Stock, the “Stock”) in consideration of that certain Amended and Restated Exclusive FXR License Agreement, dated as of November 10, 2016, by and between Recipient and the Company (the “FXR Licensing Agreement”). The FGF1 Licensing Agreement and the FXR Licensing Agreement amend and restate in its entirety that certain Exclusive Patent License Agreement, dated as of January 12, 2015, as amended, by and between Recipient and the Company. The parties hereby agree that the issuance of the Stock pursuant to this Agreement satisfies all of the Company’s obligations to issue Common Stock of the Company pursuant to Section 4.1 of each of the FGF1 Licensing Agreement and the FXR Licensing Agreement, and after the issuance of the Stock, the Company shall not be obligated to issue any additional Common Stock of the Company pursuant to each of the FGF1 Licensing Agreement and FXR Licensing Agreement.

2.         Limitations on Transfer.    Recipient shall not assign, hypothecate, donate, encumber or otherwise dispose of any interest in the Stock except in compliance with the provisions herein and applicable securities laws. Furthermore, the Stock shall be subject to any right of first refusal in favor of the Company or its assignees that may be contained in the Company’s Bylaws. The Company shall not be required (a) to transfer on its books any shares of Stock of the Company which shall have been transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares shall have been so transferred.

3.         Restrictive Legends.    All certificates representing the Stock shall have endorsed thereon legends in substantially the following forms (in addition to any other legend which may be required by other agreements between the parties hereto):

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(a)         “THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.”

(b)         “THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S) AS PROVIDED IN THE BYLAWS OF THE COMPANY.”

(c)         Any legend required by appropriate blue sky officials.

4.         Investment Representations. In connection with the acquisition of the Stock, Recipient represents to the Company the following:

(a)         Recipient is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Stock. Recipient is acquiring the Stock for investment for Recipient’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act of 1933, as amended (the “Act”).

(b)         Recipient is an accredited investor within the meaning of Regulation D under the Act.

(c)         Recipient understands that the Stock has not been registered under the Act by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Recipient’s investment intent as expressed herein.

(d)         Recipient further acknowledges and understands that the Stock must be held indefinitely unless the Stock is subsequently registered under the Act or an exemption from such registration is available. Recipient further acknowledges and understands that the Company is under no obligation to register the Stock. Recipient understands that the certificate evidencing the Stock will be imprinted with a legend which prohibits the transfer of the Stock unless the Stock is registered or such registration is not required in the opinion of counsel for the Company.

(e)         Recipient is familiar with the provisions of Rule 144, under the Act, as in effect from time to time, which, in substance, permit limited public resale of “restricted securities” acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions.

The Stock may be resold by Recipient in certain limited circumstances subject to the provisions of Rule 144, which requires, among other things: (i) the availability of certain public information about the Company and (ii) the resale occurring following the required holding period under Rule 144 after Recipient has acquired, and made full payment of (within the meaning of Rule 144), the securities to be sold.

(f)         Recipient further understands that at the time Recipient wishes to sell the Stock there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, Recipient would be precluded from selling the Stock under Rule 144 even if the minimum holding period requirement had been satisfied.

(g)         Recipient further warrants and represents that Recipient has either (i) preexisting personal or business relationships, with the Company or any of its officers, directors or controlling persons, or (ii) the capacity to protect Recipient’s own interests in connection with the acquisition of the Stock by virtue of the business or financial expertise of Recipient or of professional advisors to Recipient who are unaffiliated with and who are not compensated by the Company or any of its affiliates, directly or indirectly.

5.         Market Stand-Off Agreement.    Recipient shall not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Stock (or other securities) of the Company held by Recipient immediately before the effective date of the registration statement for such offering (other than those included in the registration) during the 180-day period following the effective date of the Company’s first firm commitment underwritten public offering of its Common Stock registered under the Act (or such longer period, as the underwriters or the Company shall request in order to facilitate compliance with NASD Rule 2711 or NYSE Member Rule 472 or any successor or similar rule or regulation), provided that all officers and directors of the Company and holders of at least one percent (1%) of the Company’s voting securities are bound by and have entered into similar agreements.

6.         Miscellaneous.

(a)         Notices.    Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or sent by electronic mail or fax or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to the other party hereto at its address hereinafter shown below its signature or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto.

(b)         Successors and Assigns.    This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, be binding upon Recipient, Recipient’s successors, and assigns.

(c)         Attorneys’ Fees; Specific Performance.    Recipient shall reimburse the Company for all costs incurred by the Company in enforcing the performance of, or protecting its rights under, any part of this Agreement, including reasonable costs of investigation and attorneys’ fees.

(d)         Governing Law; Venue.    This Agreement shall be governed by and construed in accordance with the laws of the State of California. The parties agree that any action brought by either party to interpret or enforce any provision of this Agreement shall be brought in, and each party agrees to, and does hereby, submit to the jurisdiction and venue of, the

appropriate state or federal court for the district encompassing the Company’s principal place of business.

(e)         Further Execution.    The parties agree to take all such further action(s) as may reasonably be necessary to carry out and consummate this Agreement as soon as practicable, and to take whatever steps may be necessary to obtain any governmental approval in connection with or otherwise qualify the issuance of the securities that are the subject of this Agreement.

(f)         Entire Agreement; Amendment.    This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes and merges all prior agreements or understandings, whether written or oral. This Agreement may not be amended, modified or revoked, in whole or in part, except by an agreement in writing signed by each of the parties hereto.

(g)         Severability.    If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.

(h)         Counterparts.    This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

(i)         California Corporate Securities Law.    THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION BEING AVAILABLE.

[THIS SPACE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

METACRINE, INC.

By: /s/ Ken Song

Name: Ken Song
Title: Chief Executive Officer
Address:	12780 El Camino Real #301
	San Diego, CA 92130
THE SALK INSTITUTE FOR  BIOLOGICAL STUDIES

By: /s/ Kim Witmer

Name: Kim Witmer
Title:  Senior Vice President and Chief Financial Officer
Address:	Office of Technology

Development

Salk Institute for Biological Studies

10010 N Torrey Pines Rd

La Jolla, California 92037 U.S.A.

EX-10.11

Exhibit 10.11

FIRST AMENDMENT TO LICENSE AGREEMENT ID 2017-0184

This First Amendment to License Agreement ID 2017-0184 between the parties dated November 10, 2016 (this “First Amendment”) is effective                 Feb 4, 2017 (the “First Amendment Date”), by and between The Salk Institute for Biological Studies, San Diego, California, a nonprofit public benefit corporation organized and existing under the laws of the State of California, USA, having an office at 10010 North Torrey Pines Road, La Jolla, CA 92037 (“Salk”) and Metacrine, Inc., having a principal place of business at 12780 El Camino Real, Suite 301, San Diego, CA 92130 (“Licensee”).

BACKGROUND

WHEREAS, Salk is the owner of certain patents and technical information related to compositions of Fexaramine (FXR) and methods of use developed in the laboratory of Dr. Ronald Evans, an employee of the Howard Hughes Medical Institute (“HHMI”) and of the Salk faculty;

WHEREAS, Salk and Licensee executed an Amended and Restated Exclusive FXR License Agreement dated November l0, 2016 (the “License Agreement”) in which Salk granted to Licensee an exclusive license to such patents and a non-exclusive license to technical information as specifically set forth in the License Agreement; and

WHEREAS, the parties now desire to make certain changes to the License Agreement as memorialized herein, which changes shall be effective as of the First Amendment Date.

NOW, THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt and sufficiency which are hereby acknowledged, the parties hereby agree as follows:

1. Amendment to Section 10.3(a)(ii).

Section 10.3(a)(ii) of the License Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:

“10.3(a)(ii).        The rights and obligations of the Parties under Sections 1, 5, 6, 7, 10.3, 11, 12, 13, 14 and any other provision that by its nature is intended to survive shall survive any expiration or termination of this Agreement.”

2. Miscellaneous.

a.        Except as specifically amended above, all terms of the License Agreement shall remain in full force and effect. To the extent that there are any inconsistencies between the

terms of the License Agreement and the terms of this First Amendment, the terms of this First Amendment shall prevail.

b.        The parties acknowledge that this First Amendment and the License Agreement set forth the entire understanding and intentions of the parties hereto as to the subject matter hereof and supersedes all previous understandings between the parties, written or oral, regarding such subject matter.

IN WITNESS WHEREOF, the parties have executed this First Amendment as of the Amendment Date.

SALK INSTITUTE FOR BIOLOGIC STUDIES
By	/s/ Michelle A. Booden
	Name: Michelle A. Booden
	Title: Senior Director, Office of Technology Development
	Date: Feb 4, 2017
LICENSEE
By	/s/ Ken Song
	Name: Ken Song
	Title:   President and CEO
	Date:   Feb 9, 2017

EX-10.12

Exhibit 10.12

***Text Omitted and Filed Separately

with the Securities and Exchange Commission.

Confidential Treatment Requested

Under 17 C.F.R. Sections 200.80(c) and Rule 24b-2

SECOND AMENDMENT TO AMENDED AND RESTATED EXCLUSIVE FXR LICENSE AGREEMENT

This Second Amendment to Amended and Restated Exclusive FXR License Agreement (this “Amendment”) is made and effective July 25, 2018 (the “Amendment Effective Date”) by and between The Salk Institute for Biological Studies (“Salk”) and Metacrine, Inc. (“Licensee”), and amends the Amended and Restated Exclusive FXR License Agreement between the Parties effective November 10, 2016 (the “License”). Salk and Licensee shall be individually referred to herein as a “Party” and collectively as the “Parties.” All capitalized terms used herein and not otherwise defined shall have the meaning assigned in the License.

WHEREAS, Salk granted Licensee certain rights under Salk’s Licensed Patent Rights and Technical Information, which pertain to the farnesoid X receptor (FXR) including agonists to the FXR receptor and uses thereof, to promote the development of Licensed Products embodying those rights in the public interest;

WHEREAS, under the License, Licensee has engaged in a program of developing Licensed Products comprising FXR agonists for diagnosis, prevention and/or treatment of disease in humans utilizing the Licensed Patent Rights and Technical Information, and as a result of such development program Licensee has discovered and/or developed certain other product candidates that the Parties agree are Licensed Other Products, which agreement they wish to memorialize hereby;

WHEREAS, the License gives the Licensee the right to surrender the Licensed Patent Rights at its election, and effective as of February 28, 2018, the Licensee provided Salk with written notice of its election to surrender all the Licensed Patent Rights (the “Surrender Notice”); and

WHEREAS, the Parties desire to amend certain terms and conditions of the License as set forth herein.

NOW, THEREFORE, for good and valuable consideration the sufficiency of which is agreed by the Parties, the Parties hereby agree as follows:

1. SURRENDER OF LICENSED PATENT RIGHTS

Salk hereby confirms receipt of the Surrender Notice, effective as of February 28, 2018, in accordance with Section 8.2(c) of the License. Notwithstanding the […***…] period set forth in Section 8.2(c), the Parties hereby agree that, effective as of the Amendment Effective Date, all the surrendered Licensed Patent Rights shall be excluded from the definition of Licensed Patents Rights, Exhibit A and from the rights granted under the License, and all rights, titles and interests relating to the surrendered Licensed Patent Rights shall revert to Salk and may be freely licensed or otherwise exploited by Salk without further obligation to Licensee and Licensee shall have no further liability under the License related to or arising from the surrendered Licensed Patents Rights, except that the Licensee shall remain obligated to the terms and conditions of the License regarding the surrendered Licensed Patent Rights for obligations accruing prior to the Amendment Effective Date, provided that, and notwithstanding the […***…] period set forth in Section 8.2(c) or anything to the contrary in the License, Licensee shall not be liable for any Patent Costs, including, without limitation, Post-Term Patent Costs, incurred by Salk after March 16, 2018. The Parties agree that Exhibit A attached to the License shall be replaced in its entirety with Exhibit A attached hereto.

2. LICENSED OTHER PRODUCTS

Effective as of the Amendment Effective Date, the Parties agree that Metacrine Patent Products are Licensed Other Products and the following Sections of the License are replaced, added or amended, as set forth below. Metacrine represents and warrants that all of the patents and/or patent applications owned or controlled by Metacrine as of the Amendment Effective Date that cover FXR agonists for diagnosis, prevention and/or treatment of disease in humans are listed in Exhibit G.

(a) In Section 1.18, the following sentence is hereby added to the end:

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Licensed Other Products include, without limitation, the Metacrine Patent Products.

(b) Exhibit G is hereby attached to this Amendment and incorporated in this Amendment and into the License by reference.

(c) The following are hereby added as new Sections 1.39 and 1.40:

1.39 “Metacrine Patent Products” shall mean any product or part thereof or service which is:

(a) The manufacture, use, sale, offer for sale or import of which product or part thereof or service is covered in whole or in part by any Valid Claim contained in the Metacrine Patent Rights in the country in which any such product or part thereof is made, used or sold or in which any such service is used or sold; or

(b) Manufactured by using a process or is employed to practice a process which is covered in whole or in part by any Valid Claim included in the Metacrine Patent Rights in the country in which any such process is used or in which such product or part thereof or service is used or sold.

1.40 “Metacrine Patent Rights” shall mean:

(a) All United States and foreign patents and/or patent applications covering subject matter conceived in whole or in part using, incorporating or derived from Technical Information and those patents and/or patent applications listed in Exhibit G;

(b) Any applications that claim the benefit of priority of those patents and/or patent applications listed in Exhibit G hereof, including (i) continuations, divisionals, substitutions, reexaminations, reissues, requests for continued examination or renewals, or (ii) continuations-in-part but only the claims thereof that are directed to the subject matter specifically described in any of those patents and/or patent applications listed in Exhibit G (collectively “Metacrine Continuing Applications”); and

(c) United States and foreign patents issued from the patent applications listed in Exhibit G and from Metacrine Continuing Applications; and

(d) All reissues and reexaminations, and any extensions of or supplementary protection certificates referencing any of the foregoing.

(d) In Sections 1.38 and 7.1, all references to “Licensed Patent Rights” are hereby changed to “Licensed Patent Rights or Metacrine Patent Rights.”

3. LICENSE CONSIDERATION

Effective as of the Amendment Effective Date, the following Sections of the License are replaced, added or amended, as set forth below:

(a) Section 4.2 is hereby replaced in its entirety with the following:

4.2 Maintenance Fee. Licensee will pay to Salk a non-refundable and non-creditable fee of […***…] on or before […***…].

The Parties acknowledge that the maintenance fee set forth in Section 4.2, as amended hereunder, has been paid as of Amendment Effective Date.

(b) In Section 4.3(c), the last sentence is hereby replaced in its entirety with the following:

For example, if a Sublicensee pays Licensee a milestone payment of […***…] Dollars for the milestone in 4.3(a)(ii). Licensee will owe Salk […***…] Dollars for the achievement of the milestone plus an additional […***…] Dollars in Sublicense Revenue, which is equal to […***…] of the remaining […***…] Dollars paid by Sublicensee to Licensee.

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(c) The following is hereby added as new Section 4.3(e):

(e)    Unless Licensee shall have undergone a Change of Control, including by an initial public offering, Licensee may defer payment of certain milestone payments due under Sections 4.3(a) and (b) as follows:

(i) Milestone payments due under Sections 4.3(a)(i) and 4.3(a)(ii), in the case of the […***…] Licensed Product, and Sections 4.3(b)(i) and 4.3(b)(ii), in the case of the […***…] Licensed Products, may be deferred until the achievement of the milestone event for that Licensed Product set forth in Section 4.3(a)(iii) and Section 4.3(b)(iii), respectively; and

(ii) Milestone payments due under Section 4.3(a)(iii), in the case of the […***…] Licensed Product, and Section 4.3(b)(iii), in the case of the […***…] Licensed Products, may be deferred until the achievement of the milestone event for that Licensed Product set forth in Section 4.3(a)(iv) and Section 4.3(b)(iv), respectively;

(iii) Provided, however, that any deferred milestone payments shall be paid in full within […***…] after execution of a Change of Control, whether by an initial public offering or otherwise.

(d) Section 4.4 is hereby replaced in its entirety with the following:

4.4    Royalty Payments.

(a)    Licensee shall pay to Salk, during the Term of this Agreement and in accordance with Section 9.2, on a country-by-country and Licensed Product-by-Licensed Product basis a royalty on Net Sales (“Royalties”), whether achieved by Licensee, or any of its Affiliates or any Sublicensee, of […***…] on Net Sales of Licensed Products.

(b)    If Licensee, in its reasonable judgment, elects to enter into a license or similar agreement with one or more third parties, and pay royalties in order to avoid infringement of third party patent rights in one or more countries by the manufacture, use or sale of a Licensed Product, and Licensee actually pays royalties to those third parties, then Licensee shall have the right to credit […***…] of such third party royalty payments against the earned Royalties owing to Salk under this Section 4.4 with respect to sales of Licensed Product in such country; provided that in no event shall the effective Royalty rate on Net Sales for Licensed Products payable to Salk in any quarterly period be less than […***…] as a result of this Section 4.4(c).

(c)    Upon expiration of the Royalty Term for a Licensed Product in a given country, the license granted to Licensee under the Licensed Technology with respect to such Licensed Product in such country shall become a perpetual, fully paid license in such country, and Net Sales shall thereafter exclude sales of such Licensed Product in such country, unless sooner terminated as provided in this Agreement.

(e) Section 4.5 is hereby replaced in its entirety with the following:

4.5 Sublicensing Revenue. Licensee shall pay to Salk, in accordance with Section 9.2, […***…] of all Sublicensing Revenue received by Licensee during the Term of this Agreement; provided, however, that Sublicensing Revenue that is in the form of milestone payments shall be subject to the provisions of Section 4.3, as applicable.

(f) In Section 4.7, the reference “[…***…]” is hereby replaced with “[…***…].”

(g) Section 10.1 is hereby replaced in its entirety with the following:

10.1 Term and Royalty Term. This Agreement shall become effective on the Effective Date and shall expire on the date of expiration of the last to expire Royalty Term (the “Term”). For the purposes of Section 4.4(c), with respect to a particular Licensed Product in a given country, the “Royalty Term” shall commence on the date of

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the first Commercial Sale of such Licensed Product in such country and end on the earliest to occur of: (i) the expiration of the last to expire government exclusivity (other than patent exclusivity) for the Licensed Product in such country, or (ii) ten (10) years from the date of first Commercial Sale of such Licensed Product in such country. The Parties have specifically negotiated this Royalty Term taking into account, among other factors, the benefit that Licensee has derived from the use of the Licensed Technology and the fully-paid up license thereto after the end of the Royalty Term.

(h) Section 10.2(a) is hereby replaced in its entirety with the following:

(a)    Termination by Licensee. Licensee shall have the right to terminate this Agreement prior to the expiration of the Term upon 90 days’ prior written notice to Salk only in the event Licensee, its Affiliates and Sublicensees have ceased all development and commercialization of Licensed Products and all Commercial Sales and all Sublicenses have been terminated. If the foregoing is held to be unenforceable for any reason by a court having proper jurisdiction, then the Parties hereby agree that the obligations regarding the Licensed Products shall continue to apply and be performed as if this Agreement were in effect, including those obligations in Sections 4, 7, 9 and 10, until the defined term Licensed Products no longer is satisfied. Salk’s rights in connection with enforcing these obligations shall likewise survive.

4. OTHER

Effective as of the Amendment Effective Date, the following Sections of the License are replaced, added or amended, as set forth below:

(a) Section 1.37 is hereby amended and replaced in its entirety as follows:

1.37 “Territory” shall mean worldwide.

(b) Sections 3.1, 3.2, 3.3(b), 3.4 and Article 8 are each hereby replaced in its entirety with the following:

Intentionally omitted.

(c) In Article 14, misnumbered Sections 4.2-4.13 are hereby re-numbered as Sections 14.2-14.13.

5. MISCELLANEOUS

(a) The License remains in full force and effect in accordance with its terms as amended by this Amendment. Upon the effectiveness of this Amendment, each reference in the License to this Agreement,” “hereunder,” “hereof,” “herein,” or words of like import, shall mean and be a reference to the License, as amended hereby.

(b) Sections 12, 13, 14.2, 14.3, 14.10, 14.11 and 14.14 are hereby incorporated herein by reference.

(c) This Amendment is the entire agreement and understanding between the Parties with respect to the subject matter hereof and merges all prior discussions, representations and negotiations with respect to the subject matter of this Amendment.

[Signature page follows.]

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IN WITNESS WHEREOF, the Parties have executed this valid and binding agreement as of the Amendment Effective Date.

The Salk Institute for Biological Studies	Metacrine, Inc.
By: /s/ Ha Nguyen	By:  /s/ Ken Song
Name: Ha Nguyen	Name:  Ken Song
Title:  Senior Director, OTD	Title:  President and CEO
Date: Aug 1, 2018	Date: _July 25, 2018

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Exhibit A

Licensed Patent Rights

None

Exhibit G

Metacrine Patent Rights

[…***…]

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