our responsibilities to our collaborators, including our responsibilities to conduct research and development, clinical trials and manufacture products;

TheseAny such forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in theor contemplated by such forward-looking statements. Factors that might cause such a difference include, but are not limited to, the risks and uncertainties described in this Annual Report on Form 10-K, including those discussedrisks described in Part I, Item 1A, “Risk Factors,” as well as others that we may consider immaterial or do not anticipate at this time. The risks and uncertainties described in this report, including in Part II,I, Item 1A, — “Risk Factors,” are not exclusive and elsewhere in this report. Forward-lookingfurther information concerning our company and our businesses, including factors that potentially could materially affect our operating results or financial condition, may emerge from time to time. All forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements considering future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties and they should carefully consider the factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission.Commission (the “SEC”).

This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our business, and the markets for certain drugs, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain medical conditions. Information that is based on

estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

Unless the context requires otherwise, in this Annual Report on Form 10-K the terms “Catalyst,” the “Company,” “we,” “us” and “our” refer to Catalyst Biosciences, Inc., together with our subsidiary, Catalyst Bio, Inc., which we refer to as “Catalyst Bio.” See “Item 1 -1— Business— Business - Business Overview.”

All information in this Annual Report on Form 10-K has been retroactively adjusted to give effect to a 1-for-15 reverse stock split that was effective on February 10, 2017 (the “2017 Reverse Stock Split”), except as otherwise described or as required by law. See “Part II – Item 1- Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments.Organization.”

Overview

We are a clinical-stage biopharmaceutical company focused on developing novel medicines to address serious medical conditions for individuals who need new or better treatment options. We have used a scientific approach to engineer several novel protease-based therapeutic candidates. We are focusing our product development efforts in the field of hemostasis (the process that regulates bleeding) and have a mission to develop valuable therapies for individuals with hemophilia.

We are applying our substantial expertise in protease engineering and our proprietary product discovery platformused a scientific approach to create, engineer and characterize protease drug candidates. Proteasesseveral protease-based therapeutic candidates that regulate several complex biological cascades, or sequenced biochemical reactions, including the coagulation cascade (a mechanism of blood clotting) in hemophilia and non-hemophilia settings and the complement cascade that causes inflammation and tissue damage in certain diseases.  Our protease expertise allowed us to improve the biochemical and pharmacological properties of currently marketed hemophilia protease drugs, specifically Factors VIIa, IX and Xa and to create completely novel proteases that cleave disease-causing proteins, specifically complement Factor 3 (C3), for the potential treatment of dry age-related macular degeneration (Dry AMD) and renal delayed graft function (DGF).

With drug candidates in clinical and advanced preclinical development, we are a leader in the field of subcutaneously (“SQ”) dosed coagulation factor prophylactic therapies for individuals with hemophilia. We have assembled an experienced management team, scientists and advisors with subject matter expertise, a strategic collaborator, an enabling technology platform and a leading intellectual property position in the fields of protease therapeutics to advance our clinical and preclinical pipeline.clotting.

Our most advanced program, is a highly potentsubcutaneously administered, next-generation engineered coagulation Factor VIIa, protease variant, marzeptacog alfa (activated) (formerly CB 813d)(“MarzAA”), that has completed enrollment of the Phase 2 portion of a Phase 2/3 subcutaneous dosing trial in individuals with hemophilia with an inhibitor. The Phase 2 open-label subcutaneous efficacy portion was designed to evaluate the ability of MarzAA to eliminate, or minimize, spontaneous bleeding episodes in individuals with hemophilia A or B with inhibitors and was initiated in December 2017. The trial has completed enrollment of 11 individuals with hemophilia and an inhibitor across six clinical trial sites globally. MarzAA has also successfully completed an intravenous Phase 1 clinical trial evaluating the pharmacokinetics, pharmacodynamics and coagulation activity in individuals with severe hemophilia A and B with and without an inhibitor. We will also initiate a subcutaneous Phase 1 pharmacokinetics, pharmacodynamics study in the second quarter of 2019 and expect the study to conclude in the fourth quarter of 2019. MarzAA has been granted orphan drug designation by the U.S. Food and Drug Administration (“FDA”) for routine prophylaxis to prevent bleeding episodes in individuals with hemophilia A or B with inhibitors.

As of February 8, 2019, 11 subjects were enrolled with a mean annualized bleed rate (“ABR”) of 18.2; range of 12.2-26.7. One subject revoked consent after single intravenous and subcutaneous doses. Two subjects were dosing. Of the seven subjects that have completed dosing, all had clinically significant reductions in ABR. Five subjects had completed the study with no bleeding at 30 µg/kg and two subjects with no bleeding at 60 µg/kg. One subject with severe hypertension experienced a fatal serious adverse event that was not related to study drug on day 11.

Pharmacokinetics analysis has shown that MarzAA’s intravenous half-life of 3.9 hours increased to 13.1 hours when dosed subcutaneously. No anti-drug antibodies to MarzAA or thrombotic events have been detected to date, and only a single moderately severe injection site reaction has been reported after more than 450 injections. We expect to advance marzeptacog alfa (activated) intocomplete the Phase 2 portion of a Phase 2/3open-label subcutaneous prophylaxis efficacy trial in 2017.the second half of 2019 and plan to conduct a global Phase 3 clinical study in 2020 assessing reductions in ABR in 20-40 patients with hemophilia with pre-dosing observation and six months of daily subcutaneous dosing of MarzAA.

Our next most advanced hemophilia program, a highly potentnext-generation engineered coagulation Factor IX, protease variant,Dalcinonacog alfa (“DalcA”) (formerly CB 2679d/ISU304,ISU304), has completed advanced preclinical IND-enabling development. We expect to initiate a Phase 1/2 subcutaneous dosing trial in South Korea, that evaluated the safety and efficacy of DalcA in individuals with severe hemophilia B, sponsored by our collaborator, ISU Abxis. The objective of this study was to demonstrate the feasibility of increasing Factor IX activity trough levels from ~1% (severe hemophilia) to >12% (mild hemophilia with a reduced chance of spontaneous joint bleeds) with daily subcutaneous injections. DalcA has been granted orphan drug designation by the FDA and orphan medicinal product designation by the Committee for CB 2679d/ISU304Orphan Medicinal Products (“COMP”) of the European Commission (“EC”).  ISU Abxis initiated this trial in June 2017 and top line data was presented on February 9, 2018. Following the positive data from the multi-dose cohort 5, the Korean Ministry of Food and Drug Safety (“MFDS”) approved the addition of a sixth cohort to the Phase 1/2 trial of DalcA in individuals with severe hemophilia B in April 2018.  Cohort 6 enrolled two previously treated subjects from cohort 5. Both subjects had a nadir of 20% activity level after an initial IV dose and following 9 days of daily subcutaneous dosing reached greater than 30% activity before being reduced by neutralizing antibodies (nAb), one of which was transient. Both nAbs waned over time and did not cross react with their wildtype FIX treatments to which they returned without issue. We completed a comprehensive investigation of the cause of the nAb in December 2018 and concluded that the immunogenic potential of DalcA was low and similar to that of commercial FIX products. Based on the results of the investigations and discussions with clinicians and regulatory experts, we concluded that we should continue development of DalcA. We plan to initiate a Phase 2b trial that will include 28 days of daily subcutaneous dosing in six subjects in the first quarter of 2019 and we expect the Phase 2b trial to be completed in the second quarterhalf of 2017.2019. Based on the efficacy data that we have previously shown in which subjects achieved high mild hemophilia FIX activity, we believe that DalcA has the potential to provide a conveniently-dosed subcutaneous prophylactic treatment option for those suffering from hemophilia B.

The substantially enhanced potency of marzeptacog alfa (activated)MarzAA and CB 2679d/ISU304DalcA compared towith existing treatment options may allow for effective subcutaneous prophylactic treatment of individuals with hemophilia A or B with an inhibitor or individuals with hemophilia B, respectively. Catalyst's engineered hemostasis proteases are designed to overcome current treatment limitations by allowing delivery via subcutaneous injection which we believe will facilitate effective prophylactic treatment,respectively, especially in children, and may ultimately deliver substantially better outcomes for individuals with hemophilia.

SubcutaneousWe have demonstrated that subcutaneous dosing of our next-generation coagulation factors results in progressive increases in theactivity levels of our protease factors until they reach a stable blood level therapeutic target range (ideally mild hemophilia to normal).in the blood. Conversely, dosing by intravenous (IV) infusions results in very high initial factor activity levels in the blood initially, but thefollowed by a rapid fall off in factor level then falls rapidlyactivity levels to a low trough level at a range that is measured as moderate or severe hemophilia, triggering the next dose. These results are illustratedresulting in the diagram below.

Time in Mild to Normal Levels Predicts Protection from Spontaneous Bleeds

higher bleeding risk. Stable and higher factor levels could potentially yield a significant improvement in outcomes and have the added benefit of convenience over competing intravenous therapeutics, particularly when administered to children, and where venous access is challenging. This concept is illustrated in the diagram below.

We also have several engineered Factor Xa variantsproteases that have demonstrated efficacy in several preclinical bleeding models and have the potential to be used as a universal pro-coagulant.procoagulant. We have delayed initiating further work on our Factor Xa therapeutic program at this time to focus our efforts on the Factor VIIaMarzAA and Factor IXDalcA clinical programs.

We continueFinally, we have developed novel protease molecules that target the complement cascade, a series of naturally occurring molecular processes that play a central role in the body’s inflammatory and immune response. In October 2017, we announced a strategic research collaboration with Mosaic Biosciences, Inc. to explore licensing opportunitiesdevelop intravitreal anti-complement factor three (C3) products for the treatment of dry AMD and other retinal diseases. In December 2018, we amended our anti-complement programs in DGF and Dry AMD so that we can focus our efforts and resources on advancing marzeptacog alfa (activated) and CB 2679d/ISU304 through Phase 2/3 and Phase 1/2 clinical trials, respectively.collaboration agreement with Mosaic to, among other things, include certain additional products.

Based on industry reports and company reported sales, we estimate annualthe 2018 global market opportunity for MarzAA and DalcA to be approximately $2.2 billion and $1.5 billion, respectively. Annual worldwide sales in 20162018 for FDA-approved recombinant protease products for individuals with hemophilia A andor B and an inhibitor were approximately $2.4$1.2 billion and approximately $3.6$2.2 billion when including prothrombin complex concentrate products used to treat individuals with hemophilia B with an inhibitor.
and bispecific antibody products. We remain focused on advancing the MarzAA and DalcA clinical trials.

Our Product Candidate Pipeline

We are currently focused on the clinical development of our improved, next-generation subcutaneous prophylaxis using enhanced potency Factor VIIa (MarzAA) and Factor IX variants.variants (DalcA) for subcutaneous prophylaxis. We have delayed initiating further research on ourthree additional assets, a FIX gene therapy construct CB 2679d-GT that has demonstrated 3-fold higher activity and 4-5 fold faster clotting time in a preclinical hemophilia B model compared with the Padua variant of FIX that is in clinical development by others, a Factor Xa therapeutic program at this timepro-coagulant and we are seeking to out-license our pre-clinical anti-C3 protease development candidate, CB 2782, and oura novel anti-C3 protease program for Dry AMD.dry AMD, CB 2782 for which we have a strategic research collaboration with Mosaic and intend to out-license.

The following table summarizes our development programs.

Hemostasis & Hemophilia

Hemophilia is a rare but serious bleeding disorder that results from a genetic or an acquired deficiency of a protein required for normal blood coagulation. There are two major types of hemophilia, A and B, that are caused by alterations in Factor VIII or Factor IX genes, respectively, with a corresponding deficiency in the affected proteins. The disease is X chromosome-linked, meaning that most peoplemales who inherit the disorder and suffer from symptoms are male. However, female carriers of mutations in Factor VIII or Factor IX can also have reduced clotting factor levels.

Individuals with hemophilia suffer from spontaneous bleeding episodes and substantially prolonged bleeding times that can become limb- or life-threatening following injury or trauma. In cases of severe hemophilia, spontaneous bleeding into muscles or joints is frequent and often results in permanent, disabling joint damage. Individuals with hemophilia are currently treated with replacement therapy of key coagulation proteins, Factor VIII for Hemophilia A or Factor IX for Hemophilia B.  

We believe that the shortcomings of currently approved therapies, including a requirement for intravenous infusion, are barriers to prophylactic treatment strategies that, if surmounted, could provide meaningfully improved long-term clinical outcomes for individuals with hemophilia. Catalyst's engineered hemostasis protease areFVIIa and Factor IX were designed to overcome current treatment limitations by allowing delivery via subcutaneous injection, which we believe will facilitate prophylactic treatment, especially in children, and may ultimately deliver substantially better outcomes for individuals with hemophilia.

Hemophilia A occurs in approximately 1 in 5,000 male births, and hemophilia B in 1 in 30,00020,000 male births. The prevalence of hemophilia A and B in the United States is approximately 20,000 individuals out of an estimated, 400,000 individuals worldwide.

Currently there is no cure for hemophilia. Treatment usually involves management of acute bleeding episodes or prophylactic treatment through factor replacement therapy by intravenous infusion of the individuals’ missing Factor VIII or IX.

Based on ouroutside research and sales data, we estimate worldwide sales of all Factor IX-containing products for the treatment of hemophilia B in 20162018 were approximately $1.2at least $1.5 billion, including approximately $0.7$0.6 billion as reported by Pfizer, Inc. for its BeneFIX®BeneFIX^® product and $0.3our internal estimate of $0.5 billion as reported by Bioverativ and Swedish Orphan Biovitrum for their Alprolix®Alprolix^® product and $0.4 billion from CSL Behring for their Idelvion^® product.

A complication for individuals with hemophilia who are receiving factor replacement therapy is the production of neutralizing antibodies, also called inhibitors, that inactivate the replacement factor. The overall prevalence of inhibitor formation is up to 30% in individuals with hemophilia A and up to 5% in individuals with hemophilia B. Individuals with an inhibitor are treated with what are known as bypassing agents that initiate coagulation by a pathway that is independent of Factor VIII or Factor IX, the proteins that are deficient or inactivated in individuals with hemophilia A and B, respectively. Currently available bypassing agents include recombinant Factor VIIa, NovoSeven®NovoSeven RT^® produced by Novo Nordisk, and activated prothrombin complex concentrates, marketed as FEIBA by Shire. NovoSeven®TAKADA/Shire and Hemlibra^®, produced by Roche. NovoSeven RT was first approved in 1999 and is indicated for treatment of bleeding episodes, prevention of bleeding during surgeries in individuals with hemophilia A or B with inhibitors, and individuals with congenital Factor VII deficiency. In 2006, it was approved for the treatment of acquired hemophilia. NovoSeven®NovoSeven RT was approved in 2014 and is also indicated for treatment of Glanzmann’s thrombasthenia. Sales of NovoSeven®NovoSeven RT in 2016, which we estimate based on our research,2018, were $1.4 billion.$1.2 billion as reported by Novo Nordisk. FEIBA is approved for use in individuals with hemophilia A and B with inhibitors,an inhibitor, which we estimate, based on our research and sales data, had 20162018 sales of $0.8$0.75 billion. Hemlibra is a bispecific antibody that replaces the role of the cofactor FVIII by bringing FIXa and FX together for activation of FX and was approved by the FDA on November 16, 2017. Sales figures for Hemlibra in 2018 were estimated by industry sources to be $0.2 billion.

Hemophilia with Inhibitors—Clinical Stage Factor VIIa (“MarzAA”) Program

Our most advanced product candidate is marzeptacog alfa (activated) (formerly CB 813d),MarzAA, a potent, subcutaneously administered, next-generation Factor VIIa variant, was tested in an intravenous Phase 1 clinical trial that was completed in February 2015 to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics and coagulation activity of marzeptacog alfa (activated)MarzAA in severe hemophilia A and B with and without inhibitors. Marzeptacog alfa (activated)MarzAA is initially being developed for the prophylactic treatment of individuals with severe hemophilia A andor B with inhibitors. Pfizer filed the Investigational New Drug Application (IND) with the FDA for the Phase 1 trial in August 2011 for adult males with hemophilia A or B, with or without inhibitors to Factor VIII or Factor IX. We have received the IND application filed with the FDA from Pfizer and plan to initiateanticipate completion of the Phase 2 portiontrial by the end of 2019. We plan to conduct a global Phase 2/3 clinical study assessing reductions in ABR in 20-40 patients with hemophilia with six months of daily subcutaneous prophylaxis efficacy trial in 2017. Marzeptacog alfa (activated)dosing of MarzAA. MarzAA has received orphan drug designation in the United States from the FDA.

In the Phase 1 clinical trial of intravenous marzeptacog alfa (activated)MarzAA conducted by Pfizer, 25 individuals with severe hemophilia A and B with and without inhibitorsan inhibitor were enrolled and treated. The clinical trial design was a single ascending dose-escalation study with 1 individual treated at 0.5 µg/kg followed by 4four cohorts of 6six individuals each at doses of 4.5, 9.0, 18.0, and 30.0 µg/kg. Clinical endpoints included safety, tolerability, pharmacokinetics and clot-forming activity, such as prothrombin time, or PT, activated partial thromboplastin time, or aPTT, thrombin-antithrombin activity and others. Results showed that single doses of marzeptacog alfa (activated)MarzAA were well tolerated when administered to individuals with hemophilia A and B, and there were no instances of bleeding or thrombosis. As shown in the graph below, marzeptacog alfa (activated)MarzAA demonstrated pharmacological efficacy as measured by significant shortening of aPTT (activated partial thromboplastin time) and PT (prothrombin time) for up to 24-hours post dosing. The results were presentedpublished in a poster session at the International Society onJournal of Thrombosis and Haemostasis (ISTH) Meeting held in Toronto, Canada from June 20 to 25, 2015.

Substantial & dose dependent correction of PT & aPTT at all doses

2018, vol 16, 1984-1993.

We designed marzeptacog alfa (activated)MarzAA to combine higher clot-generating activity, or potency, at the site of bleeding and improved duration of action in vivo to allow for the effective, long-term, prophylaxis in individuals with hemophilia with inhibitors. We anticipate that this product candidate, if approved, could be used prophylactically to prevent bleeding episodes with subcutaneous administration that may be superior to intravenous infusions. We have previously demonstrated in several bleeding models that marzeptacog alfa (activated)MarzAA can treat or prevent bleeding when dosed intravenously. The next step required to develop marzeptacog alfa (activated)MarzAA for subcutaneous use was to test its ability to correct bleeding times in hemophilia models and to achieve sufficient plasma (blood) levels of activity when dosed subcutaneously. Daily subcutaneous dosing in dogs for 6 days reduced the whole blood clotting time towards normal. Stable blood levels of MarzAA were seen after the 4^th dose onwards (European Association Haemophilia and Allied Disorders 2017).

During the past 912 months, we have presented data at scientific conferences demonstrating that daily subcutaneous administration in hemophilia B mice andhumans had clinically significant reductions in annualized bleed rate (ABR).

In the Phase 2 portion of the Phase 2/3 trial of MarzAA for the treatment of hemophilia A dogs resultedor B with inhibitors:

Results are summarized in hemophilia A dogsthe chart below.

MarzAA reduces annualized bleed rate (ABR) and percentage of days with bleeding

The average percentage of days of bleeding in the pre-treatment period was 12.2% (standard deviation 5.2%) [median 11.0%]. In the treatment period, these percentages were reduced to 1.0% (standard deviation 5.2%) [median 1.0%]. The analysis of these pairwise differences by a randomization paired t-test yields p=0.016.

Antigen levels and functional assay after daily subcutaneous administration of 120 µg/kg marzeptacog alfa (activated) in dogs reached stable trough levels in our target range where we believe that similar results in humans will provide satisfactory continuous protection from spontaneous bleeding.

Antigen levels and functional assay after daily subcutaneous administration of 120 µg/kg marzeptacog alfa (activated)

Daily subcutaneous dosing resulted in stable trough levels

Hemophilia B—B - Factor IX (“DalcA”) Subcutaneous Program

Our next most advanced product candidate is CB 2679d/ISU304,DalcA, a next-generation subcutaneously dosed Factor IX drug for the prophylactic treatment of individuals with hemophilia B. The National Hemophilia Foundation has recommended chronic, prophylactic treatment as the optimal therapy for individuals with severe hemophilia B. CB 2679d/ISU304

We have completed a DalcA Phase 1/2 subcutaneous dosing trial in South Korea sponsored by our collaborator, ISU Abxis, that evaluated the safety and efficacy of DalcA in individuals with severe hemophilia B. The objective of this study was to demonstrate the feasibility of increasing Factor IX activity trough levels from ~1% (severe hemophilia) to >12% (mild hemophilia with a reduced chance of spontaneous joint bleeds) with daily subcutaneous injections. DalcA has completed IND-enabling preclinical studies,been granted orphan drug designation by the FDA and orphan medicinal product designation by the COMP of the EC.

ISU Abxis initiated this trial in June 2017 and top line data was presented on February 9, 2018. Data from Cohorts 1 through 3 (three subjects in each cohort) showed that a single subcutaneous dose of either 70 or 140 IU/kg three days after a single intravenous dose of 70 IU/kg significantly increased the half-life of DalcA to 98.7 hours, equivalent to the half-life of extended-half-life intravenous agents. Cohort 4 was omitted as we intendobserved sufficient activity of DalcA in cohorts 2 and 3. In cohort 5, five subjects were dosed daily for six days with a subcutaneous dose of 140 IU/kg without an intravenous dose. We observed increased Factor IX activity levels in all five subjects from very low levels after washout of prior therapy to entera median Factor IX activity level of 16% (range 11.5-18%), that is well into the mild hemophilia range (5-40%) and is higher than the 12% level required to prevent spontaneous hemarthrosis. According to the World Federation of Hemophilia, patients with Factor IX levels between 5% and 40% are considered to have mild hemophilia. The observed increase in Factor IX activity levels after daily dosing in cohort 5 was linear, indicating that continued subcutaneous dosing may achieve high-mild hemophilia Factor IX clotting activity.

The terminal subcutaneous half-life was 63.2 hours for subjects in cohort 5 (interquartile range 60.2-64 hours) with the result that activity levels were still 4-6.4%, five days after the last dose. In cohorts one through five, no inhibitors to DalcA or Factor IX were detected. One subject had moderate adverse events of pain, erythema and redness after the first two injections and mild rating after subsequent injections. Other subjects in cohort 5 reported some of these adverse events, mainly with initial injections. Two subjects had bruising after injection when Factor IX activity levels were low that did not occur with subsequent injections as Factor IX activity levels rose.

In April 2018, the MFDS approved the addition of a sixth cohort to the Phase 1/2 trial of DalcA in individuals with severe hemophilia B following the positive data from the multi-dose cohort 5. Each individual received a single intravenous dose of 70 IU/kg, followed by nine daily subcutaneous doses of 140 IU/kg DalcA. The intravenous dose was administered 30 minutes before the first subcutaneous dose.

ISU Abxis enrolled two patients out of a planned three to five in cohort 6, and DalcA showed efficacy in both subjects. During the treatment period, Factor IX activity levels always remained above 20% after the single intravenous dose in both patients. The first patient then had a progressive increase in trough Factor IX activity level to 34% and the second patient achieved a trough activity level of 31%. However, both subjects in cohort 6 developed neutralizing antibodies (“nAbs”) to DalcA and a reduction in Factor IX activity levels was observed. Blood testing revealed that the nAb was transient in one subject and was below the level of quantification at a follow up visit. The nAb in the second subject fell below one Bethesda Unit (“BU”) at a follow up visit. A BU reflects the percentage reduction in Factor IX activity from the standard control of 100%, with one BU being 50% reduction; two BU being 75% reduction and three BU being 87.5% reduction. Importantly, from a safety perspective, the absence of binding to wildtype Factor IX allowed both patients to successfully resume treatment with their prescribed intravenous Factor IX prophylaxis therapies. Prior to cohort 6, no DalcA neutralizing antibodies had been detected in any of the patients treated with DalcA, including both patients in cohort 6 who had also participated in cohort 5. Subsequent to the detection of the nAbs, the investigator treating the two subjects determined that these subjects were cousins and had the identical Factor IX gene defect, however their human leukocyte antigen (“HLA”) profiles were not identical. The HLA system is a gene complex encoding major histocompatibility complex (“MHC”) proteins in humans. These cell-surface proteins are responsible for the regulation of the immune system in humans and allow the immune system to identify foreign proteins within the body. HLA type determines the range of possible immune responses to exogenous proteins and whether antibodies can be made.

DalcA Phase 1/2 clinical trial FIX activity results

We conducted a comprehensive analysis to assess the cause and impact of the antibody observations prior to deciding whether to initiate a Phase 2b study. The comprehensive immunogenicity risk assessment to investigate the development of neutralizing antidrug antibodies in Cohort 6 of the Phase 1/2 program concluded:

The results of our extensive DalcA immunogenicity risk assessment revealed a similar low immunogenicity potential compared with our collaborator ISU AbxisBeneFIX and other commercial wildtype FIXs products; therefore, we will be moving forward with the clinical development of DalcA. We plan to initiate a Phase 2b trial that will include 28 days of daily subcutaneous dosing in six subjects in the first quarter of 2019 and expect the Phase 2b trial to be completed in the second quarterhalf of 2017. We2019. Based on the efficacy data that we have previously shown in which subjects achieved high mild hemophilia FIX activity, we believe that DalcA has the potential to provide a conveniently-dosed subcutaneous prophylactic treatment option for those suffering from hemophilia B.

In December 2018, we entered into a co-developmentan amended and restated license agreement with ISU Abxis (the “A&R ISU Abxis Agreement”), which amended and restated in 2013.full our previous license and collaboration agreement with ISU Abxis entered into in September 2013 (as subsequently amended in October 2014 and December 2016). Under the A&R ISU Abxis agreement we licensed our proprietary human Factor IX products to Agreement, ISU Abxis for initial development in South Korea. ISU Abxis is responsible for manufacturing preclinical development activities and clinical development through a proof-of-concept Phase 1/2 study in individuals with hemophilia B. We have the sole rights and responsibility for worldwide development, manufacture, and commercialization of Factor IX products after Phase 1/2 development. ISU Abxis may exercise its right of first refusal to acquirewill receive commercialization rights in South Korea in which case they would be entitled to profit sharing on worldwide sales.

CB 2679d/ISU304 has demonstrated in our hemophilia B mouse animal study, higher potency than BeneFIX®, Pfizer’s currently marketed Factor IX therapeutic,DalcA and Alprolix®, Bioverativ’s approved Factor IX-Fc fusion protein,we will receive clinical development and may allow subcutaneous administration that provides trough Factor IX activity levels in bloodcommercialization rights in the normal rangerest of world (excluding South Korea) and provide prophylaxis against bleeding episodes.

CB 2679d/ISU304 was dosed subcutaneously dailymanufacturing development and manufacturing rights worldwide (including South Korea).  The A&R ISU Abxis Agreement eliminates the profit-sharing arrangement in hemophilia B dogsthe Original ISU Abxis Agreement and provides for 6 days. Clotting assays were performed. Substantial correctiona low single-digit royalty payment to ISU Abxis, on a country-by-country basis, for net product sales of whole blood clotting time after daily subcutaneous administrationDalcA by us or our affiliates in each country other than South Korea. Pursuant to the A&R ISU Abxis Agreement, the Company will also make up to an aggregate of 300 IU/kg CB 2679d/ISU304$19.5 million in hemophilia B dogs was achieved.milestone payments to ISU Abxis, inclusive of $2.5 million in regulatory and development milestone payments and up to $17 million in commercial milestone payments, if the applicable milestones are met.

Whole blood clotting time after daily subcutaneous administrationHemophilia B – Factor IX Gene Therapy Program

Use of 300 IU/kg CB 2679d/ISU304the Factor IX Padua variant transgene (Factor IX-R338L) has demonstrated a 5-10 fold greater potency over Factor IX-WT in pre-clinical and clinical gene therapy studies.  Pfizer/Spark (fidanacogene elaparvovec) and uniQure (AMT-061) use the Padua variant as the transgene in their AAV based gene therapy clinical programs and both have demonstrated encouraging Factor IX levels in their respective Phase 1/2 and Phase 2/3 studies with median Factor IX levels of ~30%.

We have demonstrated in a hemophilia B dogs

Daily subcutaneous injections can normalize whole bloodmouse study that AAV gene therapy delivery using our CB 2679 gene sequence (FIX-R318Y/R338E/T343R) demonstrated significantly improved clotting activity and a four-fold reduction of bleeding time when compared with Factor IX Padua. This improvement is supported by the observed 22-fold greater clinical potency of DalcA over BeneFIX in hemophilia B dogsa Phase 1/2 clinical trial.

The Complement Cascade as a Target for Inflammatory Disease

The complement cascade is a series of naturally occurring molecular processes that play a central role in the body’s inflammatory and immune responses. It helps to localize certain immune system cells at the site of infection or inflammation, to rupture the membranes of pathogens, and to mediate various specific responses to antigens through effects on both B- and T-cells. Consequently, drugs that target the complement cascade could potentially be used in a variety of indications, including prevention of transplant rejection, dry age-related macular degeneration, cardiovascular disease, asthma, and autoimmune disease. Many key targets within the complement cascade are found at such high concentrations that it is likely to be difficult or impractical to block their action with antibodies or small molecules because extremely high drug concentrations would be required for efficacy. We believe that the enzymatic properties of an engineered novel protease could overcome some of the challenges of inhibiting the complement cascade.

Complement in Ischemia-Reperfusion Injury

Our lead anti-C3 inflammation development candidate, CB 2782, is a novel protease for the prevention of delayed graft function (DGF) following kidney transplant driven by ischemia-reperfusion injury. This novel protease variant is directed against complement Factor 3 (C3), a target present at concentrations that may be too high to address effectively with a therapeutic antibody or small molecule but which we believe is amenable to treatment using a protease. We are seeking to out-license this agent so that we can focus our efforts and resources on advancing marzeptacog alfa (activated) and CB 2679d/ISU304 through Phase 2/3 and Phase 1/2 clinical trials, respectively.

Complement in Dry Age-Related Macular Degeneration

Dry age-related macular degeneration, or dry AMD, is the leading cause of blindness in the elderly worldwide. According to Nature, a scientific journal, dryGlobalData, AMD affects approximately 2011 million people in the United States and EU combined,of which over 1 million are late stage dry AMD, with the potential size of the dry AMD market worldwide estimated at $30over $3 billion. The disease is a chronic condition characterized by a progressive loss of central vision due mostly to degenerative changes and/or the formation of microvascular networks in the center of the eye’s visual field, called the macula. There are two forms of AMD, wet and dry. Wet AMD is the more severe form of the disease and represents approximately 10% of all individuals with AMD. Dry AMD is the most common form of early to intermediate stage AMD and occurs in approximately 90% of individuals with the condition. While there have been recent improvements in the treatment of wet AMD, dry AMD treatment remains an unmet medical need.

Recent studies from several independent investigators have demonstrated that over 70% of the risk of developing AMD (both dry and wet forms) corresponds to mutations in human complement genes, particularly the Factor H gene whose product is required for proper regulation of the complement cascade. Also, Roche/Genentech’s Anti-Factor D antibody fragment demonstrated an approximately 20-40% reduction of lesion size growth after 18 monthly injections inRecently Apellis Pharmaceuticals (APL-2, a cyclic peptide that binds Complement Factor 3) announced positive statistically significant results from a randomized Phase 1/2 clinical trial forthat APL-2 reduces geographic atrophy or GA, an advanced form(GA) lesion growth associated with dry AMD using a monthly intravitreal injection over 12 months of dry AMD.therapy. This is the first clinical study suggests thatto validate inhibition of the complement, cascade can haveand specifically Complement Factor 3, as a significant effect on the progression of GA.treatment approach for GA associated dry AMD.

We have demonstrated that our novel unmodified anti-C3 proteases can clear C3 in the vitreous of primates and are well tolerated in single dosesingle-dose studies. We are seekingIn October 2017, we announced a strategic research collaboration with Mosaic to out-license this agent so that we candevelop intravitreal anti-complement factor 3 (C3) products for the treatment of dry AMD and other retinal diseases, allowing us to continue to focus our efforts and resources on advancing marzeptacog alfa (activated)MarzAA and CB 2679d/ISU304DalcA through Phase 2/3 and Phase 1/2 clinical trials, respectively. In December 2018, we amended our collaboration agreement with Mosaic to, among other things, include certain additional products. In collaboration with Mosaic we have created an extended half-life version of our anti-C3 protease CB 2782 with a 40 kDa linear PEG.  This Pegylated CB 2782 has indistinguishable enzymatic activity inactivating C3 at the same rate as unmodified CB 2782. We have successfully completed an in vivo intravitreal Rabbit PK study comparing Pegylated CB 2782 with CB 2782 and will report the results of the study at a scientific conference in 2019.    

Our Strategy

Our goal is to build a clinical-stage biopharmaceutical company whose mission is to develop valuable therapies for individuals with hemophilia who need new or better treatment options. Key elements of our strategy to achieve this goal are to:

Collaborations

Pfizer

On June 29, 2009, we entered into a Research and License Agreementagreement with Wyeth Pharmaceuticals, Inc., which was subsequently acquired by Pfizer, Inc. (“Pfizer”), whereby we and Pfizer collaborated on the development of novel human Factor VIIa products and we granted Pfizer the exclusive rights to develop and commercialize the licensed products on a worldwide basis. As a result of this agreement, Pfizer paid us an up-front non-refundable signing fee of $21.0 million, which was initially recognized as revenue ratably over the term of our continuing involvement in the research and development of products with Pfizer. The term was determined to be five years (covering the initial two-year research term plus potential extensions permitted under the applicable agreement).

During the initial two years of the collaboration period Pfizer reimbursed us for certain costs incurred in the development of the licensed products including FTE-based research payments. Following the conclusion of the initial collaboration, without extension by Pfizer, we had no further substantive performance obligations to Pfizer under the agreement and we recognized the remaining $12.6 million of deferred revenue related to the up-front fee in June 2011. Subsequently, in August 2013, we amended the Pfizer agreement, in accordance with which Pfizer made two $1.5 million non-refundable annual license maintenance payments to us in August 2013 and August 2014 and we agreed to certain performance obligations to Pfizer for the period starting from the effective date of the amendment. Pfizer was also obligated to pay to us contingent milestone-based payments upon the occurrence of certain defined development, commercialization, and sales-based milestones.

On April 2, 2015, Pfizer notified us that it was exercising its right to terminate the research and license agreement effective June 1, 2015. Accordingly, we revised the expected period of performance to end on June 1, 2015, and the deferred revenue balance was fully amortized as of that date.

On December 8, 2016, we signed a definitive agreement related to the termination of the Pfizer agreement.Agreement. Pursuant to this termination agreement, Pfizer granted us an exclusive license to Pfizer’s proprietary rights for manufacturing materials and processes that apply to Factor VIIa variants, CB 813a and marzeptacog alfa (activated).MarzAA. Pfizer also transferred to us the Investigational New Drug (“IND”)IND application and documentation related to the development, manufacturing and testing of the Factor VIIa products as well as the orphan drug designation.

Pursuant to this agreement, we agreed to make contingent cash payments to Pfizer in an aggregate amount equal to up to $17.5 million, payable upon the achievement of clinical, regulatory and commercial milestones. Following commercialization of any of Factor VIIa products,covered product, Pfizer would also receive a single-digit royalty on net product sales on a country-by-country basis for a predefined royalty term. In February 2018, we paid Pfizer a $1 million milestone payment based on the dosing of the first patient in the ongoing Phase 2 study, recorded as an R&D expense.

ISUAbxis

On September 16, 2013,December 13, 2018, we signed aentered into an Amended and Restated License Agreement (the “A&R ISU Abxis Agreement”), effective as of December 17, 2018, with ISU Abxis, which amends and restates in full our License and Collaboration Agreement with ISU Abxis, dated as of September 16, 2013, as subsequently amended on October 31, 2014 and on December 7, 2016 or the(the “Original ISU Abxis agreement. UnderAgreement”).  Pursuant to the A&R ISU Abxis agreement we licensed our proprietary human Factor IX products toAgreement, ISU Abxis for initial development in South Korea. ISU Abxis is responsible for development and manufacturing of the licensed products through Phase 1/2 clinical trials. Until the completion of Phase 1 development ISU Abxis also has a right of first refusal with respect to commercialization rights for the licensed products in South Korea. We have the sole rights and responsibility for worldwide development, manufacture, and commercialization of Factor IX products after Phase 1/2 development unless ISU Abxis has exercised its right of first refusal regardingwill receive commercialization rights in South Korea to DalcA and the Company will receive clinical development and commercialization rights in which case our rights are throughout the entirerest of world excluding(excluding South Korea. ISU Abxis’sKorea) and manufacturing development and manufacturing rights (but notworldwide (including South Korea). The A&R ISU Abxis Agreement eliminates the profit-sharing arrangement in the Original ISU Abxis Agreement and provides for a low single-digit royalty payment to ISU Abxis, on a country-by-country basis, for net product sales of DalcA by the Company or its right of first refusal)affiliates in each country other than South Korea. Pursuant to the A&R ISU Abxis Agreement, the Company will also terminate if we enter into a license agreement with another partymake up to develop, manufacture, and commercialize Factor IX productsan aggregate of $19.5 million in one major market territory.

Priormilestone payments to completion of Phase 1/2 clinical studies, ISU Abxis, is responsible forinclusive of $2.5 million in regulatory and will funddevelopment milestone payments and up to $17 million in commercial milestone payments, if the clinical development and manufacture ofapplicable milestones are met.

Under the licensed products.Original ISU Abxis will also reimburse us for a portion of our costs relating to intellectual property filings and maintenance thereof on products. We have established a joint steering committee with ISU Abxis to, among other things, coordinate and assist in planning and execution of development activities and review the product development plan.

Agreement, ISU Abxis paid us a non-refundable upfront signing fee of $1.75 million. ISU Abxis iswas also obligated, under the Original ISU Abxis Agreement, to make contingent cash payments to us of up to $2.75 million payable based upon the achievement of predefined development milestones, (none of which have beentwo were achieved for a total of $2.65 million as of the date of this filing). In addition, we are required to payDecember 31, 2018.

The A&R ISU Abxis for some preclinical IND enabling studiesAgreement contains customary representations, warranties, covenants and indemnification provisions. The A&R ISU Abxis Agreement may be terminated by either party, subject to applicable notice and/or cure periods, upon a royaltymaterial breach by or an event of between a quarter and a third of our net profits determined on a country-by-country basis until the expiration of the last valid claim in such country or fifteen years after the first commercial sale of a product in such country, whichever is sooner, after which time we will have a perpetual, irrevocable and non-exclusive licensebankruptcy relating to the applicable technology with respect to such country. However, if the Phase 1/2 clinical studyother party or by mutual consent of the Factor IX products is not completed by a specified date and we continue the development of Factor IX products using cell lines created by ISU Abxis or in a manner that otherwise would be covered by a patent held by ISU Abxis or if the Phase 1/2 clinical trial is not successful and we continue to develop the Factor IX products, we will be obligated to pay ISU Abxis a low single-digit royalty on net product sales, in addition to up to $2.0 million in potential milestone payments to ISU Abxis. Either party may terminate the ISU Abxis agreement in its entirety upon written notice of a material uncured breach or upon the other party’s bankruptcy and we may terminate the agreement upon prior notice if the Phase 1/2 clinical study is not completed by a certain date. both parties.

As of December 31, 2016,2018, the cumulative aggregate payments received and recognized by us under this agreement the Original ISU Abxis Agreement were $1.4$2.65 million and we had made reimbursements of $0.3$0.2 million to ISU Abxis, associated with certain preclinical studies.studies in 2018. The adoption of the new revenue standards resulted in a $0.2 million cumulative adjustment to the Company’s opening balance of accumulated deficit as of January 1, 2018. We had no deferred revenue balance as of December 31, 2018 related to the ISU Abxis collaboration.

Intellectual Property

We have established a broad intellectual property portfolio including patents and patent applications covering the identification, selection, optimization, and manufacture of human proteases, the composition of matter and methods of use of our product candidates and related technology, and other inventions that are important to our business.

We strive to protect the proprietary technologies that we believe are important to our business by seeking, maintaining and defending patent rights, whether developed internally or in conjunction with or in-licensed from third parties. We also rely on trade secrets relating to our proprietary technology platform and on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen, and maintain our proprietary position in the field of human protease engineering.engineering

As more fully described below, as of January 8, 2017,December 31, 2018, our patent portfolio included approximately 112161 patents; including 1315 issued and allowed U.S. patents and 99146 foreign granted and accepted patents, and 45 U.S. patent applications, plus an additional 6420 pending foreign patent applications. We also rely on trade secrets and careful monitoring of our proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.

Our success will depend significantly on our ability to:

In addition, in connection with the license granted to us by Pfizer, we agreed to make contingent cash payments to Pfizer in an aggregate amount equal to up to $17.5 million, payable upon the achievement of clinical, regulatory and commercial milestones, the timing of which is uncertain. Following commercialization of any of Factor VIIa products, Pfizer would also receive a single-digit royalty on net product sales on a country-by-country basis for a predefined royalty term. See “Item 1 - —Business—Collaborations” in this Annual Report on Form 10-K.

In connection with the Amended and Restated License Agreement (the “A&R ISU Abxis Agreement”) with ISU Abxis, the Company will also make up to an aggregate of $19.5 million in milestone payments to ISU Abxis, inclusive of $2.5 million in regulatory and development milestone payment and up to $17 million in commercial milestone payment, if the applicable milestones are met. See “Item 1—Business—Collaborations” in this Annual Report on Form 10-K.

Further, in connection with an initial statement of work under the Development and Manufacturing Agreement that we have entered into with CMC ICOS Biologics, Inc. (“CMC”),AGC, regarding the MarzAA manufacturing development project, we have agreed to a total of $3.8 million in payments to CMC,AGC, of which $3.5 million has been paid as of December 31, 2018, subject to the completion of work relatingwork. We have also agreed to pay AGC approximately $5.6 million the process transfer and commercial scale cGMP manufacturing development of marzeptacog alfa (activated).DalcA, of which $2.2 million has been paid cumulatively as of December 31, 2018. See “Item 1 - Business - Collaborations1—Business—Manufacturing” in this Annual Report on Form 10-K.

To become and remain profitable, we must succeed in developing and eventually commercializing products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling any products for which regulatory approval is obtained. We are only in the preliminary stages of most of these activities. We may never succeed in these activities and, even if we do, we may never generate revenues that are significant enough to achieve profitability.

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. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Failure to become and remain profitable would depress the value of the company and could impair our ability to raise capital, expand our business, maintain research and development efforts, diversify product offerings or even continue operations. A decline in the value of the Company could also cause you to lose all or part of your investment.

We willmay need additional capital. If we are unable to raise sufficient capital, we will be forced to delay, reduce or eliminate product development programs.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. We expect our research and development expenses to increase with our ongoing activities, particularly activities related to the continued clinical development of marzeptacog alfa (activated),MarzAA and DalcA, including a clinical efficacy trial and, if Phase 1 clinical trials of CB 2679d/ISU304 are successful, an efficacy trial for thateach compound. We believe that our available cash will be sufficient to fund our operations at for at least through the first quarternext 12 months from the date of 2018.this Annual Report on Form 10-K. However, we willmay need to raise substantial additional capital to complete the development and commercialization of marzeptacog alfa (activated), CB 2679d/ISU304,MarzAA, DalcA, and depending on the availability of capital, may need to delay development of some of our product candidates.

In August 2015, we issued $37.0 million in aggregate principal amount of redeemable convertible notes to former Targacept stockholders as part of a dividend immediately prior to the completion of the merger (the “Pre-Closing Dividend”), with an amount equal to the total principal deposited in an escrow account for the benefit of the noteholders. The notes may be redeemed for cash or repaid upon maturity, holders may also elect to convert any principal amount of the notes into shares of common stock at a price of $137.85 per share on or before February 19, 2018. As of December 31, 2016, $17.3 million in aggregate principal has been redeemed and $0.3 million had been converted to common stock. Except for this arrangement, we have no commitments or arrangements for any additional financing to fund our research and development programs. There can be no assurance regarding the amount of the notes that will be redeemed or the portion of the remaining $19.4 million in capital that will become available to us.

Until we can generate a sufficient revenue from our product candidates, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings, corporate collaborations and/or licensing arrangements. Additional funds may not be available when we need them on terms that are acceptable, or at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our research or development programs.

Because successful development of our product candidates is uncertain, we are unable to estimate the actual funds required to complete research and development and commercialize our products under development. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

Raising additional funds by issuing securities or through licensing arrangements may cause dilution to stockholders, restrict our operations or require us to relinquish proprietary rights.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of common stockholders.

Debt financing, if available at all, 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 additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, product candidates or future revenue streams or grant licenses on terms that are not favorable to us. We may also seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. There can be no assurance that we will be able to obtain additional funding if, and when necessary. If we are unable to obtain adequate financing on a timely basis, we could be required to delay, curtail or eliminate one or more, or all, of our development programs or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

In March 2016, we filed a shelf registration statement on Form S-3 with the SEC, which registration statement was declared effective on April 28, 2016 and allows us to offer up to $50 million of securities from time to time in one or more public offerings of our common stock. In addition, in March 2016, we entered into(the “2016 Registration Statement”). Through a Capital on Demand™ Sales Agreement with JonesTrading Institutional Services LLC (“JonesTrading”)., we sold an aggregate of 479,681 shares of common stock in the open market at a weighted-average selling price of $13.55 per share, for net proceeds (net of commissions) of $6.3 million through December 31, 2017, of which $5.5 million were sold in the year ended December 31, 2017. In accordanceaddition, in December 2017, we sold an aggregate of 1,105,263 registered shares of common stock at a price to the public of $9.50 per share, for net proceeds to us, after deducting underwriting discounts and commissions and offering expenses payable by us, of approximately $9.7 million. Pursuant to the 2016 Registration

Statement, we may sell up to approximately $33 million in additional securities in one or more offerings. In addition, in January 2018, we filed a shelf registration statement with the terms of

the sales agreement, as of December 31, 2016, we maySEC, which registration statement was declared effective on February 6, 2018 and allows us to offer and sell additional shares of our common stock having an aggregate offering price of up to $5.5$150 million of securities from time to time. time in one or more offerings (the “January 2018 Registration Statement”). On February 13, 2018, we sold an aggregate of 3,382,352 registered shares of common stock at a price to the public of $34.00 per share, for net proceeds to us, after deducting underwriting discounts and offering expenses payable by us, of approximately $106.8 million. Pursuant to the January 2018 Registration Statement, we may sell up to approximately $35 million in additional securities in one or more offerings. In addition, in December 2018, we filed a shelf registration statement with the SEC, which registration statement was declared effective on February 14, 2019, and allows us to offer up to $200 million of securities from time to time in one or more offerings (the “December 2018 Registration Statement”).

Any additional sales in the public market of our common stock or other securities under the agreement with JonesTrading or otherwise under thethese shelf registration statement,statements could adversely affect prevailing market prices for our common stock.

We have no history of clinical development or commercialization of pharmaceutical products, which may make it difficult to evaluate the prospects for the company’s future viability.

We began operations in August 2002. Our operations to date have been limited to financing and staffing the company, developing our technology and product candidates and establishing collaborations. We have not yet demonstrated an ability to successfully conduct a clinical trial, obtain marketing approvals, manufacture a product for clinical trials or at commercial scale, or arrange for a third-party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, predictions about the company’s future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.

Risks related to the discovery, development and commercialization of our product candidates

We are substantially dependent upon the success of marzeptacog alfa (activated)MarzAA and CB 2679d/ISU304.DalcA.

The failure of marzeptacog alfa (activated)MarzAA or CB 2679d/ISU304DalcA to commence anticipated clinical trials or achieve successful clinical trial endpoints, delays in clinical development, generally, unanticipated adverse side effects, the cessation of clinical development or any other adverse developments or information related to marzeptacog alfa (activated)MarzAA or CB 2679d/ISU304DalcA would significantly harm our business, its prospects and the value of the company’s common stock. We expect to advance marzeptacog alfa (activated) intocomplete enrollment of a Phase 2 clinical efficacy2/3 subcutaneous dosing trial of MarzAA in individuals with hemophilia A and B inhibitors andthis year. We plan to advance CB 2679d/ISU304DalcA into a Phase 1/2 clinical trial in individuals with hemophilia B.2b study. There is no guarantee that the results of thesefurther clinical trials if they occur,of MarzAA or DalcA will be positive or will not generate unanticipated safety concerns. The Phase 1 clinical trial of marzeptacog alfa (activated)MarzAA was a single-dose escalation trial that would not, compared to multi-dose trials, be expected to exclude the possibility of an immunological response to marzeptacog alfa (activated)MarzAA in individuals who received the product candidate. After completionWhile so far none of the dosing portion ofpatients in the Phase 1 clinical2/3 subcutaneous dosing trial Pfizer observed a positive result in an assay for a potential non-neutralizing anti-drug antibody in a single individual at a time point 60 days post-dosing that was not confirmed by testing of a subsequent, follow-up blood draw. Additional confirmatory testing indicated that this was due to a false positive assay result; however,MarzAA developed any inhibitory antibodies, there can be no assurance that anti-marzeptacog alfa (activated)such antibodies or other adverse events will not be observed in subsequent trials.  If subsequent multi-dosethe future. Neutralizing antibodies have been observed in clinical trials of marzeptacog alfa (activated)DalcA. If additional neutralizing antibodies or other adverse events in patients receiving either MarzAA or DalcA lead to concerns about patient safety, the long-term efficacy, or commercial viability of CB 2679d/ISU304 demonstrate a treatment-related neutralizing immunological response in individuals,either product candidate, development of such product candidate could be halted. Even if the next trials of marzeptacog alfa (activated)MarzAA and DalcA are positive, marzeptacog alfa (activated)each product candidate may require substantial additional trials and other testing before approving marzeptacog alfa (activated) for marketing, and CB 2679d/ISU304 will require additional trials and other testing before receiving approvalbeing approved for marketing.

Marzeptacog alfa (activated)MarzAA and CB 2679d/ISU304DalcA are not expected to be commercially available in the near term, if at all. Further, the commercial success of each product candidate will depend upon its acceptance by physicians, patients, third-party payors and other key decision-makers as a therapeutic and cost effectivecost-effective alternative to currently available products. If we are unable to successfully develop, obtain regulatory approval for and commercialize marzeptacog alfa (activated)MarzAA and CB 2679d/ISU304,DalcA, our ability to generate revenue from product sales will be significantly delayed and our business will be materially and adversely affected, and we may not be able to earn sufficient revenues to continue as a going concern.

Even if the FDA or other regulatory agency approves marzeptacog alfa (activated)MarzAA or CB 2679d/ISU304,DalcA, the approval may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, marketing and/or production of such product and may impose ongoing commitments or requirements for post-approval studies, including additional research and development and clinical trials. The FDA and other agencies also may impose various civil or criminal sanctions for failure to comply with regulatory requirements, including withdrawal of product approval. Regulatory approval from authorities in foreign countries will be needed to market marzeptacog alfa (activated)MarzAA or CB 2679d/ISU304DalcA in those countries. Approval by one regulatory

authority does not ensure approval by regulatory authorities in other jurisdictions. If we fail to obtain approvals from foreign jurisdictions, the geographic market for marzeptacog alfa (activated)MarzAA or CB 2679d/ISU304DalcA would be limited.

We plan to conduct clinical trials for subcutaneous dosing trials of marzeptacog alfa (activated)DalcA has caused and CB 2679d/ISU304, which is an untested route of administration for these product candidates in humans.

We expect to commence a subcutaneous prophylaxis clinical trial of marzeptacog alfa (activated) in 2017 and for ISU Abxis to commence a subcutaneous clinical trial of CB 2679d/ISU304 in the second quarter of 2017. Neither product candidate has previously been studied in human clinical trials using subcutaneous dosing. There can be no assurance that either product will achieve efficacious levels of biological activity when administered subcutaneously. There can also be no assurance that the clinical trial results will be positive or that the clinical trials will not generate unanticipated safety concerns. The failure of either product to achieve successful clinical trial endpoints, delays in clinical trial commencement or in clinical development generally, unanticipated adverse side effects, adverse immunological responses, or any other adverse developments or information related to our product candidates would significantly harm our business, its prospects and the value of our common stock.

Marzeptacog alfa (activated) and CB 2679d/ISU304MarzAA may cause the generation of neutralizing antibodies, which could prevent their further development.

Both marzeptacog alfa (activated)MarzAA and CB 2679d/ISU304DalcA are protein molecules which may cause the generation of antibodies in individuals who receive them. The Phase 1 clinical trial of marzeptacog alfa (activated)MarzAA was a single-dose intravenous escalation trial that would not, compared with multi-dose trials or higher doses administered subcutaneously, be expected to exclude the possibility of an immunological response to marzeptacog alfa (activated)MarzAA in individuals who received the product candidate. One subject from the 18 μg/kg dose group developedWhile no antibodies to MarzAA have been observed in a weak, transient and non-neutralizing anti-marzeptacog alfa (activated) antibody at a single time point of Day 60 post-dose. The positive anti-marzeptacog alfa (activated) antibody was characterized as cross-reactive with NovoSeven® and native human Factor VII. Additional review of the raw data suggests that the bioanalytical resultmulti-dose subcutaneous Phase 2 portion of a weak positive anti-drug antibody immune response at Day 60 may represent a false-positive test result. There werePhase 2/3 trial, there can be no subjects with evidence ofassurance such antibodies will not be observed in the future. Two patients who received DalcA subcutaneously following intravenous dosing developed neutralizing antibodies against marzeptacog alfa (activated), and there werethat inhibit the activity of DalcA. There can be no subjects with >50% depletion of Factor VII activity relative to baseline.

assurance that such antibodies will not be observed in the future, either in the patients who have already received DalcA or MarzAA, or in new patients. If subsequent multi-doseclinical trials demonstrate a treatment-related neutralizing immunological response in individuals that causes safety concerns or would limit the efficacy of either product candidate, development of marzeptacog alfa (activated) or of CB 2679d/ISU304the product candidate could be halted.

WeMarzAA and DalcA are transitioning manufacturing and clinical activities related to marzeptacog alfa (activated) from Pfizer to CMC and continuing to optimize the manufacturing process. This process will be lengthy and its outcome uncertain.

Pfizer, through its wholly-owned subsidiary Wyeth, conducted the Phase 1 clinical trial of marzeptacog alfa (activated) pursuant to a research and license agreement. Pfizer terminated this agreement effective June 1, 2015.

In March 2016, we engaged CMC to conduct manufacturing development and, upon successful development of the manufacturing process, manufacture the marzeptacog alfa (activated) that we intend to use in ourearly clinical trials, on a fee-for-services basis.  During 2016, we also worked with Pfizer to transition manufacturing capabilities from Pfizer to CMC, and in December 2016, Pfizer granted us an exclusive license to its proprietary rights for manufacturing materials and processes that apply to Factor VIIa variants, CB 813a and marzeptacog alfa (activated). Pfizer also transferred the IND and documentation related to the development, manufacturing and testingall of the Factor VIIa products to us. Manufacturing of biological therapeutics such as marzeptacog alfa (activated) is complex and scale-dependent, and we may need to further optimize the manufacturing process of marzeptacog alfa (activated) to manufacture clinical supplies for additional clinical trials.  There can be no assurance that CMC will be able to manufacture sufficient quantities of marzeptacog alfa (activated) to satisfy our clinical trial requirements in a timely manner, within expected budgets or at all.  See “Item 1 - Business - Collaborations” in this Annual Report on Form 10-K.

We are very early in our development efforts and have only one product candidate that has completed a Phase 1 clinical trial. All our other product candidates are still in preclinical development. If we are unable to obtain regulatory clearance and commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed.

We are very earlyMarzAA is in our development effortsa Phase 2/3 clinical trial and have only one product candidate thatDalcA has completed a Phase 11/2 clinical trial, marzeptacog alfa (activated).trial. All our other product candidates are still in preclinical development. We expect to advance marzeptacog alfa (activated) into a Phase 2 clinical efficacy trial in individuals with hemophilia A and B inhibitors and to advance CB 2679d/ISU304 into a Phase 1/2 clinical trial in individuals with hemophilia B. However, the FDA may require additional pre-clinical testing before we are permitted to commence subcutaneous dosing trials of marzeptacog alpha (activated), and the Korea Food and Drug Administration may require additional pre-clinical testing before subcutaneous dosing trials of CB 2679d/ISU304.  Moreover, engineeredEngineered protease biopharmaceuticals are a relatively new class of therapeutics. There can be no assurance as to the length of the trial period, the number of individuals the FDA will require to be enrolled in the trials to establish the safety, efficacy, purity and potency of the engineered protease products, or that the data generated in these trials will be acceptable to the FDA or foreign regulatory agencies to support marketing approval. Our ability to generate product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates. The success of our product candidates will depend on several factors, including the following:

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

Risks related to our reliance on third parties

We depend on our collaborative relationship with ISU Abxis for the Phase 1 development of CB 2679d/ISU304.

We have a collaboration agreement with ISU Abxis for preclinical and Phase 1/2 development of an improved, next-generation Factor IX product, CB 2679d/ISU304, to enable an investigational new drug application, which requires ISU Abxis to obtain approval from South Korean regulatory authorities to conduct trials. Under this agreement, ISU Abxis is responsible for manufacturing and Phase 1/2 clinical trials of this product candidate, and we depend on ISU Abxis to complete these activities.

Our ability to generate revenues from this arrangement will depend on the ability of ISU Abxis to successfully perform the functions assigned to it in this arrangement, and accordingly, any failure by ISU Abxis to develop this product candidate could adversely affect our cash flows. Further, this collaboration agreement may not lead to development or commercialization of this product candidate in the most efficient manner or at all, and ISU Abxis has the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms. We are subject to a number of risks associated with our dependence on ISU Abxis:

We expect to seek to establish additional collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.

Our drug development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. Accordingly, we may seek one or more additional collaborators for the development and commercialization of one or more of our product candidates. For example, we may seek a new collaborator to develop marzeptacog alfa (activated)MarzAA and might also seek collaborators for CB 2689d/ISU304DalcA or our earlier stage programs. In addition, full development efforts on the use of our novel proteases for the treatment of DGF or dry AMD will likely involve significant cost, and we do not expect to conduct any such efforts except in collaboration with one or more partners who are willing to pay for such costs.

We face significant competition in seeking appropriate collaborators. Whether we can reach a definitive agreement with a collaborator will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of preclinical trials, the likelihood of approval by the FDA or comparable foreign regulatory authorities and the regulatory pathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product to patients and the potential of competing products. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us. There can also be no assurance that any collaboration agreements will be on favorable terms.

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. 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 the product candidate for which we are seeking to collaborate, reduce or delay our development program or one or more of our other development programs, delay our potential commercialization or reduce the scope of any sales or marketing activities, and increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development 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.

We contract with third parties for the manufacture of our product candidates for preclinical testing and expect to continue to do so for clinical testing and commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We currently have no internal capabilities to manufacture our product candidates for clinical use or for preclinical trials following good manufacturing practices, or GMP, or good laboratory practices, or GLP. We expect to rely on one or more third-party contractors to manufacture, package, label and distribute clinical supplies and commercial quantities of any product candidate that we commercialize following approval for marketing by applicable regulatory authorities. We also expect to rely on one or more third-party contractors to manufacture our product candidates for use in our clinical trials. Reliance on such third-party contractors entails risks, including:

We may incur delays in product development resulting from the need to identify or qualify manufacturers for our product candidates. Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis.

We are transitioning manufacturing and clinical activities related to MarzAA and DalcA from Pfizer and ISU Abxis, respectively, to AGC and continuing to optimize the manufacturing processes for these candidates. This process will be lengthy and its outcome uncertain.

Pfizer, through its wholly-owned subsidiary Wyeth, conducted the Phase 1 clinical trial of MarzAA pursuant to a research and license agreement. Pfizer terminated this agreement effective June 1, 2015. ISU Abxis conducted the Phase 1/2 clinical trial of DalcA and was responsible for manufacturing clinical trial materials for this study.

In March 2016, we engaged AGC to conduct manufacturing development and, upon successful development of the manufacturing process, manufacture the MarzAA that we intend to use in our clinical trials on a fee-for-services basis. In addition, in February 2018, we engaged AGC to conduct process transfer and commercial scale manufacturing of DalcA for use in our clinical trials. Manufacturing of biological therapeutics such as MarzAA and DalcA is complex and scale-dependent, and we may need to further optimize the manufacturing process of these product candidates. There can be no assurance that AGC will be able to manufacture sufficient quantities of MarzAA to satisfy our clinical trial requirements in a timely manner, within expected budgets or at all. Delays in the manufacture of DalcA could delay the start of future clinical trials of DalcA, if any.

We and our contract manufacturers will be subject to significant regulation with respect to manufacturing our products. The manufacturing facilities on which we will rely may not continue to meet regulatory requirements and have limited capacity.

All entities involved in the preparation of therapeutics for clinical studies or commercial sale, including any contract manufacturers for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical studies must be manufactured in accordance with GMP. 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 adventitious agents or other 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 a BLAbiologics license application (“BLA”) on a timely basis and must adhere to the FDA’s good laboratory practices, or GLP, and GMP regulations enforced by the FDA through its facilities inspection program. Our facilities and quality systems and the facilities and quality systems of some or all our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the

preparation of our product candidates or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If these facilities do not pass a pre-approval plant inspection or do not have a GMP compliance status acceptable for the FDA, FDA approval of the products will not be granted.

The regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third- party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third-party to implement and that may include the temporary or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.

If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product or biologic product, or revocation of a pre-existing approval. As a result, our business, financial condition and results of operations may be materially harmed.

Additionally, if supply from one approved manufacturer is interrupted, there could be a significant disruption in commercial supply. An alternative manufacturer would need to be qualified through a BLA supplement which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

These factors could cause the delay of clinical studies, regulatory submissions, required approvals or commercialization of our product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical studies may be delayed, or we could lose potential revenue.

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

We expect to rely on third parties such as contract research organizations, or CROs, medical institutions and clinical investigators to enroll qualified patients and conduct, supervise and monitor clinical trials. Our reliance on these third parties for clinical development activities will reduce our control over these activities. Our reliance on these third parties, however, will not relieve us of our regulatory responsibilities, including ensuring that our clinical studies are conducted in accordance with good clinical practices, or GCP, and the investigational plan and protocols contained in the relevant regulatory application, such as an investigational new drug application, or IND. In addition, the CROs with whom we contract may not complete activities on schedule or may not conduct our preclinical studies or clinical studies in accordance with regulatory requirements or our clinical study design. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, our efforts to obtain regulatory approvals for, and to commercialize, our product candidates may be delayed or prevented.

We expect to seek to establish additional collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.

Our drug development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. We have previously relied on collaborators, such as Pfizer and ISU Abxis, to contribute to the development of our product candidates, and we are currently working with Mosaic to support the development of our dry AMD product candidates. We may seek one or more additional collaborators for the development and commercialization of one or more of our product candidates. For example, we may seek a new collaborator to develop MarzAA and might also seek collaborators for DalcA or our earlier stage programs. In addition, full development efforts on the use of our novel proteases for the treatment of dry AMD will likely involve significant cost, and we do not expect to conduct any such efforts except in collaboration with one or more partners who are willing to pay for such costs.

We face significant competition in seeking appropriate collaborators. Whether we can reach a definitive agreement with a collaborator will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of preclinical trials, the likelihood of approval by the FDA or comparable foreign regulatory authorities and the regulatory pathway for any such approval, the potential market for the product candidate, the costs and complexities of manufacturing and delivering the product to patients and the potential of competing products. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available for collaboration and whether such a collaboration could be more attractive than the one with us. There can also be no assurance that any collaboration agreements will be on favorable terms.

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. 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 the product candidate for which we are seeking to collaborate, reduce or delay our development program or one or more of our other development programs, delay our potential commercialization or reduce the scope of any sales or marketing activities, and increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development 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.

Risks related to employee matters, managing growth and our business operations

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

Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management and scientific personnel, including our President and Chief Executive Officer, Dr. Nassim Usman, our Chief Medical Officer, Dr. Howard Levy, our Chief Financial Officer, Fletcher Payne, and our Senior Vice President of Technical Operations, Andrew Hetherington.Hetherington and our Vice President of Translational Research, Dr. Grant Blouse. We do not maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. In addition, we will need to add personnel to achieve our business objectives. The loss of the services of any of our executive officers, other key employees, and our inability

to find suitable replacements, or our inability to hire new clinical development and manufacturing personnel, could result in delays in product development and harm our business.

We conduct operations at our facility in the San Francisco Bay Area. This region is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.

To induce valuable employees to remain at Catalyst, in addition to salary and cash incentives, we have provided stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in the company’s stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of management and scientific and development teams may terminate their employment with the company on short notice. Our employees are under at-will employment arrangements, which means that any of our employees can leave employment with Catalyst at any time, with or without notice. Failure to retain, replace or recruit personnel could harm our business.

Our employees, principal investigators, consultants and 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, principal investigators, consultants and collaborators. Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-U.S.non-US regulators, to provide accurate information to the FDA and non-U.S.non-US regulators, to comply with healthcare fraud and abuse laws and regulations in the United States and abroad, to report financial information or data accurately or to disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained during clinical studies that could result in regulatory sanctions and cause serious harm to our reputation. 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 fines or other sanctions.

We will continue to incur significant increased costs as a result of operating as a public company, and our new management is required to devote substantial time to compliance initiatives, particularly after the completion of a one-year transition period to full compliance.initiatives.

Upon the completion of the merger between Targacept and Catalyst, the employment of the teams that historically operated the business of Targacept and its financial reporting was terminated, and substantially all of our current employees, including our finance staff, were the employees of Catalyst from before the merger or are new hires. Accordingly, prior to the merger, we had never operated our current business as a public company. As a public company, we have and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance requirements, in order to comply with the rules and regulations imposed by the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection, or the Dodd-Frank Act, as well as rules implemented by the SEC and Nasdaq. Stockholder activism, the political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways that are not currently anticipated. Our management and other personnel need to devote a substantial amount of time to these compliance initiatives. In addition, these rules and regulations make it difficult and expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain our current levels of such coverage. We expect that we will annually incur significant additional expenses to comply with the requirements imposed on us as a public company.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls over financial reporting and disclosure controls and procedures. In particular, as a public company, we are required to perform system and process evaluations and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. However,Pursuant to Section 404 of the Sarbanes-Oxley Act, our independent registered public accounting firm was notis required to deliver an attestation report on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act for the year ended December 31, 2016, based on the SEC’s guidance for reporting over smaller reporting companies.reporting. In addition, our testing, or the subsequent testing in the future by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that may be deemed to be material weaknesses. Our compliance with Section 404 will require that we incur substantial accounting expense and management time on compliance-related issues. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause our stock price to decline.

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

Our offices are located in the San Francisco Bay Area, which is prone to earthquakes. Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that prevented usU.S. from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for usU.S. to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans that, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.

Risks related to our intellectual property

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

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our product candidates. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. Third parties may challenge the validity, enforceability or scope of our patents, that may result in those patents being narrowed or invalidated. The patent applications that we own may fail to result in issued patents with claims that cover our product candidates in the United States or in other foreign countries. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our product candidates or prevent others from designing around our claims. Certain of our patents also cover processes, for which enforcement can be difficult. Any of these outcomes could impair our ability to prevent competition from third parties that may have an adverse impact on our business.

If the patents or patent applications we hold or have in-licensed for our programs or product candidates are invalidated or fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for our product candidates, it could threaten our ability to commercialize future products. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate under patent protection could be reduced. In addition, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however the life of a patent, and the protection it affords, is limited. Once the patent life has expired for a product, we may be open to competition from generic medications.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent and other elements of our product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.

Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive position and may have a material adverse effect on our business. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. In addition, others may independently discover our trade secrets and proprietary information.

Further, filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

Third-party claims of intellectual property infringement or challenging the inventorship or ownership of our patents may prevent or delay our development and commercialization efforts.

Our commercial success depends in part on avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter partes reexamination proceedings before the U.S. Patent and Trademark Office, or U.S. PTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the patent rights of third parties.

Third parties may assert that the manufacture, use or sale of our product candidates infringes patents held by such third parties, or that we are employing their proprietary technology without authorization. For example, we are aware of a patent that has been issued in Europe (with counterparts in Australia, China, Japan, Poland, and South Korea) and includes a claim that may read on marzeptacog alfa (activated).MarzAA. An opposition proceeding with respect to this patent sustained this patent, and we filed an appeal on November 11, 2016. There can also be no assurance whether or not the claims of such patent would be found to read on marzeptacog alfa (activated)MarzAA even if a claim survives the opposition. There may be third-party patents or patent applications with claims to compositions of matter, materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates may infringe.

In addition, we have received confidential and proprietary information from third parties, and we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of these third parties or our employees’ former employers. Litigation may be necessary to defend against these claims.

Parties making claims against us may obtain injunctive or other equitable relief that could effectively block our ability to further develop and commercialize one or more of our product candidates unless we redesigned infringing products (which may be impossible) or obtained a license under the applicable patents (which may not be available on commercially reasonable terms or at all), or until such patents expire.

We may be involved in lawsuits to protect or enforce our patents.

Competitors may infringe our patents. To counter infringement or unauthorized use, we or our collaborators may be required to file infringement claims that can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one of our patents is not valid, is unenforceable and/or is not infringed, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States.

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

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

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims, regardless of their merit, would cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, in addition to paying royalties, redesign infringing products or obtain one or more licenses from third parties that, may be impossible or require substantial time and monetary expenditure. 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 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 conduct such litigation or proceedings adequately. 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. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.

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

A third-party may hold intellectual property, including patent rights, that is important or necessary to the development of our products. It may be necessary for us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would be required to obtain a license from these third parties on commercially reasonable terms, or our business could be harmed, possibly materially.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, and changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The U.S. PTO is currently developing regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, were enacted March 16, 2013. However, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business.

Risks related to regulatory approval of our product candidates and other legal compliance matters

If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.

While we have multiple drug candidates in clinical and advanced preclinical development for a range of diseases, we have not yet submitted biologics license applications, or BLAs, for our engineered human proteases to the FDA, or similar approval filings to comparable foreign authorities. Submission of a BLA requires extensive preclinical and clinical data and supporting information that demonstrates the product candidate’s safety, purity, and potency, also known as safety and effectiveness, for each desired indication. A BLA must also include significant information regarding the chemistry, manufacturing and controls for the product. OneMarzAA is in a Phase 2 part of our product candidates, marzeptacog alfa (activated),a Phase 2/3 clinical trial, and DalcA has completed a Phase 11/2 clinical trial. However, failure of one or more clinical trials can occur at any stage in the clinical trial process. Accordingly, the regulatory pathway for our product candidates is still uncertain, complex, and lengthy, and ultimately, approval may not be obtained.

We may experience delays in completing planned clinical trials for a variety of reasons, including delays related to:

We could also experience delays in obtaining approval if physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles given the serious nature of the diseases for the core indications for our product candidates. Additionally, a clinical trial may be suspended or terminated by us, the IRBs for the institutions in which the trials are being conducted, the Data Monitoring Committee for the trial, or by the FDA or other regulatory authorities for a number of reasons, 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 other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues, or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. In addition, the FDA review and approval process could be delayed by any future shutdown of the U.S. government, and our development activities could be harmed or delayed as a result. If we experience termination of, or delays in the completion of, any clinical trial of our product candidates, our ability to commercialize our product candidates will be harmed and our ability to generate revenue will be materially impaired. Additionally, delays in completing trials will increase costs, slow down our product development and approval process, and impair our ability to commence product sales and generate revenue. Many of the factors that could create or lead to a delay in the commencement or completion of clinical trials may ultimately lead to the denial of regulatory approval for our product candidates.

The FDA may disagree with our regulatory plan and we may fail to obtain regulatory approval of our product candidates.

The results of clinical trials we conduct may not support regulatory approval of our product candidates. Our product candidates could ultimately fail to receive regulatory approval for many reasons, including the following:

Our relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we would market, sell and distribute our products. As a pharmaceutical company, even though we do not and may 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. These regulations include:

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices for our product candidates.

In the United States and some foreign jurisdictions, there have been, and there may be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates for which we obtain marketing approval. These changes could result from a number of different reasons, for example, a change in the U.S. Presidential Administration, and we cannot predict what these changes will be or their impact on our development and marketing activities or our operations or financial performance.

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

More recently, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the PPACA, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms.

Among the provisions of the PPACA of importance to our potential product candidates are the following:

Holders of Common Stock

As of February 28, 2017,March 4, 2019, there were approximately 12665 holders of record of our common stock. In addition, a substantially greater number of stockholders may be “street name” or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions.

Securities Authorized for Issuance Under Equity Compensation Plans

The response to this item is incorporated by referencereferences from the discussion responsive thereto under the caption “Stock Based Compensation” in the notes to Financial Statements.Statements, and under the caption “Equity Compensation Plan Information” in Item 12.  Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters.

Dividend Policy

We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination related to dividend policy will be made at the discretion of our board of directors.

Unregistered Sales of Securities; Use of Proceeds from Registered Securities; Issuer Purchases of Equity Securities

None.

Information requested by this Item is not applicable as we are electing scaled disclosure requirements available to Smaller Reporting Companies with respect to this Item.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties, including those set forth under the heading “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Our actual results and the timing of selected events discussed below could differ materially from those expressed in, or implied by, these forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company focused on developing novel medicines to address serious medical conditions for individuals who need new or better treatment options. We used a scientific approach to engineer several protease-based therapeutic candidates. We are focusing our product development efforts in the field of hemostasis (the process that regulates bleeding) and have a mission to develop valuable therapies for individuals with hemophilia.

We are applying our substantial expertise in protease engineering and our proprietary product discovery platformused a scientific approach to create, engineer and characterize protease drug candidates. Proteasesseveral protease-based therapeutic candidates that regulate several complex biological cascades, or sequenced biochemical reactions, including the coagulation cascade (a mechanism of blood clotting) in hemophilia and non-hemophilia settings and the complement cascade that causes inflammation and tissue damage in certain diseases.  Our protease expertise allowed us to improve the biochemical and pharmacological properties of currently marketed hemophilia protease drugs, specifically Factors VIIa, IX and Xa and to create completely novel proteases that cleave disease-causing proteins, specifically complement Factor 3 (C3), for the potential treatment of dry age-related macular degeneration (Dry AMD) and renal delayed graft function (DGF).clotting.

Our most advanced program, is a highly potentsubcutaneously administered, next-generation engineered coagulation Factor VIIa, protease variant, marzeptacog alfa (activated) (formerly CB 813d), thatMarzAA, has completed enrollment of the Phase 2 portion of a Phase 2/3 subcutaneous dosing trial in individuals with hemophilia with an inhibitor. The Phase 2 portion of the open-label subcutaneous efficacy trial was designed to evaluate the ability of MarzAA to eliminate, or minimize, spontaneous bleeding episodes in individuals with hemophilia A or B with inhibitors and was initiated in December 2017. The trial has completed enrollment of 11 individuals with hemophilia and an inhibitor across six clinical trial sites globally. MarzAA has also successfully completed an intravenous Phase 1 clinical trial evaluating the pharmacokinetics, pharmacodynamics and coagulation activity in individuals with severe hemophilia A and B with and without an inhibitor. We will also initiate a subcutaneous Phase 1 pharmacokinetics, pharmacodynamics study in the second quarter of 2019 and expect the study to conclude in the fourth quarter of 2019. MarzAA has been granted orphan drug designation by the FDA for routine prophylaxis to prevent bleeding episodes in individuals with hemophilia A or B with inhibitors. We expect to advance marzeptacog alfa (activated) intocomplete the Phase 2 portion of a Phase 2/3open-label subcutaneous prophylaxis efficacy trial in 2017.the second half of 2019 and plan to conduct a global Phase 3 clinical study in 2020 assessing reductions in ABR in 20-40 patients with hemophilia with pre-dosing observation and six months of daily subcutaneous dosing of MarzAA.

Our next most advanced hemophilia program, a highly potentnext-generation engineered coagulation Factor IX, protease variant,DalcA (formerly CB 2679d/ISU304,ISU304), has completed advanced preclinical IND-enabling development. We expect to initiate a Phase 1/2 subcutaneous dosing trial for CB 2679d/ISU304in South Korea, that evaluated the safety and efficacy of DalcA in individuals with severe hemophilia B, sponsored by our collaborator, ISU Abxis. The objective of this study was to demonstrate the feasibility of increasing Factor IX activity trough levels from ~1% (severe hemophilia) to >12% (mild hemophilia with a reduced chance of spontaneous joint bleeds) with daily subcutaneous injections. DalcA has been granted orphan drug designation by the FDA and orphan medicinal product designation by the COMP of the EC. We plan to initiate a Phase 2b trial that will include 28 days of daily subcutaneous dosing in six subjects in the first quarter of 2019 and we expect the Phase 2b trial to be completed in the second quarter 2017.

The substantially enhanced potencyhalf of marzeptacog alfa (activated) and CB 2679d/ISU304 compared2019. Based on the efficacy data that we have previously shown in which subjects achieved high mild hemophilia FIX activity, we believe that DalcA has the potential to existing treatment options may allow for effectiveprovide a conveniently-dosed subcutaneous prophylactic treatment option for those suffering from hemophilia B.

We are currently focused on the clinical development of individuals with hemophilia A or B with an inhibitor or individuals withour improved, next-generation enhanced potency Factor VIIa (MarzAA) and Factor IX variants (DalcA) for subcutaneous prophylaxis. We have three additional assets, a FIX gene therapy construct CB 2679d-GT that has demonstrated 3-fold higher activity and 4-5 fold faster clotting time in a preclinical hemophilia B respectively. Catalyst’s engineered hemostasis proteases are designed to overcome current treatment limitationsmodel compared with the Padua variant of FIX that is in clinical development by allowing delivery via subcutaneous injectionothers, a Factor Xa pro-coagulant and a novel anti-C3 protease program for dry AMD, CB 2782 for which we believe will facilitate effective prophylactic treatment, especially in children,have a strategic research collaboration with Mosaic and ultimately deliver substantially better outcomes for individuals with hemophilia.intend to out-license.

Subcutaneous dosing results in progressive increases in the levels of our protease factors until they reach a stable blood level therapeutic target range (ideally mild hemophilia to normal). Conversely, dosing by intravenous infusions results in very high factor levels in the blood initially, but the factor level then falls rapidly to a trough level at a range that is measured as moderate or severe hemophilia, triggering the next dose.

Stable factor levels could potentially yield a significant improvement in outcomes and have the added benefit of convenience over competing intravenous therapeutics, particularly when administered to children where venous access is challenging.

We also have severalThe lead Factor Xa variants that havepro-coagulant molecule has demonstrated efficacy in several preclinical bleeding models and have the potential to be used as a universal pro-coagulant.procoagulant. We have delayed initiating further work on our Factor Xa therapeutic program at this time to focus our efforts on the Factor VIIa and Factor IX clinical programs.

The novel anti-C3 protease targets the complement cascade, a series of naturally occurring molecular processes that play a central role in the body’s inflammatory and immune response. In October 2017, we announced a strategic research collaboration with Mosaic, a related party, to develop intravitreal anti-complement factor three (C3) products for the treatment of dry AMD and other retinal diseases. In December 2018, we amended our collaboration agreement with Mosaic to, among other things, include certain additional products. The transaction was reviewed by disinterested members of our board of directors and approved by our audit committee. Expenses related to the collaboration were $1.3 million and $0.03 million for the years ended December 31, 2018 and 2017, respectively. We continueintend to explore licensing opportunitiesfind a partner for our anti-complement programs in DGF and Dry AMD so that we can focus our efforts and resources on advancing marzeptacog alfa (activated) and CB 2679d/ISU304 through Phase 2/3 and Phase 1/2 clinical trials, respectively.this program.

Based on industry reports and company reported sales, we estimate annualthe 2018 global market opportunity for MarzAA and DalcA to be approximately $2.2 billion and $1.5 billion, respectively. Annual worldwide sales in 20152018 for FDA-approved recombinant protease products for individuals with hemophilia A andor B and an inhibitor were approximately $2.4$1.2 billion and approximately $3.6$2.2 billion when including prothrombin complex concentrate products usedand bispecific antibody products. We are focused on advancing MarzAA through Phase 2/3 and DalcA through Phase 2b and potential Phase 3 clinical trials.

Transactions with related parties, including the transaction referred to treat individualsabove, are reviewed and approved by independent members of our Board of Directors in accordance with hemophilia B with an inhibitor.our Code of Business Conduct and Ethics.

On June 29, 2009, we entered into a Research and License agreement with Wyeth Pharmaceuticals, Inc., which was subsequently acquired by Pfizer, whereby we and Pfizer collaborated on the development of novel human Factor VIIa products and we granted Pfizer the exclusive rights to develop and commercialize the licensed products on a worldwide basis. As a result of this agreement, Pfizer paid us an up-front non-refundable signing fee of $21.0 million, which was initially recognized as revenue ratably over the term of our continuing involvement in the research and development of products with Pfizer. The term was determined to be five years (covering the initial two-year research term plus potential extensions permitted under the applicable agreement).

During the initial two years of the collaboration period Pfizer reimbursed us for certain costs incurred in the development of the licensed products including FTE-based research payments. Following the conclusion of the initial collaboration, without extension by Pfizer, we had no further substantive performance obligations to Pfizer under the agreement and we recognized the remaining $12.6 million of deferred revenue related to the up-front fee in June 2011. Subsequently, in August 2013, we amended the Pfizer agreement, in accordance with which Pfizer made two $1.5 million non-refundable annual license maintenance payments to us in August 2013 and August 2014 and we agreed to certain performance obligations to Pfizer for the period starting from the effective date of the amendment. Pfizer was also obligated to pay to us contingent milestone-based payments upon the occurrence of certain defined development, commercialization, and sales-based milestones.

Collaboration and license revenue related to the Pfizer agreement during the years ended December 31, 2016 and 2015 was $0 and $1.3 million, respectively, reflecting the amortization of the annual license maintenance payments received over the estimated expected period of our performance obligations which was estimated to conclude in August 2015.

On April 2, 2015, Pfizer notified us that it was exercising its right to terminate the research and license agreement effective June 1, 2015. Accordingly, we revised the expected period of performance to end on June 1, 2015, and the deferred revenue balance was fully amortized as of that date.

On December 8, 2016, we signed a definitive agreement related to the termination of the Pfizer Agreement. Pursuant to this termination agreement, Pfizer granted us an exclusive license to Pfizer’s proprietary rights for manufacturing materials and processes that apply to Factor VIIa variants, CB 813a and marzeptacog alfa (activated).MarzAA. Pfizer also transferred to us the IND application and documentation related to the development, manufacturing and testing of the Factor VIIa products as well as the orphan drug designation.

Pursuant to this agreement, we agreed to make contingent cash payments to Pfizer in an aggregate amount equal to up to $17.5 million, payable upon the achievement of clinical, regulatory and commercial milestones. Following commercialization of any covered product, Pfizer would also receive a single-digit royalty on net product sales on a country-by-country basis for a predefined royalty term. In February 2018, we paid Pfizer a $1 million milestone payment based on the dosing of the first patient in the ongoing Phase 2 study, recorded as an R&D expense.

In September 2013,On December 13, 2018, we signed a licenseentered into an Amended and collaboration agreementRestated License Agreement (the “A&R ISU Abxis Agreement”), effective as of December 17, 2018, with ISU Abxis, pursuantwhich amends and restates in full our License and Collaboration Agreement with ISU Abxis, dated as of September 16, 2013, as subsequently amended on October 31, 2014 and on December 7, 2016 (the “Original ISU Abxis Agreement”).  Pursuant to which we licensed our proprietary human Factor IX productsthe A&R ISU Abxis Agreement, ISU Abxis will receive commercialization rights in South Korea to DalcA and the Company will receive clinical development and commercialization rights in the rest of world (excluding South Korea) and manufacturing development and manufacturing rights worldwide (including South Korea). The A&R ISU Abxis Agreement eliminates the profit-sharing arrangement in the Original ISU Abxis Agreement and provides for a low single-digit royalty payment to ISU Abxis, on a country-by-country basis, for initial developmentnet product sales of DalcA by the Company or its affiliates in each country other than South Korea. Pursuant to the A&R ISU Abxis Agreement, the Company will also make up to an aggregate of $19.5 million in milestone payments to ISU Abxis, inclusive of $2.5 million in regulatory and development milestone payment and up to $17 million in commercial milestone payment, if the applicable milestones are met.

Under the agreement,Original ISU Abxis is responsible for development and manufacturing of the licensed products through Phase 1/2 clinical trials. Until the completion of Phase 1 development, ISU Abxis also has a right of first refusal with respect to commercialization rights for the licensed products in South Korea.Agreement, ISU Abxis paid us an up-fronta non-refundable upfront signing fee of $1.75 million and ismillion. ISU Abxis was also obligated, under the Original ISU Abxis Agreement, to paymake contingent cash payments to us contingent milestone-based payments onof up to $2.75 million payable based upon the occurrenceachievement of certain definedpredefined development events, nonemilestones, of which have beentwo were achieved asfor a total of December 31, 2016. Collaboration and license revenue related to the ISU Abxis agreement during the years ended December 31, 2016 and 2015 was $0.4 million and $0.4 million, respectively, that reflect the amortization of the up-front fee over the estimated period of our performance

obligations, which are estimated to conclude in February 2018. We had a deferred revenue balance of $0.3$2.65 million as of December 31, 20162018.

The A&R ISU Abxis Agreement contains customary representations, warranties, covenants and indemnification provisions. The A&R ISU Abxis Agreement may be terminated by either party, subject to applicable notice and/or cure periods, upon a material breach by or an event of bankruptcy relating to the other party or by mutual consent of both parties.

As of December 31, 2018, the cumulative aggregate payments received and recognized by us under the Original ISU Abxis Agreement were $2.65 million and we had made reimbursements of $0.2 million to ISU Abxis, associated with certain preclinical studies in 2018. The adoption of the new revenue standards resulted in a $0.2 million cumulative adjustment to the Company’s opening balance of accumulated deficit as of January 1, 2018. We had no deferred revenue balance as of December 31, 2018 related to the ISU Abxis collaboration.

We have no products approved for commercial sale and have not generated any revenue from product sales. From inception to December 31, 2016,2018, we have raised net cash proceeds of approximately $220.9$373.0 million, primarily from private placements of convertible preferred stock and the proceeds from theour merger with Targacept in addition to issuances of shares of common stock and warrants and payments received from collaboration agreements. The cash proceeds raised do not include the redeemable convertible notes that are offset by 100%(“Notes”) which matured on February 19, 2018 and the remaining Notes were repaid in full with cash from the restricted cash held in escrowindenture and an immaterial amount were converted to pay all possible redemptions.common stock. The Company has no outstanding Notes remaining as of December 31, 2018.

We have never been profitable and have incurred significant operating losses in each year since inception. Our net losses were $16.9$30.1 million and $14.8$21.6 million for years ended December 31, 20162018 and 2015,2017, respectively. As of December 31, 2016,2018, we had an accumulated deficit of $148.0$203.3 million. Substantially all our operating losses resulted from expenses incurred in our research and development programs and from general and administrative costs associated with our operations.

We expect to incur significant expenses and increasing operating losses for at least the next several years as we continue the preclinical, manufacturing and clinical development, and seek regulatory approval for our drug candidates. In addition, following the merger our expenses have further increased due to hiring additional financial personnel, upgrading our financial information systems and incurring costs associated with being a public company. In addition, our operating losses may fluctuate significantly from quarter to quarter and year to year due to timing of preclinical, clinical development programs and regulatory approval.

Recent Developments

On December 21, 2018, we filed a shelf registration statement with the SEC, which registration statement was declared effective on February 10, 2017, we implemented a 1-for-15 reverse stock split14, 2019, and allows us to offer up to $200 million of our issued and outstanding common stock (the “2017 Reverse Stock Split”). The 2017 Reverse Stock Split decreased our issued and outstanding shares of common stocksecurities from approximately 13.0 million shares of Common Stocktime to approximately 868,000 shares as of that date. See Note 16 to our consolidated financial statements includedtime in this Annual Report on Form 10-K, Subsequent Event. Unless otherwise specified, all share and per share amounts in this section are reported on a post-split basis.one or more offerings.

Financial Operations Overview

Contract Revenue

Our contract revenue was generated by recognizing revenueWe enter into collaboration arrangements that may include the receipt of payments for up-front license fees, success-based milestone payments, full time equivalent based payments for research services, product supplies, and royalties on any future sales of commercialized products that result from the amortization of up-front licensee fees for research and development services under our collaboration agreements with Pfizer and ISU Abxis. Payments made to us under these agreements are recognized over the period of performance for each arrangement. We may also be entitled to receive additional milestone payments and other contingent payments upon the occurrence of specific events.collaborations. We have not generated any revenue from commercial product sales to date. As of June 2015, our deferred revenue balance from the Pfizer research and license agreement was fully amortized following the termination by Pfizer of that agreement, and ISU Abxis represents 100% of our total contract revenue for the year ended December 31, 2016.2018 and 2017.

DueIn determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our agreements, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the natureperformance obligations based on estimated selling prices; and (v) recognition of the milestone payments under the remaining collaboration agreement and the nonlinearity of the earnings process associated with certain payments and milestones,revenue when we expect that our revenue will fluctuate in future periods, because of the uncertainty of timing related to achievement of milestones.satisfy each performance obligation.

Research and Development Expenses

Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred.

Research and development expenses consist primarily of the following:

The following table summarizes our research and development expenses during the years ended December 31, 20162018 and 20152017 (in thousands).