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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2016

OR

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

Commission File Number 001-36617

VITAE PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

(215) 461-2000

(Registrant’s telephone number, including area code)

Not Applicable

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

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

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

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

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

As of May 4, 2016, there were 28,841,067 outstanding shares of the registrant’s common stock, $.0001 par value per share.

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VITAE PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

·                  our ability to establish and maintain development partnerships;

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

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

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

·                  our anticipated growth strategies;

·                  our ability to attract or retain key personnel;

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

·                  regulatory developments in the United States and foreign countries;

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

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

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

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

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Vitae Pharmaceuticals, Inc.

Balance Sheets

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

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Vitae Pharmaceuticals, Inc.

Statements of Operations (Unaudited)

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

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Vitae Pharmaceuticals, Inc.

Statements of Comprehensive Loss (Unaudited)

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

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Vitae Pharmaceuticals, Inc.

Statements of Cash Flows (Unaudited)

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

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Vitae Pharmaceuticals, Inc.

Notes to Financial Statements (Unaudited)

1. Organization

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

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

The Company also has a product candidate, VTP-36951, in pre-clinical development for the treatment and prevention of Alzheimer’s disease, or Alzheimer’s. VTP-36951 was being developed exclusively by Boehringer Ingelheim GmbH (“BI”) as BI 1147560 pursuant to a Research Collaboration and License Agreement with BI that was entered into in June 2009 (the “BACE Agreement”). In July 2015, BI notified the Company that it was terminating the BACE Agreement, effective as of October 21, 2015, for strategic business reasons. In connection with the termination of the BACE Agreement, the Company received the rights to the BACE program, including VTP-36951, which includes, among other rights, certain exclusive rights to develop and commercialize the terminated products for the treatment of Alzheimer’s, diabetes and the other indications covered by the BACE Agreement. The Company continues to assess the BACE program to determine appropriate next steps.

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

The collaborations with BI, including the BACE Agreement, have provided the Company with an aggregate of $158 million in funding as of March 31, 2016, including $30 million from sales of the Company’s equity securities and $128 million in upfront license fees, research funding and success-based milestones.

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

As of March 31, 2016, the Company had cash, cash equivalents and marketable securities of approximately $86.5 million, including approximately $36.9 million raised by the Company, after deducting underwriting discounts and commissions and other offering expenses, through the issuance and sale of 6,648,333 shares of common stock in a public offering completed in March 2016. Based on the Company’s current operating plan, which as of now does not include any expenses relating to further development of the BACE program, the Company believes that its existing cash, cash equivalents and marketable securities will be sufficient to fund our currently anticipated operating expenses and capital expenditure requirements into the second half of 2018, which is expected to be approximately 12 months after our currently planned announcement of top line data from the 16 week Phase 2 clinical trial for VTP-43742 in psoriasis patients. The Company intends to assess the BACE program and revise its operating plan accordingly after determining the appropriate next steps. The Company will need to secure additional funding in the future, from one or more equity or debt financings, collaborations, or other sources, in order to carry out all of the Company’s planned research and development activities and further potential development of the BACE program. The future success of the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain profitable operations. The Company is subject to a number of risks similar to other life sciences companies, including, but not limited to, successful discovery and development of its drug

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candidates, raising additional capital, development by its competitors of new technological innovations, protection of proprietary technology and market acceptance of the Company’s products.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

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

Fair Value of Financial Instruments

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

Net Income (Loss) Per Common Share

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

Significant Accounting Policies

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

Recently Issued Accounting Standards

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

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

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

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

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

3. Net (Loss) Income Per Common Share

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

The following outstanding securities at March 31, 2016 and 2015 have been excluded from the computation of diluted weighted shares outstanding, as their effects on net loss per share would have been anti-dilutive:

4. Accrued Expenses

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

5. Fair Value Measurements

The Company measures certain assets and liabilities at fair value in accordance with Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the price that would be received to sell an asset

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or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The guidance in ASC 820 outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, the Company maximizes the use of quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

·                  Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

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

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

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

6. Investments

Marketable Securities

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

As of March 31, 2016, the Company’s marketable securities had maturities that were less than one year.

7. Debt Extinguishment

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

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extinguishment of debt totaling $206,678 was recorded in the three months ended March 31, 2015, consisting of the unamortized deferred financing, unamortized debt discount and prepayment and other additional fees.

8. Stockholders’ Equity

Common Stock

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

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

Preferred Stock

As of March 31, 2016, the Company had authorized 15,000,000 shares of preferred stock at $0.0001 par value. There were no shares of preferred stock issued or outstanding as of March 31, 2016.

Treasury Stock

In connection with cashless employee stock option exercises for the three months ended March 31, 2015, employees tendered 211 shares of common stock with a fair value of $2,324 to the Company as consideration for the exercise price. Treasury stock is recorded using the cost method. Treasury stock retirements are recorded by deducting the par value from common stock and charging the remaining excess of cost over par to accumulated deficit.

Warrants

As of March 31, 2016, the Company had warrants outstanding for the purchase of 45,468 shares of common stock at exercise prices ranging from $20.70 to $27.60. The following table summarizes the warrants outstanding and exercisable as of March 31, 2016:

Shares Reserved for Future Issuance

At March 31, 2016, the Company has reserved the following shares of common stock for issuance:

9. Employee Compensation Plans

In July 2014, the Company’s Board of Directors approved the 2014 Stock Plan (the “2014 Plan”) and reserved to be authorized for issuance under the 2014 Plan the sum of (1) 1,782,500 shares of the Company’s common stock, (2) the number of shares of the Company’s common stock reserved under the Predecessor Plans (as defined below) that are not issued or subject to outstanding awards under the Predecessor Plans as of the closing of the Company’s initial public offering on September 24, 2014 (IPO) and (3) any shares of the Company’s common stock which are subject to outstanding options under the Predecessor Plans as of

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the closing of the Company’s IPO that subsequently expire or lapse unexercised or are subsequently forfeited to or repurchased by the Company, provided that the shares reserved under clauses (2) and (3) above shall include no more than 1,070,687 shares of the Company’s common stock. As of March 31, 2016, there are 2,640,660 shares available for grant without restriction.

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

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

The cost of stock-based compensation awards are determined based on the grant-date fair value, net of the effects of estimated forfeitures of the awards, and is recognized into expense over the award’s service period. Stock-based compensation expense for the three months ended March 31, 2016 and 2015 was recognized as follows:

Stock Options

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

The following table summarizes stock option activity under the Plans from January 1, 2016 through March 31, 2016:

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The total intrinsic value of options exercised during the three months ended March 31, 2016 and 2015 was $308,985 and $1,578,961, respectively.

The Company granted 303,559 performance-based stock options to employees in March 2011. These performance options have a 10-year life and exercise prices equal to the fair value of the Company’s stock at the grant date. Vesting of no more than 60% of these performance options is dependent on (i) meeting certain performance conditions, which relate to the Company’s research and development progress, which were established by the Company’s board of directors and (ii) the passage of time subsequent to the achievement of such performance conditions. Vesting of no more than 40% of these performance options is dependent on (i) meeting certain performance conditions, which relate to a deemed liquidation of the Company, an IPO or consummation of a strategic transaction, which were established by the Company’s board of directors and (ii) the passage of time subsequent to the achievement of such performance conditions. The Company’s board of directors determines if the performance conditions have been met. Stock-based compensation expense for these options is recorded when management estimates that the vesting of these options is probable based on the status of the Company’s research and development programs and other relevant factors and stock-based compensation expense was recorded ratably over the service period associated with the performance condition. As of March 31, 2016, a total of 165,934 performance-based stock options had been deemed probable. Any change in these estimates will result in a cumulative adjustment in the period in which the estimate is changed, so that as of the end of a period, the cumulative compensation expense recognized for an award or grant equals the amount that would be recognized on a straight-line basis as if the current estimates had been utilized since the beginning of the service period.

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

The fair values of stock options granted during the three months ended March 31, 2015 and 2016 were calculated using the following weighted-average assumptions:

The weighted average fair value of options granted during the three months ended March 31, 2016 and 2015 was $5.61 and $10.05 per share, respectively. The fair values of stock options granted were calculated using the following weighted-average assumptions:

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

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

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

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

The total cash received from employees as a result of employee stock option exercises during the three months ended March 31, 2016 and 2015 was $320,628 and $190,973, respectively.

As of March 31, 2016, excluding performance-based stock options that have not been deemed probable, the aggregate unrecognized stock-based compensation expense related to unvested options granted under the Stock Plans that were expected to vest was $6,622,738. That expense is expected to be recognized as follows:

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The aggregate estimated fair value of options for which the satisfaction of the related-performance conditions have not been deemed probable is $546,951 as of March 31, 2016.

Restricted Stock Units (“RSU”)

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

Employee Stock Purchase Plan

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

As of the Company’s first business day of each fiscal year, the aggregate number of shares that may be issued under the Purchase Plan shall automatically increase by a number equal to the least of (i) 1% of the total number of shares of the Company’s common stock actually issued and outstanding on the last business day of the prior fiscal year (excluding any rights to purchase shares of the Company’s common stock that may be outstanding, such as options or warrants), (ii) 356,500 shares of the Company’s common stock, or (iii) a number of shares of the Company’s common stock determined by the Company’s board of directors. The Company’s board of directors determined not to increase the number of shares available for issuance under the Purchase Plan in 2016. As of March 31, 2016, 407,546 shares remained available for issuance.

In accordance with the guidance in ASC 718-50, the ability to purchase shares of the Company’s common stock at the lower of the offering date price or the purchase date price represents an option and, therefore, the Purchase Plan is a compensatory plan under this guidance. Accordingly, stock-based compensation cost is determined based on the option’s grant-date fair value and is recognized over the requisite service period of the option. The Company used the Black-Scholes valuation model and recognized stock-based compensation expense of $112,725 and $34,544 for the three months ended March 31, 2016 and 2015, respectively.

10. Collaborative Research Agreements

Boehringer Ingelheim

11β HSD1 Inhibitors

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

The Company has the right, subject to the approval of the joint steering committee established pursuant to the 11β Agreement, to develop and commercialize certain 11β HSD1 inhibitors for indications other than those considered part of metabolic syndrome or reduction of cardiovascular events. In December 2015, BI notified the Company that it was terminating the 11β Agreement effective as of March 9, 2016. Under the 11β Agreement, no material payments were required to be made by or to the Company in connection with the termination of the agreement.

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

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

The Company earned $29 million in development milestones since the inception of the BACE Agreement. On July 23, 2015, BI notified the Company that it was terminating the BACE Agreement, effective as of October 21, 2015, for strategic business reasons. In connection with the termination of the BACE Agreement, the Company received the rights to the BACE program, including VTP-36951, which includes, among other rights, certain exclusive rights to develop and commercialize the terminated products for the treatment of Alzheimer’s, diabetes and the other indications covered by the BACE Agreement. Under the BACE Agreement, no material payments were required to be made by or to the Company in connection with the termination of the agreement.

11. Income Taxes

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

12. Related Party Transactions

A member of the Company’s Board is a partner/founder of a law firm that provided various legal services to the Company. The Company has incurred costs of $339,000 and $233,000 for the three months ended March 31, 2016 and 2015, respectively. Additionally, $250,000 and $27,000 was due to the related party as of March 31, 2016 and December 31, 2015, respectively.

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

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

Overview

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

·                  Our most advanced, wholly-owned product candidate is VTP-43742, a first in class oral small molecule, which is being developed for the treatment of psoriasis as well as multiple other autoimmune disorders. We plan to initiate a 16 week Phase 2 clinical trial in psoriasis patients in the fourth quarter of 2016 and continue to assess whether clinical trials in additional indications are appropriate for VTP 43742. In September 2015, we announced positive top-line results from a Phase 1 single ascending dose trial that assessed the safety, tolerability, pharmacokinetics and pharmacodynamics of VTP-43742 in healthy human volunteers over several dose levels. In November 2015, we announced positive top line results from a Phase 1 multiple ascending dose clinical trial of VTP-43742 designed to evaluate the safety, tolerability, pharmacokinetic and pharmacodynamic profile of multiple ascending doses of VTP-43742 in healthy human volunteers over multiple dose levels. In March 2016, we announced positive top-line clinical and biomarker results from the Phase 2a proof-of-concept trial in patients with moderate to severe psoriasis, in which VTP-43742 was administered for four weeks. In the trial, clear signals of efficacy were observed, with patients in the 350 mg dose group achieving a 24 percent reduction in the placebo-adjusted Psoriasis Area Severity Index (PASI) score. In the 700 mg dose group, patients achieved a 30 percent placebo-adjusted PASI score reduction. For both doses, we observed clinically relevant and statistically significant reductions (p<0.015) relative to baseline values. Between weeks zero and two, there was a modest onset of PASI reduction, and for the last two weeks of the trial, and particularly between weeks three and four, there was an acceleration of the rate of reduction in PASI score in both the 350 mg and 700 mg dose groups, suggesting the potential for greater reductions in PASI scores with longer duration of treatment. Full efficacy in psoriasis is not generally seen in other classes of drugs until at least 12 weeks of continuous therapy. We believe the PASI score reductions observed for VTP-43742 at four weeks and the acceleration of rate of PASI reduction between weeks three and four are consistent with the potential of VTP-43742 to achieve greater levels of efficacy with extended treatment. VTP-43742 was shown to be generally well tolerated at all dose levels tested, with no serious adverse events reported. No drug-related electrocardiogram (ECG) abnormalities were observed. In the 700 mg dose group, reversible transaminase elevations greater than three times the upper limits of normal were observed in two patients while being dosed, which did not trigger stopping rules of the trial, and two patients reached those levels after the four weeks of dosing completed. The transaminase levels fully reversed for all four of these patients and none of them experienced related elevations in bilirubin, had any other sign of serious liver damage or required any further action. Elevated transaminase levels were not previously observed in our preclinical or clinical trials. We are conducting further studies to investigate the mechanism of the transaminase elevations. Pharmacokinetics were consistent with once-a-day dosing.

·                  Our other wholly-owned product candidate is VTP-38543, a potential first in class topical LXRβ selective agonist, for the treatment of atopic dermatitis, which is in an on-going Phase 2a proof-of-concept clinical trial. Based on its mechanism, VTP-38543 is expected to improve barrier function and decrease inflammation, in this case in damaged skin tissue. VTP-38543 has been shown in preclinical studies to stimulate the development of terminally differentiated skin cells known as corneocytes as well as to increase the surrounding lamellar body lipids in the skin to improve its barrier function, while also decreasing skin inflammation. In a preclinical model of atopic dermatitis, topical VTP-38543 has demonstrated equal anti-inflammatory efficacy versus a high potency topical corticosteroid, the current standard of care. VTP-38543 is currently in a Phase 2a proof-of-concept clinical trial assessing the safety, tolerability and efficacy of VTP-38543 in patients with atopic dermatitis. We anticipate clinical trial results in the second half of 2016.

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·                  We also have a product candidate, VTP-36951, for the treatment and prevention of Alzheimer’s disease (Alzheimer’s). VTP-36951 was being developed exclusively by BI as BI 1147560 pursuant to a research collaboration and license agreement with BI (the BACE Agreement). Effective as of October 21, 2015, the BACE Agreement was terminated by BI for strategic business reasons and we received the rights to develop and commercialize the terminated products in the BACE program, including VTP-36951. We continue to assess the BACE program to determine the appropriate next steps and expect to provide an update on our plans for the BACE program in the first half of 2016.

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

·                  advance our growing portfolio of product candidates;

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

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

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

·                  continue investing in technology, people and intellectual property.

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

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

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

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

For the three months ended March 31, 2016 and 2015, we had net losses of $10.0 million and $9.7 million, respectively. As of March 31, 2016, we had an accumulated deficit of $184.0 million. We have devoted substantially all of our capital resources to the research and development of our product candidates. Since our inception in 2001, we have had no revenues from product sales. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates from discovery through preclinical development and clinical trials, and to eventually seek regulatory approval and pursue commercialization. Furthermore, we have incurred and expect to continue to incur additional costs associated with operating as a public reporting company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

Based on our current business plan, which does not include any expenses relating to further development of the BACE program, we believe that our existing cash, cash equivalents and marketable securities of approximately $86.5 million as of March 31, 2016, will be sufficient to fund our currently anticipated operating expenses and capital expenditure requirements into the second half of 2018, which is expected to be approximately 12 months after our currently planned announcement of top line data from the 16 week Phase 2 clinical trial for VTP-43742 in psoriasis patients. We intend to continue our assessment of the BACE program and revise our operating plan accordingly after determining the appropriate next steps. We will need to secure additional funding in the

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future in order to carry out all of our planned research and development activities. We will seek to fund our operations through the sale of equity, debt financings or other capital sources, including potential collaborations or partnerships with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates.

Recent Highlights

Since December 31, 2015, we experienced the following:

Research and Development Activities:

·                  On March 3, 2016, we announced that the enrollment in our Phase 2a proof-of-concept trial in patients with moderate to severe psoriasis had closed enrollment at 34 psoriatic patients and believed that the totality of the data from the 34 psoriatic patients, including clinical efficacy and accelerated biomarker data, would be sufficient to determine next steps in the program.

·                  On March 16, 2016, we announced positive top-line clinical and biomarker results from the Phase 2a proof-of-concept trial in patients with moderate to severe psoriasis, in which VTP 43742 was administered for four weeks.

Financial Developments:

·                  Raised approximately $36.9 million, after deducting underwriting discounts and commissions and other offering expenses, through the issuance and sale of 6,648,333 shares of common stock;

·                  Reported net operating expenses of $10.1 million for the three months ended March 31, 2016, and cash, cash equivalents and marketable securities of $86.5 million as of March 31, 2016.

Product Portfolio

We have developed and utilized Contour, a computational structure-based drug discovery platform, to design and optimize compounds across a range of therapeutic targets and disease areas. The following table summarizes key information about our most advanced product candidates as of March 31, 2016:

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VTP-43742 (RORγt)

We discovered and are developing VTP 43742, an orally active small molecule inhibitor of RORγt activity, which is wholly owned by us, for the treatment of a variety of autoimmune disorders. Autoimmune disorders comprise a large number of diseases in which the body mounts an inappropriate immunological response against normal human tissues. These disorders include: psoriasis, psoriatic arthritis, ankylosing spondylitis, inflammatory bowel disease and multiple sclerosis, as well as numerous orphan diseases. We commenced discovery efforts for this program in the fourth quarter of 2012 and selected VTP-43742 as a product candidate in the first quarter of 2014.

In June 2015, we initiated a Phase 1 single ascending dose clinical trial of VTP-43742. In September of 2015, we announced positive top-line results from this trial which assessed the safety, tolerability, pharmacokinetics and pharmacodynamics of VTP-43742 in 53 healthy human volunteers over several dose levels. VTP-43742 was safe and generally well tolerated at all dose levels across a broad dose range. No serious adverse events were reported and there were no drug-related clinical laboratory or ECG abnormalities. The plasma half-life of VTP-43742 was observed to be approximately 20-25 hours in this clinical trial, supporting the potential for effective once-a-day dosing in humans. In addition, VTP-43742 was evaluated in an ex vivo assay for its ability to inhibit the production of pro-inflammatory cytokine IL-17A in blood obtained from study subjects. Subjects receiving VTP-43742 showed a dose-dependent suppression of RORγt dependent IL-17A production by more than 90 percent, with the effect largely sustained over the full 24-hour measurement period.

In August 2015, we initiated a Phase 1 double-blind, placebo-controlled multiple ascending dose clinical trial of VTP-43742 designed to evaluate the safety, tolerability, pharmacokinetic and pharmacodynamic profile of multiple ascending doses of VTP-43742 in 40 healthy human volunteers over multiple dose levels. In November 2015, we announced positive top line results from this trial. The observed half-life in plasma in this trial was consistent with once-a-day dosing.

In September 2015, we initiated a Phase 2a proof-of-concept study in patients with moderate to severe psoriasis to assess the safety, tolerability, pharmacokinetic, pharmacodynamic and clinical efficacy profile of multiple ascending doses of VTP-43742 in psoriatic patients in which patients were dosed for 28 days. In March 2016, we announced positive top-line clinical and biomarker results from the Phase 2a proof-of-concept trial in patients with moderate to severe psoriasis, in which VTP-43742 was administered once daily for four weeks. In the trial, clear signals of efficacy were observed, with patients in the 350 mg dose group achieving a 24 percent reduction in the placebo-adjusted PASI score. In the 700 mg dose group, patients achieved a 30 percent placebo-adjusted PASI score reduction. For both doses, we observed clinically relevant and statistically significant reductions (p<0.015) relative to baseline values. Between weeks zero and two, there was a modest onset of PASI reduction, and for the last two weeks of the trial, and particularly between weeks three and four, there was an acceleration of the rate of reduction in PASI score in both the 350 mg and 700 mg dose groups, suggesting the potential for greater reductions in PASI scores with longer duration of treatment. Full efficacy in psoriasis is not generally seen in other classes of drugs until at least 12 weeks of continuous therapy. We believe the PASI score reductions observed for VTP-43742 at four weeks and the acceleration of rate of PASI reduction between weeks three and four are consistent with the potential of VTP-43742 to achieve greater levels of efficacy with extended treatment. VTP-43742 was shown to be generally well tolerated at all dose levels tested, with no serious adverse events reported. No drug-related ECG abnormalities were observed. In the 700 mg dose group, reversible transaminase elevations greater than three times the upper limits of normal were observed in two patients while being dosed, which did not trigger any stopping rules of the trial, and two patients reached those levels after the four weeks of dosing completed. The transaminase levels fully reversed for all four of these patients and none of them experienced related elevations in bilirubin or had any other sign of liver damage or required any further action. Elevated transaminase levels were not previously observed in our preclinical or clinical trials. We are conducting further studies to investigate the mechanism of the transaminase elevations. Pharmacokinetics were consistent with once-a-day dosing.

Biomarker data were assessed in both the 350 mg and 700 mg dose groups.  Two common inflammatory cytokines found in psoriasis patients were assessed in the Phase 2a proof-of-concept trial, plasma IL-17A and IL-17F, as well as skin IL-17A and IL-17F.  Patients in the 350 mg dose group demonstrated a mean reduction of plasma IL-17A by 29% and IL-17F of 50%, respectively, from baseline.  Patients in the 700 mg dose group achieved a mean reduction of IL-17A and IL-17F of 50% and 75%, respectively, from baseline.  All plasma IL-17 A and IL-17F reductions were statistically significant. Skin IL-17A and IL-17F changes were also

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measured in both the 350 mg and 700 mg dose groups.  The skin IL-17A changes in both the 350 mg and 700 mg dose groups were mixed with no clear change. Changes in skin IL-17F were statistically significant for both dose groups: patients in the 350 mg dose group experienced a mean reduction of 63% and the patients in the 700 mg dose group experienced a 66% reduction, each compared to baseline.  The skin biomarker results are consistent with the results of systemic monoclonal antibodies targeting the TH17 pathway in patients with psoriasis.

We plan to initiate a 16 week Phase 2 clinical trial in psoriasis patients in the second half of 2016 and continue to assess whether clinical trials in additional indications are appropriate for VTP-43742.

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

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

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

Atopic dermatitis is a common inflammatory skin disease in children that also affects a large number of adults. The number of people in the United States with atopic dermatitis is estimated to be between 18 million and 25 million.  The most common serverity of atopic dermatitis is mild to moderate and estimated to comprise up to 90% of all atopic dermatitis patients. It is characterized by a loss of barrier function of the skin, as well as skin inflammation. Currently available topical therapies for the treatment of mild to moderate atopic dermatitis are anti-inflammatory agents which address skin inflammation and do not address the issue of barrier function.

We have selected VTP-38543 as a product candidate for atopic dermatitis. In December 2015, we initiated a four-week Phase 2a randomized, double-blind vehicle controlled multiple ascending dose, proof-of-concept trial in adult patients with mild to moderate atopic dermatitis. The clinical trial is evaluating three topical doses of VTP-38543 for safety, tolerability, efficacy, pharmacokinetic and pharmacodynamic profile in 100 patients. Three efficacy endpoints are being assessed in the clinical trial. The first efficacy endpoint being evaluated is Investigator’s Global Assessment (IGA), which is a five point scale measuring the change of the severity of the patient’s disease from baseline; The second efficacy endpoint being evaluated is Severity Scoring of Atopic Dermatitis (SCORAD), which evaluates five clinical characteristics to determine disease severity: erythema, edema/papulation, oozing/crusts, excoriation and lichenification. SCORAD also assesses subjective symptoms of pruritus and sleep loss with Visual Analogue Scales (VAS).  The third efficacy endpoint being evaluated is the Eczema Area and Severity Index (EASI), which assesses extent of disease at four body sites and measures four clinical signs: erythema, induration/papulation, excoriation and lichenification. Top-line results for our Phase 2a proof-of-concept clinical trial are expected in the second half of 2016. In addition to the clinical data, a number of biomarkers are being assessed which include gene expression change for proteins important for barrier function and pro-inflammatory cytokines from skin biopsies. Cell histology and immunohistochemistry change from biopsies are also being assessed.

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

VTP-36951 was being developed for the treatment and prevention of Alzheimer’s exclusively by BI as BI 1147560 pursuant to the BACE Agreement. Under the terms of the BACE Agreement, BI was responsible for all clinical and other product development, regulatory, manufacturing and commercialization activities and costs for the BACE program. On July 23, 2015, BI notified us that it was terminating the BACE Agreement for strategic business reasons effective as of October 21, 2015. In connection with the termination of the BACE Agreement, we received the rights to the BACE program, including VTP-36951, which includes, among other rights, certain exclusive rights to develop and commercialize the terminated products for the treatment of Alzheimer’s, diabetes and the other indications covered by the BACE Agreement.

Prior to termination of the BACE Agreement, we were developing VTP-37948/BI 1181181 (BI1181181), in collaboration with BI for Alzheimer’s. However, in February of 2015, BI voluntarily placed BI 1181181 on a temporary clinical hold to further investigate skin reactions observed in some study participants during a Phase 1 multiple rising dose trial. BI had completed its analysis and concluded that skin reactions are burdensome for patients and, therefore, an obstacle for further development of the compound. BI had decided to move forward with the development of VTP-36951, which was discovered as part of our BACE collaboration. BI had completed all GLP toxicology studies that are necessary prior to first in human trials. In April 2016, we entered into a letter agreement with BI for the purchase of certain physical materials by us from BI following termination of the BACE Agreement and pursuant to which we granted BI a non-exclusive royalty in the low single digits for the use of the rights obtained from BI in the field outlined in

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the BACE Agreement. We continue to assess the BACE program to determine the appropriate next steps and expect to provide an update on our plans for the program in the first half of 2016.

BI187004 (11β HSD1)

BI187004, our orally active 11β HSD1 inhibitor, was being developed in collaboration with BI for type 2 diabetes. Under the terms of the 11β Agreement with BI, BI was responsible for all clinical and other product development, regulatory, manufacturing and commercialization activities and costs for the 11β HSD1 program. BI187004 was being evaluated in a Phase 2 clinical trial for the treatment of type 2 diabetes. In December 2015, we announced that BI187004 did not achieve the predefined primary efficacy endpoint criteria of the trial. As a result, BI informed us of its intention to terminate the program and the 11β Agreement effective as of March 9, 2016. We have no current plans to continue the program independently, but will continue to assess options.

Strategic Partnerships

11β HSD1 Inhibitors with BI

In October 2007, we entered into a research collaboration and license agreement with BI, which we refer to as the 11β Agreement. Based upon discoveries we made using Contour, we and BI formed a worldwide strategic partnership granting BI exclusive rights to develop and commercialize novel compounds for patients with type 2 diabetes and certain related metabolic disease conditions, such as abnormal blood cholesterol and triglyceride levels, obesity and hypertension, or high blood pressure. The alliance encompasses multiple series of novel, orally available 11β HSD1 inhibitors that were discovered using Contour. We also retained the right, subject to the approval of the joint steering committee established pursuant to the 11β Agreement, to develop 11β HSD1 inhibitors for certain indications outside of the core focus of diabetes and related metabolic conditions. The collaborative research program portion of this strategic partnership began in October 2007 and expired in December 2009.

Under the 11β Agreement, we have received an aggregate of $65.2 million in non-equity funding as of March 31, 2016, including upfront license fees, research funding and success-based milestone payments. Pursuant to the 11β Agreement, BI was responsible for all clinical and other product development, regulatory, manufacturing and commercialization activities and costs for the 11β program, including BI187004. In December 2015, we announced that BI187004 did not achieve the predefined primary efficacy endpoint criteria of the trial. As a result, BI informed us of its intention to terminate the program and the 11β Agreement effective as of March 9, 2016. We have no current plans to continue the program independently, but will continue to assess options.

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

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

Financial Operations Overview

Revenue

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

In the future, we may generate revenue from a combination of product sales, license fees, milestone payments and research and development payments in connection with strategic partnerships, and royalties resulting from the sales of products developed under licenses of our intellectual property. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, research and development reimbursements, milestone and other payments received under our strategic partnerships, and the amount and timing of payments that we receive upon the sale of our products, to the extent any of our products are successfully commercialized. We do not expect to generate revenue from product sales for many years, if ever. If we or

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our strategic partners fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

Research and Development Expenses

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

These expenses include, but are not limited to:

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

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

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

·                  outsourced professional scientific services;

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

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

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

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

·                  the number of clinical sites included in the trials;

·                  the length of time required to enroll suitable patients;

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

·                  the number of doses patients receive;

·                  the duration of patient follow-up; and

·                  the results of our clinical trials.

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

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

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limited extent, compound synthesis. Generally, these costs include activities up to and including animal proof-of-concept. In addition, discovery expenses include technology development costs related to Contour. These expenses consist principally of salaries and related costs for personnel engaged in the development and enhancement of the technology.

We expect that the expenses related to our entire pipeline will continue to increase with successful progression of our product candidates, including potentially VTP-36951, into later stages of development and as we commence new discovery efforts on promising biological targets. However, future research and development costs for any particular program or product candidate are not reasonably certain because such costs are dependent on a number of variables, including successful completion of preclinical and clinical studies, the design and cost of future studies and the amount and timing of discovery efforts committed to back-up compounds.

General and Administrative Expense

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

Other Income

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

Interest Income, Interest Expense and Loss on Debt Extinguishment

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

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

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

Critical Accounting Policies and Significant Judgments and Estimates

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

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

Revenue Recognition

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

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

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

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

We determine the estimated selling price for agreement deliverables using the following hierarchy: (1) vendor-specific objective evidence, (VSOE), (2) third-party evidence, (TPE) or (3) best estimate of selling price if neither VSOE nor TPE is available. Determining the best estimate of selling price for a deliverable requires significant judgment and consideration of various factors, including market conditions, items contemplated during agreement negotiation as well as internally developed net present value models.

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

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

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

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

Accrued Clinical and Preclinical Expenses

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

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

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

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

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

We base our expenses related to preclinical and clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.

Stock-Based Compensation

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

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

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

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

Determining Fair Value of Stock-Based Awards

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

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

The fair value of options granted were calculated using the following weighted-average assumptions in the Black-Scholes option pricing model for the three months ended March 31, 2016 and 2015:

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

The cost of each stock-based compensation award is determined based on the grant-date fair value, net of the effects of estimated forfeitures of the awards, and is recognized into expense over the award’s service period. Stock-based compensation expense for the three months ended March 31, 2016 and 2015 was recognized as follows:

Income Taxes

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

Results of Operations

Comparison of three months ended March 31, 2016 and 2015

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Collaborative Revenues. For the three months ended March 31, 2016 and 2015, collaborative revenue was entirely related to intellectual property cost reimbursements of $51,000 and $0.2 million, respectively. The decrease of $0.1 million was primarily related to a reduction in intellectual property costs associated with our 11β Agreement.

Research and Development.  Research and development expense for the three months ended March 31, 2016 was $7.6 million compared to $7.5 million for the three months ended March 31, 2015, an increase of approximately $0.1 million. The increase was primarily attributable to a $0.7 million increase in drug manufacturing and clinical expenses associated with our LXRβ atopic dermatitis program,  a $0.5 million increase in clinical expenses associated with our RORγt program , a $0.3 million increase in outside study expenses for our next potential clinical candidates and a $0.2 million increase in stock-based compensation expense partially offset by a $1.6 million decrease in drug development and manufacturing expenses associated with our RORγt program.

We also track fully-allocated research and development expenses on a program-by-program basis. Below is a summary of our research and development expenses by program for the three months ended March 31, 2016 and 2015:

RORγt

RORγt program expenses for the three months ended March 31, 2016 were $2.7 million compared to $4.5 million for the three months ended March 31, 2015, a decrease of approximately $1.8 million. The decrease was primarily attributable to a reduction in drug development and manufacturing expenses and the shift in discovery activities from our RORγt program to our next potential clinical candidates.

LXRβ

LXRβ program expenses for the three months ended March 31, 2016 were $1.2 million compared to $0.4 million for the three months ended March 31, 2015, an increase of approximately $0.8 million. The increase was primarily attributable to drug manufacturing and clinical expenses activities associated with our LXRβ atopic dermatitis program.

Other Programs

Other program expenses for the three months ended March 31, 2016 were $3.7 million compared to $2.6 million for the three months ended March 31, 2015, an increase of approximately $1.1 million. The increase was primarily attributable to shift in discovery activities from our RORγt program to our next potential clinical candidates. Included in both periods are costs associated with the development of our Contour platform, which have remained consistent year over year.

General and Administrative.  General and administrative expense for the three months ended March 31, 2016 was $2.5 million compared to $2.1 million for the three months ended March 31, 2015, an increase of $0.4 million. The increase was primarily a result of a $0.2 million increase in stock-based compensation expense, a $0.1 million increase in legal fees and a $0.1 million increase in in compensation expenses.

Interest Income.  Interest income for the three months ended March 31, 2016 was $75,000 compared to $74,000 for the three months ended March 31, 2015. The increase in interest income was primarily attributable to higher portfolio yields partially offset by a decrease in our average cash balance for the three months ended March 31, 2016 as compared to March 31, 2015.

Interest Expense.  Interest expense for the three months ended March 31, 2015, totaling $0.1 million, consisted of the interest expense associated with the then outstanding debt under the credit facility with Silicon Valley Bank and Oxford Finance LLC.

Loss on Debt Extinguishment.  Loss on debt extinguishment was $0.2 million for the three months ended March 31, 2015. The loss was due to the repayment of the outstanding balance of the Silicon Valley Bank and Oxford Finance LLC credit facility on February 27, 2015. The total payoff was $4.3 million, which included prepayment and other additional fees of $84,453.Included in the

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

Liquidity and Capital Resources and Plan of Operations

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

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

On September 29, 2014, we sold 6,875,000 shares of common stock in our IPO for net proceeds of $48.8 million after underwriting discounts and commissions and other offering expenses. On October 27, 2014, we issued and sold an additional 1,031,250 shares of common stock at the IPO price of $8.00 per share for net proceeds of $7.6 million, after deducting underwriting discounts and commissions and other offering expenses, in connection with the full exercise by the underwriters of their over-allotment option. Prior to our IPO, we funded our operations through the private placement of equity securities, revenue from strategic partnerships, debt financing and interest income. As of March 31, 2016, we have received gross proceeds of $120.1 million from the issuance of convertible preferred stock, including $40.0 million of equity sales to our strategic partners, all which occurred prior to our IPO. As of March 31, 2016, we had received an aggregate of $138.7 million in cash from non-equity capital in the form of license fees, milestone payments and research and development funding received from our strategic partners. In addition, we have received approximately $39.8 million in funding from our debt financings with various commercial lenders; all such debt has been repaid. As of March 31, 2016, we had an accumulated deficit of $184.0 million and working capital of $81.9 million which includes cash, cash equivalents and marketable securities of approximately $86.5 million. As of March 31, 2016, our cash equivalents and marketable securities included money market funds, certificates of deposit and corporate debt securities.

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

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

Cash Flows

Comparison of three months ended March 31, 2016 and 2015

The following table summarizes our cash flows for the three months ended March 31, 2016 and 2015:

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Net cash used in operating activities

During the three months ended March 31, 2016 and 2015, our operating activities used cash of $10.5 million and $7.9 million, respectively, primarily resulting from the operating losses of $10.0 million and $9.7 million, respectively. Operating losses in both periods were driven significantly by cash payments for research and development expenses and general administrative expenses exceeding cash inflows from revenue arrangements.

Net cash provided by (used in) investing activities

During the three months ended March 31, 2016 our investing activities provided cash of $19.5 million. The cash provided by investing activities was primarily a result of the sale and maturity of similar marketable securities exceeding the purchase price of marketable securities. Purchases of property and equipment for the three months ended March 31, 2016 were $22,000.

During the three months ended March 31, 2015 our investing activities used cash of $40.4 million. The cash used in investing activities was primarily a result of the purchase price of marketable securities exceeding the sale and maturity of similar marketable securities. Purchases of property and equipment for the three months ended March 31, 2015 were $63,000.

Net cash provided by financing activities

During the three months ended March 31, 2016, our financing activities provided cash of $37.6 million. The cash provided by financing activities was primarily a result of proceeds received from the issuance of our common stock through our public offering in March 2016, net of paid offering expenses as of March 31, 2016, totaling $37.3 million and proceeds received from the exercise of common stock options of $0.3 million.

During the three months ended March 31, 2015, our financing activities provided cash of $31.4 million. The cash provided by financing activities was primarily a result of proceeds received from the issuance of our common stock through our public offering in January 2015, net of expenses, totaling $38.0 million and proceeds received from the exercise of common stock options of $0.2 million. These increases were partially offset by the repayment of the outstanding principal balance of the Silicon Valley Bank and Oxford Finance LLC credit facility of $4.9 million and the net settlement of a RSU award where we withheld 171,156 shares of common stock and remitted $1.9 million in tax liabilities on behalf of our chief executive officer to the relevant tax authorities.

Plan of Operation

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

In connection with the termination of the BACE Agreement, we plan to assess the BACE program and revise our operating plan accordingly after determining the appropriate next steps, which may include the addition of expenses related to the further development of the BACE program. We plan to provide an update on our plans for the BACE program in the first half of 2016.

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

Based on our current business plan, which as of now does not include any expenses relating to further development of the BACE program, we believe that our existing cash, cash equivalents and marketable securities as of March 31, 2016, will be sufficient to fund our currently anticipated operating expenses and capital expenditure requirements into the second half of 2018, which is expected to be approximately 12 months after our currently planned announcement of top line data from the 16 week Phase 2 clinical trial for VTP-43742 in psoriasis patients. We intend to assess the BACE program and revise our operating plan accordingly after determining the appropriate next steps. We have based these estimates of our capital needs on assumptions that may prove to be wrong or which we may determine to adjust, and we could utilize our available capital resources sooner than we currently expect. If we are

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required to raise additional capital, we may seek to sell additional equity or debt securities or incur indebtedness. The sale of additional equity and debt securities may result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. We may also seek funding through collaborations or partnerships with other companies or other strategic transactions. If we are unable to raise sufficient additional capital we may need to substantially curtail our planned operations.

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

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

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

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

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

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

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

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

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

Contractual Obligations

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

Recently Issued Accounting Standards

We did not adopt any new accounting pronouncements during the three months ended March 31, 2016 that had a material effect on our financial statements.

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

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

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

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

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

JOBS Act

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

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to market risk related to changes in interest rates. As of March 31, 2016 and December 31, 2015, we had cash and cash equivalents and marketable securities of $86.5 million and $59.4 million, respectively, consisting of money market funds, certificates of deposit and corporate debt securities. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in marketable debt securities. Our marketable securities are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio. We have the ability to hold our marketable securities until maturity, and therefore we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a change in market interest rates on our investments. We do not currently have any auction rate securities.

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

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

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In connection with the preparation of this Quarterly Report on Form 10-Q, the Company completed an evaluation, as of March 31, 2016, under the supervision of and with the participation of the Company’s management, including the Chief Executive and Chief Financial Officers, as to the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Based upon the evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2016, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

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

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A.            Risk Factors.

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

Risks Related to Our Financial Position and Capital Needs

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

We are a clinical stage biotechnology company with no product sales to date. Investment in biotechnology product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we have incurred substantial operating expenses in every period since our inception in 2001. With the exception of collaboration revenues from programs that we partnered, we had no revenues. For the three months ended March 31, 2016 and 2015, we had operating expenses of $10.1 million and $9.6 million, respectively. As of March 31, 2016, we had an accumulated deficit of $184.0 million. Our operating expenses have resulted principally from costs incurred in our discovery, research and development activities.

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

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

We currently have no source of product sales revenue.

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

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

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

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

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

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

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

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

·                  attract, hire and retain qualified personnel.

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

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

As of March 31, 2016, our cash, cash equivalents and marketable securities were approximately $86.5 million. We believe that we will continue to expend substantial resources for the foreseeable future as we continue to develop VTP-43742 and VTP-38543, and any future product candidates. In the event that we determine to continue the clinical development of our BACE program or VTP-38443, we will expend substantial additional resources. These expenditures will include costs associated with research and development, potentially acquiring new technologies, conducting preclinical studies and clinical trials, seeking regulatory approvals and manufacturing products, as well as marketing and selling products approved for sale, if any. In addition, other unanticipated costs may arise. Because the outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates.

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

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

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

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

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

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

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

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

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

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Based on our current operating plan, which as of now does not include any expenses relating to further development of the BACE program, we believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our currently anticipated operating expenses and capital expenditure requirements into the second half of 2018, which is expected to be approximately 12 months after our currently planned announcement of top line data from the 16 week Phase 2 clinical trial for VTP-43742 in psoriasis patients. Our operating plan may change as a result of our assessment of the BACE program and many factors currently unknown to us, and we may need additional funds sooner than planned. We intend to assess the BACE program and revise our operating plan accordingly after determining the appropriate next steps. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for one or more of our product candidates or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates.

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

We may seek additional capital through a variety of means, including through private and public equity offerings, debt financings and strategic partnerships. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts for VTP-43742, VTP-38543, VTP-36951 or other future product candidates or grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves.

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

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

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

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

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

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

Our product candidates are and will be subject to extensive governmental regulations relating to, among other things, development, clinical trials, manufacturing and commercialization. In order to obtain regulatory approval for the commercial sale of any product candidates, we or our partners must demonstrate through extensive preclinical studies and clinical trials that the product candidate is safe and effective for use in each target indication. Clinical testing is expensive, time-consuming and uncertain as to outcome. For instance, in the first quarter of 2015, BI voluntarily placed BI 1181181 on a temporary clinical hold to further investigate skin reactions observed in some study participants during a Phase 1 multiple rising dose trial. After completing its analysis, BI concluded that skin reactions are burdensome for patients and, therefore, an obstacle for further development of the compound. Prior to the termination of the BACE Agreement, BI decided to move forward with the development of a structurally different compound, VTP-36951.

We or our partners may gain regulatory approval for VTP-36951, VTP-43742, VTP-38543, VTP-38443, BI187004, or other future product candidates in some but not all of the territories available or some but not all of the target indications, resulting in limited commercial opportunity for the approved product candidates, or we or they may never obtain regulatory approval for these product candidates.

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

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

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

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

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

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

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

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

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

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