PART I [Business](index=6&type=section&id=Item%201.%20Business) The company is a clinical-stage biopharmaceutical firm focused on developing edasalonexent for Duchenne muscular dystrophy, with a Phase 3 trial underway [Overview](index=6&type=section&id=Overview) Catabasis Pharmaceuticals is a clinical-stage biopharmaceutical company developing edasalonexent for Duchenne muscular dystrophy - Catabasis Pharmaceuticals is a clinical-stage biopharmaceutical company focused on novel therapeutics[16](index=16&type=chunk) - Its lead product candidate, **edasalonexent**, is an oral small molecule inhibiting NF-kB for Duchenne muscular dystrophy (DMD)[16](index=16&type=chunk) - **Edasalonexent** has received Orphan Drug, Fast Track, and Rare Pediatric Disease designations from the FDA and Orphan Medicinal Product designation from the EC for DMD[16](index=16&type=chunk) - A global **Phase 3 trial (PolarisDMD)** for edasalonexent in DMD was initiated in September 2018, with top-line results expected in **Q2 2020** and an NDA submission goal in **early 2021**[17](index=17&type=chunk) [Our Product Candidates](index=7&type=section&id=Our%20Product%20Candidates) The company's pipeline includes edasalonexent for Duchenne muscular dystrophy in Phase 3 and preclinical candidate CAT-5571 for cystic fibrosis [Edasalonexent](index=7&type=section&id=Edasalonexent) Edasalonexent, an NF-kB inhibitor for DMD, has shown preserved muscle function and functional improvements in trials, with a Phase 3 trial ongoing - **Edasalonexent** inhibits NF-kB, a protein activated in DMD that drives inflammation, fibrosis, muscle degeneration, and suppresses muscle regeneration[25](index=25&type=chunk) - In the MoveDMD open-label extension (through **72 weeks**), **edasalonexent** showed preserved muscle function and consistent improvements in NSAA score, time to stand, 4-stair climb, and 10-meter walk/run compared to off-treatment control[22](index=22&type=chunk)[40](index=40&type=chunk) - Statistically significant improvement in the rate of change in lower leg composite MRI T2 was observed through **12, 24, 36, and 48 weeks** on **100 mg/kg** of edasalonexent treatment[21](index=21&type=chunk)[40](index=40&type=chunk) - All four muscle enzymes tested were significantly decreased compared to baseline following **edasalonexent** treatment through **72 weeks (p<0.05)**[22](index=22&type=chunk)[42](index=42&type=chunk) - C-reactive protein (CRP), a marker of inflammation, was significantly decreased with **edasalonexent** at **12, 24, 36, and 48 weeks** compared to baseline **(p<0.001)**[43](index=43&type=chunk) - **Edasalonexent** was well tolerated in the MoveDMD trial with no clinical safety signals observed through **2 years** of treatment; most adverse events were mild and transient gastrointestinal issues[22](index=22&type=chunk)[44](index=44&type=chunk) - The **PolarisDMD Phase 3 trial** is a randomized, double-blind, placebo-controlled trial enrolling approximately **125 patients** aged **four to seven**, regardless of mutation type, who have not been on steroids for at least **six months**[18](index=18&type=chunk)[38](index=38&type=chunk) - Primary efficacy endpoint for **PolarisDMD** is change in North Star Ambulatory Assessment (NSAA) score after **12 months**; key secondary endpoints include timed function tests[18](index=18&type=chunk)[38](index=38&type=chunk) - A new open-label extension trial, **GalaxyDMD**, is being initiated to provide longer-term safety data for registration filings[19](index=19&type=chunk) - Collaborations with UT Southwestern and Sarepta are exploring **edasalonexent's** potential for cardiac function improvement in DMD/BMD and combination with exon-skipping therapy, respectively[46](index=46&type=chunk)[47](index=47&type=chunk) [CAT-5571](index=12&type=section&id=CAT-5571) CAT-5571 is a preclinical SMART Linker conjugate for cystic fibrosis, designed to activate autophagy, with IND-enabling activities completed - **CAT-5571** is a SMART Linker conjugate of cysteamine and DHA, developed as a potential oral treatment for cystic fibrosis (CF)[52](index=52&type=chunk) - It is designed to activate autophagy, a cellular mechanism important for host defenses and depressed in CF[52](index=52&type=chunk) - IND-enabling activities for **CAT-5571** have been completed[23](index=23&type=chunk)[52](index=52&type=chunk) - The company intends to further develop **CAT-5571** through selective collaborations[52](index=52&type=chunk) [Sales and Marketing](index=12&type=section&id=Sales%20and%20Marketing) The company plans to commercialize edasalonexent in North America independently upon approval, seeking collaborators for international markets - The company has not yet established a commercial organization or distribution capabilities[54](index=54&type=chunk) - If **edasalonexent** is approved, the company plans to commercialize it in North America independently and seek collaborators for markets outside North America[35](index=35&type=chunk)[54](index=54&type=chunk) [Manufacturing and Supply](index=13&type=section&id=Manufacturing%20and%20Supply) The company relies on contract manufacturers for drug substance and product, planning to continue this strategy for commercial supply - The company has no manufacturing facilities and relies on contract manufacturers for drug substance and drug product for clinical trials[57](index=57&type=chunk) - They plan to continue relying on contract manufacturers and potential collaborators for commercial quantities if products are approved[57](index=57&type=chunk) - Product candidates are small molecule compounds manufactured from readily available raw materials using conventional chemistries[56](index=56&type=chunk) [Competition](index=13&type=section&id=Competition) The biopharmaceutical industry is highly competitive, with numerous approved and developing therapies for Duchenne muscular dystrophy, impacting commercial success - The development and commercialization of new drugs is highly competitive, with many competitors having significantly greater financial resources and expertise[58](index=58&type=chunk)[298](index=298&type=chunk) - Key competitive factors include efficacy, safety, convenience, price, and reimbursement availability[59](index=59&type=chunk) - Currently, two therapies are approved in the US for DMD: Sarepta's **EXONDYS 51** (exon 51 skipping) and PTC Therapeutics' **EMFLAZA** (deflazacort, a glucocorticoid)[31](index=31&type=chunk)[60](index=60&type=chunk)[295](index=295&type=chunk) - PTC Therapeutics' **Translarna™** is conditionally approved in the EU for nonsense mutation DMD[34](index=34&type=chunk)[60](index=60&type=chunk)[295](index=295&type=chunk) - Several other companies are developing DMD therapies in late-stage clinical development, including exon-skipping and alternative approaches[34](index=34&type=chunk)[61](index=61&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk)[295](index=295&type=chunk) - Dystrophin-targeted therapies are expected to be effective in approximately **34%** of DMD patients, while **edasalonexent** aims to be effective for all DMD patients regardless of mutation[34](index=34&type=chunk)[35](index=35&type=chunk) [Intellectual Property](index=14&type=section&id=Intellectual%20Property) The company protects its SMART Linker platform and product candidates through patents and trade secrets, with key patents expiring in 2029-2030 - The company protects its proprietary technologies, including the **SMART Linker** drug discovery platform, through patents and trade secrets[65](index=65&type=chunk) - As of **December 31, 2018**, the patent estate included over **10 issued U.S. patents**, over **70 issued foreign patents**, and numerous pending applications[24](index=24&type=chunk)[68](index=68&type=chunk) - For **edasalonexent**, there are **six issued U.S. patents** with composition of matter and method of use claims, expected to expire in **2029**[24](index=24&type=chunk)[70](index=70&type=chunk) - For **CAT-5571**, there are **four issued U.S. patents** with composition of matter and method of use claims, scheduled to expire in **2030**[24](index=24&type=chunk)[71](index=71&type=chunk) - The company intends to apply for patent term extensions under the Hatch-Waxman Act and similar provisions in other jurisdictions if product candidates receive approval[73](index=73&type=chunk) [Government Regulation and Product Approvals](index=15&type=section&id=Government%20Regulation%20and%20Product%20Approvals) Pharmaceutical products are subject to extensive, lengthy, and costly government regulations in the US and EU, covering development, approval, marketing, and post-market compliance - Pharmaceutical products are extensively regulated by government authorities in the US (FDA) and other countries (e.g., EU) across their entire lifecycle[75](index=75&type=chunk) - The US approval process involves preclinical studies, IND submission, IRB approval, human clinical trials (Phase 1-4), NDA submission, FDA inspections, advisory committee review, user fees, and post-approval requirements[79](index=79&type=chunk) - Expedited review programs include **Fast Track, Breakthrough Therapy, Priority Review**, and **Regenerative Advanced Therapy** designations for serious or life-threatening conditions with unmet medical needs[118](index=118&type=chunk) - Accelerated approval pathway allows approval based on surrogate or intermediate clinical endpoints for serious conditions, contingent on post-approval confirmatory studies[124](index=124&type=chunk)[127](index=127&type=chunk) - **Orphan Drug Designation** provides market exclusivity (**7 years in US, 10 years in EU**) for products treating rare diseases, with potential for a Priority Review Voucher in the US for rare pediatric diseases[153](index=153&type=chunk)[157](index=157&type=chunk) - EU regulatory system includes clinical trial approval, **PRIME** designation for unmet medical needs, and marketing authorization via centralized or decentralized procedures[161](index=161&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk) - Post-approval, products are subject to ongoing regulation, including **cGMP** compliance, advertising/promotion restrictions, and potential for withdrawal or penalties for non-compliance[132](index=132&type=chunk)[135](index=135&type=chunk)[397](index=397&type=chunk)[398](index=398&type=chunk) - Healthcare reforms (e.g., **ACA** in US) and government price controls in the US and EU significantly impact coverage, reimbursement, and profitability of pharmaceutical products[183](index=183&type=chunk)[187](index=187&type=chunk)[189](index=189&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) - Relationships with healthcare providers and payors are subject to anti-kickback, fraud and abuse, and other healthcare laws (e.g., federal **Anti-Kickback Statute, False Claims Act, HIPAA, GDPR**), with potential for significant penalties for violations[191](index=191&type=chunk)[429](index=429&type=chunk)[431](index=431&type=chunk)[435](index=435&type=chunk) [Employees](index=38&type=section&id=Employees) As of December 31, 2018, the company had 24 employees, with 14 in R&D and 8 Ph.D. holders, maintaining good employee relations - As of **December 31, 2018**, the company had **24 employees**, with **14** in R&D and **8** holding Ph.D. degrees[206](index=206&type=chunk) - None of the employees are represented by a labor union, and employee relations are considered good[206](index=206&type=chunk) [Our Corporate Information](index=38&type=section&id=Our%20Corporate%20Information) Catabasis Pharmaceuticals, Inc. was incorporated in Delaware on June 26, 2008, and effected a 1-for-10 reverse stock split on December 28, 2018 - Catabasis Pharmaceuticals, Inc. was incorporated in Delaware on **June 26, 2008**[207](index=207&type=chunk) - On **December 28, 2018**, the company effected a **1-for-10 reverse split** of its common stock[208](index=208&type=chunk) [Available Information](index=38&type=section&id=Available%20Information) The company's SEC filings and corporate governance documents are publicly available on its website and the SEC's website - Annual Reports on Form **10-K**, Quarterly Reports on Form **10-Q**, Current Reports on Form **8-K**, and amendments are available on the company's website and the SEC's website[209](index=209&type=chunk) - Corporate Governance Guidelines, Code of Business Conduct and Ethics, and committee charters are posted on the company's website[210](index=210&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial risks across financial stability, product development, commercialization, intellectual property, and regulatory compliance in a highly uncertain environment - The company will need substantial additional funding for operations, especially for the **PolarisDMD Phase 3 trial** and potential commercialization, with existing capital projected to last into **Q4 2020**[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk)[219](index=219&type=chunk) - Raising additional capital may cause substantial dilution to stockholders, restrict operations, or require relinquishing rights to technologies or product candidates[220](index=220&type=chunk)[221](index=221&type=chunk)[224](index=224&type=chunk) - The company has incurred significant losses since inception (**$197.3 million** accumulated deficit as of **December 31, 2018**) and expects to continue incurring losses, with no guarantee of achieving profitability[226](index=226&type=chunk)[227](index=227&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk) - Success is highly dependent on **edasalonexent**; any setback in its development, approval, or commercialization would substantially harm the business[236](index=236&type=chunk)[237](index=237&type=chunk)[241](index=241&type=chunk) - Clinical drug development is lengthy, expensive, and uncertain, with preclinical and early-stage results not always predictive of later-stage success, and potential for delays or failures[248](index=248&type=chunk)[249](index=249&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk)[259](index=259&type=chunk)[261](index=261&type=chunk) - Challenges in patient enrollment for clinical trials, especially for rare diseases like DMD, could lead to significant delays or abandonment of trials[270](index=270&type=chunk)[271](index=271&type=chunk)[274](index=274&type=chunk)[276](index=276&type=chunk) - The company faces substantial competition from major pharmaceutical and biotechnology companies, including existing approved therapies and numerous product candidates in development for DMD[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk)[298](index=298&type=chunk) - Ability to obtain and maintain sufficient patent protection is critical; patents may be challenged, narrowed, or invalidated, and trade secrets are difficult to protect[343](index=343&type=chunk)[344](index=344&type=chunk)[345](index=345&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk) - The company relies on third parties for clinical trials and manufacturing, increasing risks of delays, non-compliance, and supply interruptions[329](index=329&type=chunk)[330](index=330&type=chunk)[331](index=331&type=chunk)[334](index=334&type=chunk)[335](index=335&type=chunk)[336](index=336&type=chunk)[337](index=337&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk) - Compliance with extensive healthcare laws and regulations (e.g., federal **Anti-Kickback Statute, False Claims Act, HIPAA, GDPR**) is costly and complex, with potential for significant penalties for non-compliance[428](index=428&type=chunk)[429](index=429&type=chunk)[431](index=431&type=chunk)[432](index=432&type=chunk)[435](index=435&type=chunk) [Unresolved Staff Comments](index=84&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - No unresolved staff comments[493](index=493&type=chunk) [Properties](index=84&type=section&id=Item%202.%20Properties) The company leases 19,000 square feet of office and lab space in Cambridge, Massachusetts, with the lease and a 15,000 square foot sublease expiring in June 2020 - The company leases approximately **19,000 square feet** of office and laboratory space in Cambridge, Massachusetts[494](index=494&type=chunk) - The lease for the facilities expires in **June 2020**[494](index=494&type=chunk) - Approximately **15,000 square feet** of the leased space is subleased to a third party, with the sublease also expiring in **June 2020**[495](index=495&type=chunk) - The existing facilities are considered sufficient for the company's needs for the foreseeable future[495](index=495&type=chunk) [Legal Proceedings](index=85&type=section&id=Item%203.%20Legal%20Proceedings) The company may face ordinary course legal proceedings but does not anticipate any current claims to have a material adverse effect - The company may become subject to various legal proceedings and claims in the ordinary course of business[496](index=496&type=chunk) - As of the report date, the company does not believe any current claim or litigation would have a material adverse effect on its business[496](index=496&type=chunk) - Litigation can have an adverse impact due to defense and settlement costs, and diversion of management resources[496](index=496&type=chunk) [Mine Safety Disclosures](index=85&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[496](index=496&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=86&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under 'CATB', with no dividends paid or intended, and no issuer purchases or unregistered sales during the period - Common stock has been publicly traded on The Nasdaq Global Market under **"CATB"** since **June 25, 2015**[498](index=498&type=chunk) - As of **March 7, 2019**, there were approximately **31 holders** of record of common stock[499](index=499&type=chunk) - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, planning to retain earnings for business growth[500](index=500&type=chunk) - No unregistered equity securities were sold, and no registered equity securities were purchased by the issuer during the period covered by this report[501](index=501&type=chunk)[502](index=502&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=87&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section reviews the company's financial condition and operational results, focusing on edasalonexent development, ongoing losses, and future funding needs - The company is a clinical-stage biopharmaceutical company focused on **edasalonexent** for DMD, with the **PolarisDMD Phase 3 trial** ongoing and **GalaxyDMD** open-label extension initiating[503](index=503&type=chunk)[504](index=504&type=chunk)[506](index=506&type=chunk) - Since inception in **June 2008**, the company has devoted resources to platform technology, product development, preclinical studies, clinical trials, intellectual property, and capital raising[512](index=512&type=chunk) - Total funding raised from inception through **December 31, 2018**, was **$245.2 million**, with an additional **$20.5 million** net proceeds from equity financings in **2019**[512](index=512&type=chunk)[543](index=543&type=chunk) - The company has not generated any revenue from product sales as of **December 31, 2018**, and incurred significant annual net operating losses, with an accumulated deficit of **$197.3 million**[514](index=514&type=chunk)[543](index=543&type=chunk) - Existing cash, cash equivalents, and short-term investments, including **2019 financings**, are expected to fund operations into **Q4 2020**[543](index=543&type=chunk)[553](index=553&type=chunk) - Future funding requirements depend on clinical trial pace, regulatory approvals, commercialization costs, and intellectual property maintenance[554](index=554&type=chunk)[556](index=556&type=chunk) [Overview](index=87&type=section&id=Overview_MD%26A) The company is a clinical-stage biopharmaceutical firm focused on edasalonexent for DMD, with a Phase 3 trial underway and preclinical candidate CAT-5571 for CF - Catabasis Pharmaceuticals is a clinical-stage biopharmaceutical company focused on **edasalonexent** for Duchenne muscular dystrophy (DMD)[503](index=503&type=chunk) - **Edasalonexent** is an oral small molecule designed to inhibit NF-kB, with Orphan Drug, Fast Track, and Rare Pediatric Disease designations from the FDA, and Orphan Medicinal Product designation from the EC[503](index=503&type=chunk) - A global **Phase 3 trial (PolarisDMD)** was initiated in **September 2018**, with top-line results expected in **Q2 2020** and an NDA submission goal in **early 2021**[504](index=504&type=chunk) - The **MoveDMD Phase 1/2 trial** showed preserved muscle function and consistent improvements in NSAA score and timed function tests through **72 weeks** of **edasalonexent** treatment[510](index=510&type=chunk) - **CAT-5571**, a potential oral treatment for cystic fibrosis, has completed IND-enabling activities[511](index=511&type=chunk) - The company has raised **$245.2 million** from inception through **December 31, 2018**, primarily through equity offerings and debt financing, and has an accumulated deficit of **$197.3 million**[512](index=512&type=chunk)[543](index=543&type=chunk) [Financial Overview](index=89&type=section&id=Financial%20Overview) The company reported no product revenue, a 9% decrease in R&D expenses, and a 5% increase in G&A expenses in 2018, with improved other income - No revenue from product sales as of **December 31, 2018**[514](index=514&type=chunk) - Recognized **$0.5 million** revenue in **2017** from an option agreement, which was terminated in **December 2017**[515](index=515&type=chunk) Research and Development Expenses (in thousands) | Program | 2018 | 2017 | Change ($) | Change (%) | | :--------------------------------------------------------- | :------ | :------ | :--------- | :--------- | | Edasalonexent | $7,897 | $5,887 | $2,010 | 34.1% | | CAT-5571 | $528 | $2,436 | $(1,908) | -78.3% | | Other research and platform programs | $628 | $1,393 | $(765) | -54.9% | | Costs not directly allocated to programs (Employee, Facilities, Consultants, Other) | $7,989 | $8,966 | $(977) | -10.9% | | **Total Research and Development Expenses** | **$17,042** | **$18,682** | **$(1,640)** | **-8.8%** | - General and administrative expenses increased by **$0.4 million (5%)** to **$9.3 million** in **2018**, primarily due to one-time performance bonuses for employees, partially offset by cost cutting in consulting services[539](index=539&type=chunk) - A strategic shift in **April 2018** to focus on **edasalonexent** led to a **40% workforce reduction**, incurring **$0.9 million** in restructuring charges (**$0.4 million** G&A, **$0.5 million** R&D)[215](index=215&type=chunk)[529](index=529&type=chunk) - Other income (expense), net, increased by **$0.8 million** in **2018**, driven by a **$0.4 million** decrease in interest expense and a **$0.3 million** increase in interest and investment income[540](index=540&type=chunk)[542](index=542&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=92&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Financial statements rely on significant judgments and estimates, particularly for accrued R&D expenses, fair value measurements, and stock-based compensation - Financial statements require significant judgments and estimates, especially for accrued research and development expenses[532](index=532&type=chunk)[534](index=534&type=chunk) - Estimates for R&D expenses are based on reviewing contracts, identifying services performed by CROs, and estimating costs for unbilled services[534](index=534&type=chunk)[535](index=535&type=chunk) - Other critical accounting policies include fair value of financial instruments and stock-based compensation[533](index=533&type=chunk)[647](index=647&type=chunk)[655](index=655&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=93&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity on its short-term, low-risk investment portfolio, with no material foreign currency liabilities - Primary market risk is interest rate sensitivity, affecting cash, cash equivalents, and short-term investments[570](index=570&type=chunk) - An immediate **10%** change in interest rates would not have a material effect on the fair market value of the investment portfolio or interest income, due to short-term duration and low-risk profile[570](index=570&type=chunk) - No material liabilities denominated in foreign currencies as of **December 31, 2018** and **2017**[571](index=571&type=chunk) [Financial Statements and Supplementary Data](index=93&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Consolidated financial statements and the independent auditor's report are appended, with financial schedules omitted as information is presented elsewhere - Consolidated financial statements and the report of the independent registered public accounting firm are appended to this report[572](index=572&type=chunk) - All financial schedules are omitted because the information is presented in the consolidated financial statements or notes, or is not applicable[597](index=597&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=93&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in accountants or disagreements on accounting principles, practices, or financial disclosure - No change of accountants or disagreements with accountants on accounting principles, practices, or financial disclosure[573](index=573&type=chunk) [Controls and Procedures](index=94&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with an exemption from auditor attestation - Management evaluated the effectiveness of disclosure controls and procedures as of **December 31, 2018**, and concluded they were effective at the reasonable assurance level[576](index=576&type=chunk) - Management assessed the effectiveness of internal control over financial reporting as of **December 31, 2018**, concluding it was effective based on **COSO** criteria[577](index=577&type=chunk)[579](index=579&type=chunk)[580](index=580&type=chunk) - The company is exempt from the independent registered public accounting firm's attestation report on internal control over financial reporting due to its status as an "emerging growth company"[580](index=580&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended **December 31, 2018**[581](index=581&type=chunk) [Other Information](index=95&type=section&id=Item%209B.%20Other%20Information) This item is not applicable to the company - Not Applicable[582](index=582&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=101&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the **2019 Annual Meeting of Stockholders** proxy statement[584](index=584&type=chunk) - The company has adopted a Code of Business Conduct and Ethics, corporate governance guidelines, and committee charters, accessible on its website[586](index=586&type=chunk) [Executive Compensation](index=101&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive compensation is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement - Information on executive compensation is incorporated by reference from the **2019 Annual Meeting of Stockholders** proxy statement[587](index=587&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=102&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details securities authorized under equity compensation plans and security ownership, including outstanding options and shares available for future issuance Equity Compensation Plan Information (as of December 31, 2018) | Plan Category | Number of securities to be issued upon exercise of outstanding stock options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :--------------------------------------------------------- | :------------------------------------------------------------------------------------------------ | :------------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | 433,389 | $29.05 | 953,928 | | Equity compensation plans not approved by security holders | — | — | — | | **Total** | **433,389** | **$29.05** | **953,928** | - The **2015 Employee Stock Purchase Plan** provides for annual increases in authorized shares, with **36,470 shares** added as of **January 1, 2019**[590](index=590&type=chunk) - Other information on security ownership is incorporated by reference from the **2019 Annual Meeting of Stockholders** proxy statement[591](index=591&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=102&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the **2019 Annual Meeting of Stockholders** proxy statement[592](index=592&type=chunk) [Principal Accountant Fees and Services](index=102&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information concerning principal accountant fees and services is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement - Information on principal accountant fees and services is incorporated by reference from the **2019 Annual Meeting of Stockholders** proxy statement[593](index=593&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=103&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements and the independent auditor's report, with omitted schedules and a comprehensive exhibit index detailing corporate documents - The financial statements filed as part of this Annual Report on Form **10-K** include the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations and Comprehensive Loss, Stockholders' Equity, and Cash Flows[595](index=595&type=chunk)[596](index=596&type=chunk) - All financial schedules have been omitted because the required information is either presented in the consolidated financial statements or their notes, or is not applicable[597](index=597&type=chunk) - A detailed Exhibit Index is provided, listing various corporate documents, stock warrants, equity incentive plans, employment agreements, lease agreements, and regulatory certifications[600](index=600&type=chunk)[601](index=601&type=chunk)[602](index=602&type=chunk)[603](index=603&type=chunk) [Form 10-K Summary](index=107&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company - Not applicable[604](index=604&type=chunk) [REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM](index=108&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM) Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for 2018 and 2017, conducted under PCAOB standards - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the years ended **December 31, 2018** and **2017**[607](index=607&type=chunk) - The audit was conducted in accordance with **PCAOB** standards, focusing on material misstatement risks, accounting principles, and management estimates[609](index=609&type=chunk)[610](index=610&type=chunk) - The company is not required to have, nor was the firm engaged to perform, an audit of its internal control over financial reporting[609](index=609&type=chunk) - Ernst & Young LLP has served as the company's auditor since **2010**[611](index=611&type=chunk) [Consolidated Financial Statements](index=109&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, with detailed notes [Consolidated Balance Sheets](index=109&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$39.2 million** in 2018, driven by cash and investments, while liabilities decreased and equity rose due to financings Consolidated Balance Sheet Summary (in thousands) | Item | December 31, 2018 | December 31, 2017 | | :----------------------------------------- | :---------------- | :---------------- | | **Assets** | | | | Cash and cash equivalents | $15,294 | $16,369 | | Short-term investments | $22,276 | $— | | Total current assets | $38,915 | $17,463 | | Property and equipment, net | $56 | $321 | | Restricted cash | $113 | $113 | | Other assets | $85 | $— | | **Total assets** | **$39,169** | **$17,897** | | **Liabilities** | | | | Accounts payable | $1,408 | $773 | | Accrued expenses | $2,763 | $2,432 | | Current portion of notes payable, net of discount | $— | $2,479 | | Total current liabilities | $4,171 | $6,016 | | Total liabilities | $4,227 | $6,105 | | **Stockholders' Equity** | | | | Additional paid-in capital | $232,243 | $183,224 | | Accumulated deficit | $(197,304) | $(171,434) |\ | **Total stockholders' equity** | **$34,942** | **$11,792** | | **Total liabilities and stockholders' equity** | **$39,169** | **$17,897** | - Total assets increased from **$17.9 million** in **2017** to **$39.2 million** in **2018**, primarily due to an increase in cash, cash equivalents, and short-term investments[613](index=613&type=chunk)[614](index=614&type=chunk) - Total liabilities decreased from **$6.1 million** in **2017** to **$4.2 million** in **2018**, mainly due to the repayment of notes payable[613](index=613&type=chunk)[614](index=614&type=chunk) - Stockholders' equity increased from **$11.8 million** to **$34.9 million**, reflecting additional paid-in capital from equity financings despite an accumulated deficit of **$197.3 million**[613](index=613&type=chunk)[614](index=614&type=chunk) [Consolidated Statements of Operations](index=110&type=section&id=Consolidated%20Statements%20of%20Operations) The company reported a net loss of **$25.9 million** in 2018, an improvement from 2017, with no revenue and decreased operating expenses Consolidated Statements of Operations Summary (in thousands, except per share data) | Item | Year Ended December 31, 2018 | Year Ended December 31, 2017 | | :----------------------------------------------------------------- | :--------------------------- | :--------------------------- | | Revenue | $— | $500 | | Operating expenses: | | | | Research and development | $17,042 | $18,682 | | General and administrative | $9,329 | $8,912 | | Total operating expenses | $26,371 | $27,594 | | Loss from operations | $(26,371) | $(27,094) | | Other income (expense), net | $501 | $(270) | | **Net loss** | **$(25,870)** | **$(27,364)** | | Net loss per share—basic and diluted | $(5.12) | $(12.62) | | Weighted-average common shares outstanding used in net loss per share—basic and diluted | 5,054,823 | 2,168,153 | - Net loss decreased from **$27.4 million** in **2017** to **$25.9 million** in **2018**[616](index=616&type=chunk) - Revenue was **$0** in **2018**, down from **$0.5 million** in **2017**[616](index=616&type=chunk) - Total operating expenses decreased by **$1.2 million (4.4%)** from **$27.6 million** in **2017** to **$26.4 million** in **2018**[616](index=616&type=chunk) - Other income (expense), net, improved by **$0.8 million**, shifting from a net expense of **$0.3 million** in **2017** to a net income of **$0.5 million** in **2018**[616](index=616&type=chunk) [Consolidated Statements of Comprehensive Loss](index=111&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) Comprehensive loss for 2018 was **$25.9 million**, an improvement from 2017, primarily reflecting the net loss with minor investment impacts Consolidated Statements of Comprehensive Loss (in thousands) | Item | Year Ended December 31, 2018 | Year Ended December 31, 2017 | | :--------------------------------- | :--------------------------- | :--------------------------- | | Net loss | $(25,870) | $(27,364) | | Other comprehensive (loss) income: | | | | (Loss) gain on short-term investments | $(4) | $4 | | Total other comprehensive (loss) income: | $(4) | $4 | | **Comprehensive loss** | **$(25,874)** | **$(27,360)** | - Comprehensive loss for **2018** was **$25.9 million**, an improvement from **$27.4 million** in **2017**[618](index=618&type=chunk) - The primary component of comprehensive loss is net loss, with a small unrealized loss on short-term investments in **2018** and a small gain in **2017**[618](index=618&type=chunk) [Consolidated Statements of Stockholders' Equity](index=112&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased to **$34.9 million** in 2018, driven by **$38.9 million** from public offerings and **$8.4 million** from ATM offerings, despite a **$25.9 million** net loss Consolidated Statements of Stockholders' Equity Summary (in thousands, except share data) | Item | Common Stock (Number of Shares) | Common Stock (Par Value) | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive (Loss) Gain | Total Stockholders' Equity | | :----------------------------------------- | :------------------------------ | :----------------------- | :------------------------- | :------------------ | :------------------------------------------ | :------------------------- | | Balance at December 31, 2017 | 2,364,526 | $2 | $183,224 | $(171,434) | $— | $11,792 | | Issuance of common stock and warrants in public offering, net of issuance costs | 4,200,000 | $4 | $38,882 | — | — | $38,886 | | Issuance of common stock for at-the-market offerings, net of issuance costs | 577,195 | $1 | $8,362 | — | — | $8,363 | | Stock-based compensation expense | — | — | $1,771 | — | — | $1,771 | | Net loss | — | — | — | $(25,870) | — | $(25,870) | | **Balance at December 31, 2018** | **7,141,996** | **$7** | **$232,243** | **$(197,304)** | **$(4)** | **$34,942** | - Total stockholders' equity increased from **$11.8 million** in **2017** to **$34.9 million** in **2018**[621](index=621&type=chunk)[623](index=623&type=chunk) - This increase was primarily driven by **$38.9 million** in net proceeds from the **June 2018** public offering and **$8.4 million** from at-the-market offerings[622](index=622&type=chunk) - The company reported a net loss of **$25.9 million** and **$1.8 million** in stock-based compensation expense in **2018**[622](index=622&type=chunk)[623](index=623&type=chunk) [Consolidated Statements of Cash Flows](index=114&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash decrease was **$1.1 million** in 2018, with reduced operating cash outflow, a shift to investing cash outflow, and increased financing cash inflow Consolidated Statements of Cash Flows Summary (in thousands) | Item | Year Ended December 31, 2018 | Year Ended December 31, 2017 | | :---------------------------------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(23,465) | $(26,836) | | Net cash (used in) provided by investing activities | $(21,905) | $14,883 | | Net cash provided by financing activities | $44,295 | $4,726 | | **Net decrease in cash, cash equivalents and restricted cash** | **$(1,075)** | **$(7,227)** | | Cash, cash equivalents and restricted cash, end of period | $15,407 | $16,482 | - Net cash used in operating activities decreased by **$3.4 million** to **$23.5 million** in **2018**, primarily due to a lower net loss and favorable changes in operating assets and liabilities[562](index=562&type=chunk)[626](index=626&type=chunk) - Net cash (used in) provided by investing activities shifted from a **$14.9 million** inflow in **2017** to a **$21.9 million** outflow in **2018**, mainly due to purchases of short-term investments[564](index=564&type=chunk)[626](index=626&type=chunk) - Net cash provided by financing activities significantly increased to **$44.3 million** in **2018** from **$4.7 million** in **2017**, driven by proceeds from public offerings and ATM programs[565](index=565&type=chunk)[626](index=626&type=chunk) [Notes to Consolidated Financial Statements](index=115&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies, financial instruments, equity, and commitments, highlighting its **$197.3 million** accumulated deficit and **Q4 2020** funding outlook - The company is a clinical-stage biopharmaceutical company focused on **edasalonexent** for DMD, with an accumulated deficit of **$197.3 million** as of **December 31, 2018**[629](index=629&type=chunk)[633](index=633&type=chunk) - Operations are primarily financed through public offerings and private placements of equity securities, with **$22.6 million** remaining available under current **ATM** programs[630](index=630&type=chunk)[636](index=636&type=chunk) - Existing cash, cash equivalents, and short-term investments, including **$20.5 million** net proceeds from **2019** equity financings, are expected to fund operations into **Q4 2020**[634](index=634&type=chunk) - A **1-for-10 reverse stock split** was effected on **December 28, 2018**, to regain Nasdaq compliance, retrospectively adjusting all share and per share amounts[637](index=637&type=chunk) - The company adopted **ASU 2016-18** (Restricted Cash) and **ASU 2018-07** (Stock Compensation) in **2018**, with **ASU 2016-02** (Leases) to be adopted in **2019**[666](index=666&type=chunk)[668](index=668&type=chunk)[670](index=670&type=chunk) - Accrued expenses as of **December 31, 2018**, totaled **$2.8 million**, including compensation, contracted research costs, and professional fees[682](index=682&type=chunk) - The credit facility with MidCap Financial Trust, Flexpoint MCLS SPV LLC, and Square 1 Bank, which provided **$10.0 million** in term loans, expired after all outstanding payments were made as of **December 31, 2018**[683](index=683&type=chunk) - Future minimum lease payments under non-cancelable operating lease obligations total **$2.1 million** as of **December 31, 2018**, with **$1.4 million** due in **2019** and **$0.7 million** in **2020**[568](index=568&type=chunk)[686](index=686&type=chunk) - The company had **$176.3 million** in federal and **$175.4 million** in state net operating loss carryforwards as of **December 31, 2018**, fully offset by a valuation allowance due to a history of losses[719](index=719&type=chunk) - Subsequent to **December 31, 2018**, the company raised an additional **$2.1 million** net proceeds from **ATM** programs and **$18.5 million** net proceeds from a **February 2019** public offering of common stock and warrants[725](index=725&type=chunk)[726](index=726&type=chunk) [SIGNATURES](index=134&type=section&id=SIGNATURES) The Annual Report on Form **10-K** was signed on **March 14, 2019**, by the President and CEO, along with other directors and officers - The Annual Report on Form **10-K** was signed on **March 14, 2019**[731](index=731&type=chunk) - Signatories include Jill C. Milne (President and CEO), Deirdre A. Cunnane (Chief Legal Officer and Treasurer), Noah Clauser (Vice President of Finance), and other directors[733](index=733&type=chunk)[734](index=734&type=chunk) - A power of attorney was granted to Jill C. Milne and Deirdre Cunnane to sign any amendments to the report[731](index=731&type=chunk)