Filed Pursuant to Rule 424(b)(1)
Registration No. 333-192936
PROSPECTUS
4,705,882 Shares
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Retrophin, Inc.
Common Stock
 
We are offering 4,705,882 shares of our common stock. All of the shares of common stock are being sold by us.
Our common stock has been approved for listing on The NASDAQ Global Market under the symbol “RTRX.” Prior to this offering, our common stock has been quoted on the OTC QB market under the symbol “RTRX.” On January 9, 2014, the last reported sale price of our common stock on the OTC QB market was $8.50 per share.
We are an “emerging growth company” as defined by the Jumpstart Our Business Startup Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”
Investing in our common stock involves a high degree of risk. Please read “Risk Factors” beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
 
 
 
 
 
Per Share
 
 
 
Total
 
 
Public Offering Price
 
 
$
8.5000
 
 
$
39,999,997
 
 
Underwriting Discounts and Commissions
 
 
$
0.5525
 
 
$
2,600,000
 
 
Proceeds to us, before expenses(1)
 
 
$
7.9475
 
 
$
37,399,997
 
 
(1)
  • The underwriters will also be reimbursed for certain expenses incurred in this offering. See “Underwriting” for details.
Delivery of the shares of common stock is expected to be made on or about January 15, 2014. We have granted the underwriters an option for a period of 30 days to purchase an additional 705,882 of shares of our common stock. If the underwriters exercise the option in full, the total underwriting discounts and commissions payable by us will be $2,990,000, and the total proceeds to us, before expenses, will be $43,009,994.
Sole Book-Running Manager
Jefferies
Co-Managers
 
 
Roth Capital Partners
 
 
 
 
 
 
 
 
 Ladenburg Thalmann & Co. Inc.  
 
 
 
 
 
 
 
 
Summer Street Research Partners
 
Prospectus dated January 10, 2014

TABLE OF CONTENTS
 
 
This prospectus is part of a registration statement we filed with the Securities and Exchange Commission (the “SEC”). You should rely only on the information provided in this prospectus or in any free writing prospectus that we may provide you in connection with this offering. We have not, and the underwriters have not, authorized anyone to provide you with information different from that contained in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the common stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common stock in any circumstances in which such offer or solicitation is unlawful. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted.
Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus or that the information contained by reference to this prospectus is correct as of any time after its date. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. The rules of the SEC may require us to update this prospectus in the future.


PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed information appearing elsewhere in this prospectus. It may not contain all of the information that you should consider before investing in our common stock. You should read this entire prospectus carefully, including the “Risk Factors” and the financial statements and related included herein. This prospectus includes forward-looking statements that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements.”
In this prospectus, unless the context requires otherwise, the terms “we”, “our”, “us”, “Retrophin” and the “Company” refer to Retrophin, Inc., a Delaware corporation, as well as our direct and indirect subsidiaries.
Overview
We are a development-stage biopharmaceutical company focused on the development, acquisition and commercialization of therapies for the treatment of serious, catastrophic or rare diseases. We are developing SyntocinonTM Nasal Spray in the U.S. to assist initial postpartum milk ejection, which we refer to as aiding milk let-down, and for the treatment of Schizophrenia and Autism. Syntocinon Nasal Spray is currently marketed by Novartis and Sigma-Tau in Europe and other countries for aiding milk let-down. In addition, we are developing RE-034, a synthetic hormone analogue that is composed of the first 24 amino acids of the 39 amino acids contained in the naturally occurring adrenocorticotrophic hormone, or ACTH, for the treatment of Infantile Spasms and Nephrotic Syndrome. We are developing RE-024, a novel small molecule, as a potential treatment for pantothenate kinase-associated neurodegeneration, or PKAN. Also, we are developing sparsentan, formerly known as RE-021, a dual acting receptor antagonist of angiotensin and endothelin receptors, for the treatment of focal segmental glomerulosclerosis, or FSGS. We also have several additional programs in preclinical development, including RE-001, a therapy for the treatment of Duchenne Muscular Dystrophy.
Our Product Candidates
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Syntocinon Nasal Spray
Syntocinon (oxytocin nasal spray, USP) is our product candidate for aiding milk let-down and for the treatment of Schizophrenia and Autism. Syntocinon is currently sold in Europe and other countries by Novartis and Sigma-Tau to aid mothers experiencing problems with milk let-down. Oxytocin is a nonapeptide hormone synthesized by the brain and released by the pituitary gland.
Syntocinon Nasal Spray was an FDA-approved product for aiding milk let-down. Syntocinon Nasal Spray was voluntarily withdrawn from sale by Novartis Pharmaceutical Corporation, or Novartis, in 1997 for commercial reasons. On December 12, 2013, we secured a royalty-bearing license from Novartis to the U.S. rights for Syntocinon Nasal Spray, including the intellectual property to develop, manufacture, and sell the product in the United States.
Syntocinon Nasal Spray in Milk Let-Down
We intend to reintroduce Syntocinon to the U.S. market to assist initial postpartum milk ejection from the breasts. Disruption of oxytocin plays an important role in preventing the release of milk from the lactating breast. Numerous psychological and chemical stressors have been implicated in the inhibition of oxytocin release in new mothers resulting in impaired milk-ejection. There are currently no FDA-approved drugs for the treatment of milk let-down in the U.S. We believe that reintroduction of intranasal oxytocin would provide a convenient therapy for new mothers suffering from lactation deficiency.
Syntocinon Nasal Spray in Schizophrenia
We intend to develop Syntocinon as a potential treatment for Schizophrenia. Current pharmaceutical treatment is limited to powerful antipsychotics with serious side effects and compliance problems. According to the National Institute of Mental Health, approximately one percent of Americans suffer from Schizophrenia. Over the past four years, three randomized, double-blind, placebo-controlled, independent proof-of-concept schizophrenia trials were held. In all three trials, patients were highly symptomatic despite receiving therapeutic doses of an atypical antipsychotic. We believe that the findings of these studies suggest that intranasal oxytocin administered as an adjunct to subjects’ antipsychotic drugs will improve positive and negative symptoms. We are partially funding a Phase 2 clinical study regarding the effects of oxytocin on the treatment of Schizophrenia. This trial is currently enrolling patients, and we expect approximately 143 patients to be enrolled. We expect results from this trial in the third quarter of 2014.
Syntocinon Nasal Spray in Autism Spectrum Disorders
We also plan to develop Syntocinon for the potential treatment of symptoms in patients with Autism Spectrum Disorders. Approximately one in fifty children in the U.S. suffers from Autism Spectrum Disorders according to the Center for Disease Control and Prevention. Risperidone and aripiprazole are the only approved treatments for the behavioral disturbances associated with Autism. Common adverse effects from these drugs include weight gain, sedation, and extrapyramidal symptoms. Recent small clinical studies suggest that oxytocin may improve social cognition and quality of life in patients with Autism. We believe that these studies support the development of Syntocinon for this indication. We intend to initiate a Phase 2 clinical study of Syntocinon for the treatment of Autism Spectrum Disorders in 2014.
RE-034 (Tetracosactide Zinc)
RE-034 is a synthetic hormone analog of the first 24 amino acids of the 39 amino acids contained in ACTH, formulated together with zinc. RE-034 exhibits the same physiological actions as endogenous ACTH by binding to all five melanocortin receptors (MCR), resulting in its anti-inflammatory and immunomodulatory effects. In 2014, we plan to submit an Investigational New Drug application, or IND, for RE-034 for the treatment of Infantile Spasms and Nephrotic Syndrome to the FDA.
RE-034 in Infantile Spasms
Infantile Spasms, or IS, also known as West syndrome, is a form of epileptic encephalopathy that begins in infancy. IS is considered a catastrophic form of epilepsy due to the difficulty in controlling seizures and normalization of electroencephalography in addition to strong association with sequelae of developmental delay and mental retardation. Commercially available ACTH formulations that are substantially similar to RE-034 have been shown to be an effective treatment of Infantile Spasms. We intend to initiate a Phase 3 clinical trial of RE-034 for the treatment of Infantile Spasms in 2014.


RE-034 in Nephrotic Syndrome
We intend to initiate studies of RE-034 for the treatment of Nephrotic Syndrome, or NS. Nephrotic Syndrome is a kidney disorder that leads to proteinuria, a condition in which an excess of proteins are contained in a patient’s urine. Long-term conventional immunosuppression therapies have been used effectively to induce remission of proteinuria; however, many patients with Nephrotic Syndrome will relapse after remission or are resistant to primary and secondary treatments. Commercially available ACTH formulations that are substantially similar to RE-034 have been shown to successfully induce remission of proteinuria in patients with Nephrotic Syndrome. We intend to initiate a Phase 3 clinical trial of RE-034 for the treatment of Nephrotic Syndrome in 2014.
RE-024
We are developing RE-024, a novel small molecule, as a potential treatment for PKAN. PKAN is the most common form of neurodegeneration with brain iron accumulation. Classic PKAN is a genetic disorder that is typically diagnosed in the first decade of life. Consequences of PKAN include dystonia, dysarthria, rigidity, retinal degeneration, and severe digestive problems. PKAN is estimated to affect 1 to 3 persons per million. PKAN typically manifests in childhood with a profound, progressive dystonia and is usually lethal. There are currently no viable treatment options for patients with PKAN. RE-024 is a phosphopantothenate prodrug replacement therapy with the goal of restoring the supply of this operative substrate in PKAN patients. A Phase 1 clinical trial of RE-024 is expected to begin in early 2014 under an emergency IND.
Sparsentan
Sparsentan, formerly known as RE-021, is an investigational therapeutic agent which acts as both a potent angiotensin receptor blocker, or ARB, which is a type of drug that modulates the renin-angiotensin-aldosterone system and is typically used to treat hypertension, diabetic nephropathy and congestive heart failure, as well as a selective endothelin receptor antagonist, or ERA, which is a type of drug that blocks endothelin receptors, preferential for endothelin receptor type A. We have secured a license to sparsentan from Ligand and Bristol-Myers Squibb (who referred to it as DARA). We are developing sparsentan as a treatment for FSGS. FSGS is a leading cause of end-stage renal disease and Nephrotic Syndrome. We are currently enrolling patients for a Phase 2 clinical study of sparsentan for the treatment of FSGS and we expect approximately 100 patients to be enrolled.
Our Strategy
Our goal is to become a leading biopharmaceutical company specializing in the development and commercialization of therapies for the treatment of serious, catastrophic or rare diseases. In order to achieve our goals, we intend to:
  • Expand our product pipeline by pursuing additional acquisitions of pharmaceutical products that have a profound impact on patients’ lives;
  • Focus on developing products to treat orphan or severe diseases;
  • Develop a sustainable pipeline by employing disciplined decision criteria; and
  • Evaluate the commercialization strategies on a product-by-product basis to maximize the value of each.
Risks Associated with Our Business
Our ability to implement our current business strategy is subject to numerous risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under “Risk Factors” and “Cautionary Note On Forward Looking Statements” in deciding whether to invest in our common stock. Among these important risks and uncertainties that could adversely affect our results of operations and business condition are the following:
  • We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We are a development stage company with no approved products, and no historical revenues, which makes it difficult to assess our future viability.
  • Other companies may pursue similar strategies or initiate similar clinical studies.
  • Our success is primarily dependent on the successful development, regulatory approval and commercialization of our product candidates, all of which are in early development.


  • Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
  • The regulatory approval processes of the FDA and similar foreign authorities is lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
  • If we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product candidates, or continue our development programs. In addition, the report of our independent registered public accounting firm on our financial statements appearing at the end of this prospectus contains an explanatory paragraph stating that our recurring losses raise substantial doubt about our ability to continue as a going concern. Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, patients and healthcare payors.
  • We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.
  • We depend on the performance of third parties, including contract research organizations and third-party manufacturers.
Implications of Being an Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act, or “JOBS Act.” For as long as we are an emerging growth company, unlike other public companies, we will not be required to:
  • provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002;
  • provide more than two years of audited financial statements or two years of management’s discussion and analysis;
  • comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer;
  • comply with any new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise;
  • provide certain disclosure regarding executive compensation required of larger public companies; or
  • obtain shareholder approval of any golden parachute payments not previously approved.
We will cease to be an “emerging growth company” upon the earliest of (i) when we have $1.0 billion or more in annual revenues, (ii) when we have at least $700 million in market value of common stock held by non-affiliates, (iii) when we issue more than $1.0 billion of non-convertible debt over a three-year period, or (iv) the last day of the fiscal year following the fifth anniversary of our initial public offering.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.
Corporate Overview
For a description of our corporate background, please see “Corporate History” on page 52 of this prospectus. Our principal offices are located at 777 Third Avenue, 22nd Floor, New York, NY 10017. Our telephone number is (646) 837-5863. We also have offices in Cambridge, Massachusetts and San Diego, California. Our website address is www.retrophin.com. Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in, and are not considered part of, this prospectus. You should not rely on any such information in making your decision whether to purchase our common stock.


THE OFFERING
Common stock offered by us in this offering
4,705,882 shares
Common stock outstanding after the offering
23,082,245 shares (23,788,127 shares if the underwriters’ option to purchase 705,882 additional shares is exercised in full)
Underwriters’ option to purchase additional shares
We have granted the underwriters an option to purchase up to 705,882 of additional shares of our common stock. This option is exercisable, in whole or in part, for a period of 30 days from the date of this prospectus.
Listing
Our common stock has been approved for listing on The NASDAQ Global Market under the symbol “RTRX.”
Risk factors
Investing in our common stock involves a high degree of risk. See “Risk Factors.”
In this prospectus, the number of shares of our common stock to be outstanding following this offering and other information based thereon is based on 18,376,363 shares of our common stock outstanding as of September 30, 2013 and assumes no exercise by the underwriters of their option to purchase additional shares.
The number of shares of our common stock outstanding following this offering and the other information based thereon does not reflect:
  • 260,000 shares of our common stock issuable upon the exercise of options outstanding as of September 30, 2013, with a weighted average exercise price of $7.12 per share; and
  • 4,462,426 shares of our common stock issuable upon the exercise of warrants outstanding as of September 30, 2013, with a weighted average exercise price of $5.14 per share. 


Summary Financial Data
We have derived the following summary financial data for the years ended December 31, 2012 and 2011 from our audited financial statements. The summary financial data for the nine months ended September 30, 2013 and 2012 and the balance sheet data as of September 30, 2013 have been derived from our unaudited interim financial statements. The unaudited interim financial results have been prepared on the same basis as the audited financial statements and reflect all adjustments necessary to fairly reflect our financial position as of September 30, 2013 and results of operations for the nine months ended September 30, 2013 and 2012. Our historical results are not necessarily indicative of the results that may be expected in the future. The following summary financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included in this prospectus.
 
 
(In thousands, except share and
per share amounts)
 
 
 
For the year
ended
December 31,
 
 
 
For the period
from March 31, 2011
(inception) through
December 31,
 
 
 
For the nine months ended
September 30,
 
 
 
 
 
 
2012
 
 
 
2011
 
 
 
2013
 
 
 
2012
 
 
Operating expenses:
 
                    
 
Compensation and related costs
 
 
$
18,133,550
 
 
$
2,227,203
 
 
$
1,767,195
 
 
$
8,371,481
 
 
Professional fees
 
 
 
8,494,583
 
 
 
556,287
 
 
 
4,392,673
 
 
 
7,761,899
 
 
Research and development
 
 
 
541,119
 
 
 
353,394
 
 
 
2,113,813
 
 
 
286,889
 
 
Selling, general and administrative
 
 
 
1,387,765
 
 
 
126,812
 
 
 
4,131,193
 
 
 
337,622
 
 
Technology license fee
 
 
 
1,700,000
 
 
 
 
 
 
100,000
 
 
 
 
 
Total operating expenses
 
 
 
30,257,017
 
 
 
3,263,696
 
 
 
12,504,874
 
 
 
16,757,891
 
 
Operating loss
 
 
 
(30,257,017
)
 
 
 
(3,263,696
)
 
 
 
(12,504,874
)
 
 
 
(16,757,891
)
 
 
Total other expense, net
 
 
 
(86,839
)
 
 
 
(4,560
)
 
 
 
(8,184,362
)
 
 
 
(54,778
)
 
 
Net loss
 
 
$
(30,343,856
)
 
 
$
(3,268,256
)
 
 
$
(20,689,236
)
 
 
$
(16,812,669
)
 
 
Net loss per common share, basic and diluted
 
 
$
(8.29
)
 
 
$
(1.59
)
 
 
$
(1.62
)
 
 
$
(5.55
)
 
 
Weighted average common shares outstanding, basic and diluted
 
 
 
3,662,114
 
 
 
2,053,402
 
 
 
12,797,714
 
 
 
3,027,468
 
 


The table below presents our balance sheet as of September 30, 2013:
  • on an actual basis; and
  • on an as adjusted basis to give effect to the sale of shares of common stock in this offering at a public offering price of $8.50 per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
 
 
 
 
 
AS OF SEPTEMBER 30, 2013
 
 
 
(In thousands)
 
 
 
ACTUAL
 
 
 
AS ADJUSTED
 
 
BALANCE SHEET DATA:
 
          
 
Cash
 
 
$
13,410
 
 
$
50,010
 
 
Marketable securities, available-for-sale
 
 
 
2,957
 
 
 
2,957
 
 
Property and equipment, net
 
 
 
38
 
 
 
38
 
 
Total assets
 
 
 
21,365
 
 
 
57,965
 
 
Total current liabilities
 
 
 
27,169
 
 
 
27,169
 
 
Accumulated deficit
 
 
 
(54,301
)
 
 
 
(54,301
)
 
 
Total stockholders’ (deficit) equity
 
 
 
(5,804
)
 
 
 
30,796
 
 

RISK FACTORS
Our business, as well as our common stock, are highly speculative in nature and involve a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information included herein, including the financial statements and related notes, before deciding to invest in our common stock. If any of the following risks actually occur, they could adversely affect our business, prospects, financial condition and results of operations. In such event, the market price of our common stock could decline and you could lose part or all of your investment. Accordingly, prospective investors should carefully consider, along with other matters referred to herein, the following risk factors in evaluating our business before purchasing any of our common stock.
Risks Related to Our Business
We are still in the development stage and have not generated any revenues.
From inception through September 30, 2013, we have incurred net losses of approximately $54.30 million and negative cash flows from operating activities of approximately $12.96 million. Because it takes years to develop, test and obtain regulatory approval for our treatments before they can be sold, we likely will continue to incur significant losses and cash flow deficiencies for the foreseeable future. Accordingly, we may never be profitable and, if we do become profitable, we may be unable to sustain profitability.
We have incurred operating losses since our inception. We expect to incur operating losses for the foreseeable future and may never achieve or maintain profitability.
Since inception, we have incurred significant operating losses. Our net loss attributable to common stockholders was $30.34 million for the year ended December 31, 2012. As of September 30, 2013 we had an accumulated deficit of $54.30 million. To date, we have financed our operations primarily by raising capital through private placements of our securities. We have devoted substantially all of our efforts to research and development, specifically our preclinical development activities. We have not completed development of any drugs. We expect to continue to incur significant and increasing operating losses for at least the next several quarters and we are unable to predict the extent of any future losses. We anticipate that our expenses will increase substantially as we:
  • seek regulatory approval for Syntocinon for aiding milk let down and fund clinical trials for additional indications for Syntocinon;
  • continue our ongoing preclinical development of RE-034,
  • continue our ongoing preclinical development of RE-024 for the treatment of PKAN, and potentially begin clinical trials of RE-024;
  • begin Phase 2 clinical development of sparsentan for the treatment of FSGS;
  • continue our ongoing preclinical development activities of RE-001 for the treatment of DMD, and potentially begin clinical trials of RE-001;
  • continue the research and development of additional product candidates;
  • seek regulatory approval of Syntocinon for additional indications, RE-034, RE-024, sparsentan, RE-001 and additional product candidates;
  • establish a sales and marketing infrastructure to commercialize products for which we may obtain regulatory approval; and
  • add operational, financial, and management information systems and personnel, including personnel to support product development efforts and our obligations as a public company.
To become and remain profitable, we must succeed in developing and commercializing drugs with significant market potential. This will require us to be successful in a range of challenging activities, including the discovery of product candidates, successful completion of preclinical testing and clinical trials of our product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling those products for which we may obtain regulatory approval. We are only in the preliminary stages of these activities. We may never succeed in these activities and may never generate revenues that are substantial enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become or remain profitable could depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the market price of our common stock may also cause you to lose a part or all of your investment.

We are an early stage corporation. Our limited operating history makes it difficult to evaluate our current business and future prospects, and our profitability in the future is uncertain.
We commenced operations in 2011 and are a new, early stage company. As of the date hereof, we have not generated any revenues. Our operations to date have been limited to organizing and staffing our company, licensing and developing our technology, planning for clinical studies of sparsentan, developing a viable manufacturing route for RE-001, planning pre-clinical studies and limited clinical studies of RE-024 and RE-001. We have not yet demonstrated our ability to successfully begin or complete clinical trials, obtain regulatory approvals, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. In addition, we only recently began development of Syntocinon and RE-034. Consequently, any predictions you make about our future success or viability may not be as accurate as they would be if we had a longer operating history.
Our company faces the problems, expenses, difficulties, complications and delays, many of which are beyond our control, associated with any business in its early stages and has no operating history on which an evaluation of our prospects can be made. Such prospects should be considered in light of the risks, expenses and difficulties frequently encountered in the establishment of a business in a new industry, characterized by a number of market entrants and intense competition, and in the shift from development to commercialization of new products based on innovative technologies. There can be no assurance that we will ever generate revenues from operations.
Moreover, even if we generate revenues from product sales arrangements, we may incur significant operating losses over the next several years. Our ability to achieve profitable operations in the future will depend in large part upon successful in-licensing of products approved by the United States Food and Drug Administration, or FDA, selling and manufacturing these products, completing development of our products, obtaining regulatory approvals for these products, and bringing these products to market. The likelihood of the long-term success of our company must be considered in light of the expenses, difficulties and delays frequently encountered in the development and commercialization of new drug products, competitive factors in the marketplace, as well as the regulatory environment in which we operate.
In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors.
We are subject to various laws and regulations, including “fraud and abuse” laws and anti-bribery laws, and a failure to comply with such laws and regulations or prevail in any litigation related to noncompliance could have a material adverse impact on our business, financial condition and results of operations and could cause the market value of our common stock to decline.
Pharmaceutical and biotechnology companies have faced lawsuits and investigations pertaining to violations of health care “fraud and abuse” laws, such as the federal False Claims Act, the federal Anti-Kickback Statute, the U.S. Foreign Corrupt Practices Act, or the FCPA, and other state and federal laws and regulations. We also face increasingly strict data privacy and security laws in the U.S. and in other countries, the violation of which could result in fines and other sanctions. The United States Department of Health and Human Services Office of Inspector General recommends and, increasingly, states require pharmaceutical companies to have comprehensive compliance programs and to disclose certain payments made to healthcare providers or funds spent on marketing and promotion of drug products. If we are in violation of any of these requirements or any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines, exclusion from federal healthcare programs or other sanctions.
The FCPA and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries from making improper payments to officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that have experienced governmental corruption to some degree and in certain circumstances, strict compliance with antibribery laws may conflict with local customs and practices or may require us to interact with doctors and hospitals, some of which may be state controlled, in a manner that is different than in the U.S. and Canada. We cannot assure you that our internal control policies and procedures will protect us from reckless or criminal acts committed by our employees or agents. Violations of these laws, or allegations of such violations, could disrupt our business and result in criminal or civil penalties or remedial measures, any of which could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline.

We will need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts.
We expect our general, research and development expenses to increase in connection with our ongoing activities, particularly as we begin Phase 3 clinical studies of RE-034 and Phase 2 clinical studies of Syntocinon and sparsentan, and as we continue toward Phase 1 clinical studies of RE-024 and RE-001, and for any later-stage clinical trials of our product candidates. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales and marketing, securing commercial quantities of product from our manufacturers, and product distribution. We currently have no additional commitments or arrangements for any additional financing to fund the research and development and commercial launch of our product candidates.
We believe that our existing cash as of the date of this filing, together with the proceeds of this offering, and marketable securities, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. Additional funds may not be available to us 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 reduce or eliminate research development programs or commercial efforts.
Our future capital requirements will depend on many factors, including:
  • if approved by the FDA, our marketing and sales efforts for Syntocinon for aiding milk let-down;
  • the progress and results of our pre-clinical and clinical studies of Syntocinon, RE-034, RE-024, sparsentan, RE-001, and other drug candidates;
  • the costs, timing and outcome of regulatory review of our product candidates;
  • the number and development requirements of other product candidates that we pursue;
  • the costs of commercialization activities, including product marketing, sales and distribution;
  • the emergence of competing technologies and other adverse market developments;
  • the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property related claims;
  • the extent to which we acquire or invest in businesses, products and technologies; and
  • our ability to establish collaborations and obtain milestone, royalty or other payments from any such collaborators.
Any additional funds that we obtain may not be on terms favorable to us or our stockholders or may require us to relinquish valuable rights.
Until such time, if ever, as we generate stable product revenue to finance our operations, we expect to finance our cash needs through public or private equity offerings and debt financings, corporate collaboration and licensing arrangements and grants from patient advocacy groups, foundations and government agencies. If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, and may include rights that are senior to the holders of our common stock. Any debt financing or additional equity that we raise may contain terms, such as liquidation and other preferences, which are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us or our stockholders.
Our management has identified internal control deficiencies, which our management believes constitute material weaknesses. Any future material weaknesses or deficiencies in our internal control over financial reporting could harm stockholder and business confidence on our financial reporting, our ability to obtain financing and other aspects of our business.
In connection with the preparation of our audited financial statements for the period from March 11, 2011 (inception) through December 31, 2011 and the year ended December 31, 2012, we concluded that a material weakness existed in internal control over financial reporting and our disclosure controls. Specifically, our management concluded as of September 30, 2013 that our disclosure controls were not effective, as of such date, to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act was (i) recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely

decisions regarding required disclosure. Although we are committed to continuing to improve our internal control processes, and although we will continue to diligently and vigorously review our internal control over financial reporting, any control system, regardless of how well designed, operated and evaluated, can provide only reasonable, not absolute, assurance that its objectives will be met. Therefore, we cannot be certain that, in the future, additional material weaknesses or significant deficiencies will not exist or otherwise be discovered. If our efforts to address the weakness identified are not successful, or if other deficiencies occur, these weaknesses or deficiencies could result in misstatements of our results of operations, restatements of our financial statements, a decline in our stock price and investor confidence or other material effects on our business, reputation, results of operations, financial condition or liquidity.
Our auditors have expressed doubt about our ability to continue as a going concern.
The Independent Registered Public Accounting Firm’s Report issued in connection with our audited financial statements for the period from March 11, 2011 (inception) through December 31, 2011 and the year ended December 31, 2012 stated that “the Company, as a development stage enterprise, is subject to risks and uncertainties as to whether it will be able to raise capital and commence its planned operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.” Because we have been issued an opinion by our auditors that substantial doubt exists as to whether it can continue as a going concern, it may be more difficult to attract investors. If we are not able to continue our business as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that investors will lose all or a part of their investment.
We do not currently have patent protection for certain of our product candidates. If we are unable to obtain and maintain protection for the intellectual property relating to our technology and products, the value of our technology and products will be adversely affected.
Our success will depend in large part on our ability to obtain and maintain protection in the United States and other countries for the intellectual property covering, or incorporated into, our technology and products. The patent situation in the field of biotechnology and pharmaceuticals generally is highly uncertain and involves complex legal, technical, scientific and factual questions. We may not be able to obtain additional issued patents relating to our technology or products. Even if issued, patents issued to us or our licensors may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit our ability to stop competitors from marketing similar products or reduce the term of patent protection we may have for our products. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. We filed a U.S. patent application on RE-024 in April 2012, for which we received a notice of allowance from the United States Patent and Trademark Office in January, 2014. We have licensed composition of matter patents on sparsentan that expire in 2019. Currently we have no patent protection on Syntocinon, RE-034 or RE-001. We expect that in addition to the protection afforded by our patent filings that we will be able to obtain five years regulatory exclusively via the provisions of the Hatch-Waxman Amendments to the Federal Food, Drug, and Cosmetic Act, or FDC Act for products we develop based on a new chemical entity not previously approved by the FDA, and up to five years patent term extension (to compensate for regulatory approval delay) for a patent covering such a product.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
  • we or our licensors were the first to make the inventions covered by each of our pending patent applications;
  • we or our licensors were the first to file patent applications for these inventions;
  • others will not independently develop similar or alternative technologies or duplicate any of our technologies;
  • any patents issued to us or our licensors that provide a basis for commercially viable products will provide us with any competitive advantages or will not be challenged by third parties;
  • we will develop additional proprietary technologies that are patentable;
  • we will file patent applications for new proprietary technologies promptly or at all;
  • the claims we make in our patents will be upheld by patent offices in the United States and elsewhere;
  • our patents will not expire prior to or shortly after commencing commercialization of a product; and
  • the patents of others will not have a negative effect on our ability to do business.
We have filed a patent application in the United States on the composition of RE-024 as a treatment for pantothenate kinase associated neurodegeneration. Further, we have not filed for patent protection outside of the United States for RE-024. We cannot be certain that we will file for patent protection outside the United States, or that, even if we do, any patents(s) will be granted.

We have negotiated a license agreement for the rights to DARA (PS433540), an ARB and ERA which we are initially using in connection with the treatment of FSGS and which we refer to as sparsentan and formerly referred to as RE-021, from Ligand Pharmaceuticals, Inc. (“Ligand” or “Ligand Pharmaceuticals”). We cannot be certain when or if we will file for patent protection for different indications, if we would be successful in obtaining these patents, or if we will be able to enforce these patents. If we are unsuccessful in obtaining patents for different uses of sparsentan, we may not be able to stop competitors from marketing similar products.
Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the United States and many other jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in the scientific literature often lag behind the actual discoveries, neither we nor our licensors can be certain that we or they were the first to make the inventions claimed in our or their issued patents or pending patent applications, or that we or they were the first to file for protection of the inventions set forth in these patent applications. If a third party has also filed a United States patent application prior to the effective date of the relevant provisions of the America Invests Act (i.e. before March 16, 2013) covering our product candidates or a similar invention, we may have to participate in an adversarial proceeding, known as an interference, declared by the United States Patent and Trademark Office to determine priority of invention in the United States. The costs of these proceedings could be substantial and it is possible that our efforts could be unsuccessful, resulting in a loss of our United States patent position.
Additional competitors could enter the market, including with generic versions of our products, and sales of affected products may decline materially.
Under the Hatch-Waxman Amendments, a pharmaceutical manufacturer may file an abbreviated new drug application, or ANDA, seeking approval of a generic copy of an approved innovator product. Under the Hatch-Waxman Amendments, a manufacturer may also submit an NDA under Section 505(b)(2) that relies on the FDA’s prior findings of safety and effectiveness in approving the innovator product. A Section 505(b)(2) NDA may be for a new or improved version of the original innovator product. The Hatch-Waxman Amendments also provide for certain periods of regulatory exclusivity, which preclude FDA approval (or in some circumstances, FDA filing and reviewing) of an ANDA or Section 505(b)(2) NDA. In addition, the FDC Act provides, subject to certain exceptions, a period during which an FDA-approved drug may be afforded orphan drug exclusivity. In addition to the benefits of regulatory exclusivity, an innovator NDA holder may have patents claiming the active ingredient, product formulation or an approved use of the drug, which would be listed with the product in the FDA publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” known as the “Orange Book.” If there are patents listed in the Orange Book, a generic or Section 505(b)(2) applicant that seeks to market its product before expiration of the patents must include in the ANDA what is known as a “Paragraph IV certification,” challenging the validity or enforceability of, or claiming non-infringement of, the listed patent or patents. Notice of the certification must be given to the innovator, too, and if within 45 days of receiving notice the innovator sues to protect its patents, approval of the ANDA is stayed for 30 months, or as lengthened or shortened by the court.
The composition of matter patents for Syntocinon have expired. Because Syntocinon has no regulatory exclusivity or listed patents, a competitor could at any time submit an ANDA or a Section 505(b)(2) NDA referencing Syntocinon and request immediate approval. The drug approval process is a confidential one, so we may not become aware of any new competitors until such ANDA or Section 505(b)(2) NDA has been approved by the FDA.
We license patent rights from third-party owners. If such owners do not properly or successfully obtain, maintain or enforce the patents underlying such licenses, our competitive position and business prospects will be harmed.
We have negotiated license agreements for the rights to Syntocinon Nasal Spray in the U.S. from Novartis and for the rights to sparsentan from Ligand Pharmaceuticals. We may enter into additional licenses to third-party intellectual property in the future. Our success will depend in part on the ability of our licensors to obtain, maintain and enforce patent protection for our licensed intellectual property, in particular, those patents to which we have secured or may secure exclusive rights. Our licensors may not successfully prosecute the patent applications to which we are licensed. Even if patents issue in respect of these patent applications, our licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents, or may pursue such litigation less aggressively than we would. Without protection for the intellectual property we license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects.

If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose license rights that are important to our business.
We cannot be certain that we will be successful in maintaining the covenants required in our license agreements with Novartis, Ligand Pharmaceuticals or other third-party licensors, and we cannot be certain that we will be able to maintain these rights with beneficial terms.
If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.
We seek to protect our know-how and confidential information, in part, by confidentiality agreements with our employees, corporate partners, outside scientific collaborators, sponsored researchers, consultants and other advisors. We also have confidentiality and invention or patent assignment agreements with our employees and our consultants. If our employees or consultants breach these agreements, we may not have adequate remedies for any of these breaches. In addition, our trade secrets may otherwise become known to or be independently developed by others. Enforcing a claim that a party illegally obtained and is using our trade secrets is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Costly and time consuming litigation could be necessary to seek to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We may become involved in infringement actions which are uncertain, costly and time-consuming and could have a material adverse effect on our business, financial condition and results of operations and could cause the market value of our common stock to decline.
The pharmaceutical industry historically has generated substantial litigation concerning the manufacture, use and sale of products and we expect this litigation activity to continue. As a result, we expect that patents related to our products will be routinely challenged, and our patents may not be upheld. In order to protect or enforce patent rights, we may initiate litigation against third parties. If we are not successful in defending an attack on our patents and maintaining exclusive rights to market one or more of our major products still under patent protection, we could lose a significant portion of sales in a very short period. We may also become subject to infringement claims by third parties and may have to defend against charges that we violated patents or the proprietary rights of third parties. If we infringe the intellectual property rights of others, we could lose our right to develop, manufacture or sell products, including our generic products, or could be required to pay monetary damages or royalties to license proprietary rights from third parties. The outcomes of infringement action are uncertain and infringement actions are costly and divert technical and management personnel from their normal responsibilities.
If we infringe or are alleged to infringe the intellectual property rights of third parties, it will adversely affect our business. Intellectual property disputes could require us to spend time and money to address such disputes and could be unsuccessful and/or limit our intellectual property rights.
Our research, development and commercialization activities, as well as any product candidates or products resulting from these activities, may infringe or be accused of infringing one or more claims of an issued patent or may fall within the scope of one or more claims in a published patent application that may subsequently issue and to which we do not hold a license or other rights. Third parties may own or control these patents or patent applications in the United States and abroad. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.
No assurance can be given that patents do not exist, have not been filed, or could not be filed or issued, which contain claims covering our products, technology or methods. Because of the number of patents issued and patent applications filed in our field, we believe there is a risk that third parties may allege they have patent rights encompassing our products, technology or methods.
We are aware, for example, of United States patents, and corresponding international counterparts, owned by third parties that contain claims related to treating DMD using a direct protein replacement strategy. We also are aware of certain pending published patent applications (but no granted patents) in the United States, and corresponding international counterparts, owned by third parties that contain claims related to the use of oxytocin (the active ingredient of Syntocinon) for the treatment of psychiatric disorders, including autism and schizophrenia. If such claims were to issue in a granted

patent in their present form, we could be required to obtain a license. We may be unable to obtain such a license under commercially reasonable terms, or at all. If any third-party patents were to be asserted against us, we do not believe that our proposed products would be found to infringe any valid claim of these patents. If we were to challenge the validity of any issued United States patent in court, we would need to overcome a presumption of validity that attaches to every patent. This burden is high and would require us to present clear and convincing evidence as to the invalidity of the patent’s claims. There is no assurance that a court would find in our favor on infringement or validity.
In order to avoid or settle potential claims with respect to any of the patent rights described above or any other patent rights of third parties, we may choose or be required to seek a license from a third party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our future collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. This could harm our business significantly.
Others may sue us for infringing their patent rights or file nullity, opposition or interference proceedings against our patents, even if such claims are without merit, which would similarly harm our business. Furthermore, during the course of litigation, confidential information may be disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony. Disclosure of our confidential information and our involvement in intellectual property litigation could materially adversely affect our business.
There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference proceedings declared by the United States Patent and Trademark Office and opposition proceedings in the European Patent Office regarding intellectual property rights with respect to our products and technology. Even if we prevail, the cost to us of any patent litigation or other proceeding could be substantial.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from any litigation could significantly limit our ability to continue our operations. Patent litigation and other proceedings may also absorb significant management time.
Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We try to ensure that our employees do not use the proprietary information or know-how of others in their work for us. However, we may be subject to claims that we or these employees have inadvertently or otherwise used or disclosed intellectual property, trade secrets or other proprietary information of any such employee’s former employer. Litigation may be necessary to defend against these claims and, even if we are successful in defending ourselves, could result in substantial costs to us or be distracting to our management. If we fail to defend any such claims, in addition to paying monetary damages, we may jeopardize valuable intellectual property rights, disclose confidential information or lose personnel.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition by potential partners or customers in our markets of interest. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do. Our operating results will suffer if we fail to compete effectively.
We face competition from pharmaceutical companies in the Schizophrenia, Autism Spectrum Disorders, IS, NS, FSGS and DMD indications and will likely face similar competition in other indications, including PKAN, because competition in the area of pharmaceutical products is intense. There are many companies, both public and private, including well-known pharmaceutical companies, which are engaged in the development of products for certain of the applications being pursued by Retrophin, such as Schizophrenia, Autism Spectrum Disorders, IS, NS, PKAN, FSGS and DMD.

For example, Questcor Pharmaceuticals, Inc.’s product H.P. Acthar Gel is a formula of ACTH that is approved by the FDA for the treatment of IS and NS. In addition, Apo Pharma Inc. and Treat Iron-Related Childhood-Onset Neurodegeneration (“TIRCON”) are sponsoring clinical studies of Deferiprone as a potential treatment for PKAN. Also, we believe that TIRCON is working on a possible treatment for PKAN using pantethine derivatives.
Additionally, there are clinical studies underway evaluating possible treatments for FSGS. For example, Sanofi (Genzyme) is engaged in a Phase 2 clinical study of Fresolimumab to treat FSGS, and Sunnybrook Medical Center has announced plans for a Phase 2 clinical study of Rituxan to treat FSGS. Also, Fibrogen is developing an anti-Connective Tissue Growth Factor (CTGF) antibody as a possible treatment for FSGS.
The following biotechnology and pharmaceutical companies are working on developing potential treatments for DMD and have products which are currently in or have completed the following clinical stages: GlaxoSmithKline/Prosensa and Santhera/Takeda (Phase 3); Acceleron Pharma/Shire, Sarepta Therapeutics, Phrixus, Prosensa and PTC Therapeutics (Phase 2); and Sarepta Therapeutics and Tivorsan Pharmaceuticals and possibly others (Preclinical). Additionally, several FDA approved drugs for other indications are being tested in clinical trials for DMD, including prednisone, sildenafil citrate (sold under the trademark Viagra, among others) and IGF-1.
Several of our competitors have substantially greater financial, research and development, distribution, manufacturing and marketing experience and resources than we do and represent substantial long-term competition for us. Other companies may succeed in developing and marketing products that are more effective and/or less costly than any products that may be developed and marketed by Retrophin, or that are commercially accepted before any of our products. Factors affecting competition in the pharmaceutical and drug industries vary, depending on the extent to which a competitor is able to achieve a competitive advantage based on its proprietary technology and ability to market and sell drugs. If we are able to establish and maintain a significant proprietary position with respect to our products, competition likely will depend primarily on the effectiveness and ease of administration and product compliance as compared to alternative products. The industry in which we compete is characterized by extensive research and development efforts and rapid technological progress. Although we believe that our proprietary position may give us a competitive advantage with respect to sparsentan and RE-024, new developments are expected to continue and there can be no assurance that discoveries by others will not render such potential products noncompetitive.
Our competitive position also depends on our ability to enter into strategic alliances with one or more large pharmaceutical and contract manufacturing companies, attract and retain qualified personnel, develop effective proprietary products, implement development and marketing plans, obtain patent protection, secure adequate capital resources and successfully sell and market our approved products. There can be no assurance that we will be able to successfully achieve all of the foregoing objectives.
Use of third parties to manufacture and distribute our product candidates may increase the risk that we will not have sufficient quantities of our product candidates or such quantities at an acceptable cost, and clinical development and commercialization of our product candidates could be delayed, prevented or impaired.
We do not own or operate manufacturing facilities for clinical or commercial production of our products. We have limited personnel with experience in drug manufacturing and we lack the resources and the capabilities to manufacture any of our product candidates on a clinical or commercial scale. We outsource all manufacturing and packaging of our preclinical, clinical, and commercial products to third parties. The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up initial production and in maintaining required quality control. These problems include difficulties with production costs and yields and quality control, including stability of the product candidate.
We do not currently have any agreements with third-party manufacturers for the long-term commercial supply of any of our development stage product candidates. We may be unable to enter into agreements for commercial supply with third-party manufacturers, or may be unable to do so on acceptable terms. Even if we enter into these agreements, the manufacturers of each product candidate will be single source suppliers to us for a significant period of time.
Reliance on third-party manufacturers entails risks to which we may not be subject if we manufactured our product candidates or products ourselves, including:
  • reliance on the third party for regulatory compliance and quality assurance;
  • limitations on supply availability resulting from capacity and scheduling constraints of the third parties;

  • impact on our reputation in the marketplace if manufacturers of our products fail to meet the demands of our customers;
  • the possible breach of the manufacturing agreement by the third party because of factors beyond our control; and
  • the possible termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us.
The failure of any of our contract manufacturers to maintain high manufacturing standards could result in injury or death of clinical trial participants or patients using products. Such failure could also result in product liability claims, product recalls, product seizures or withdrawals, delays or failures in testing or delivery, cost overruns or other problems that could seriously harm our business or profitability.
Our contract manufacturers will be required to adhere to FDA regulations setting forth current good manufacturing practices, or cGMP. These regulations cover all aspects of the manufacturing, testing, quality control and recordkeeping relating to our product candidates and any products that we may commercialize. Our manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States. Our manufacturers are subject to unannounced inspections by the FDA, state regulators and similar regulators outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect regulatory approval and supplies of our product candidates.
Our product and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that are both capable of manufacturing for us and willing to do so. If the third parties that we engage to manufacture products for our developmental or commercial products should cease to continue to do so for any reason, we likely would experience interruptions in cash flows and/or delays in advancing our clinical trials while we identify and qualify replacement suppliers, and we may be unable to obtain replacement supplies on terms that are favorable to us. Later relocation to another manufacturer will also require notification, review and other regulatory approvals from the FDA and other regulators and will subject our production to further cost and instability in the availability of our product candidates. In addition, if we are not able to obtain adequate supplies of our product candidates, or the drug substances used to manufacture them, it will be more difficult for us to sell our products and to develop our product candidates. This could greatly reduce our competiveness.
Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop product candidates and commercialize any products that obtain regulatory approval on a timely and competitive basis.
Materials necessary to manufacture our product candidates may not be available on commercially reasonable terms, or at all, which may delay the development and commercialization of our product candidates.
We rely on the manufacturers of our product candidates to purchase from third-party suppliers the materials necessary to produce the compounds for our preclinical and clinical studies and will rely on these other manufacturers for commercial distribution if we obtain marketing approval for any of our product candidates. Suppliers may not sell these materials to our manufacturers at the time we need them or on commercially reasonable terms and all such prices are susceptible to fluctuations in price and availability due to transportation costs, government regulations, price controls, changes in economic climate or other foreseen circumstances. We do not have any control over the process or timing of the acquisition of these materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these materials. If our manufacturers are unable to obtain these materials for our preclinical and clinical studies, product testing and potential regulatory approval of our product candidates would be delayed, significantly impacting our ability to develop our product candidates. If our manufacturers or we are unable to purchase these materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would materially affect our ability to generate revenues from the sale of our product candidates.

We rely on third parties to conduct certain preclinical development activities and our clinical trials and those third parties may not perform satisfactorily, including failing to meet established deadlines for the completion of such activities and trials.
We do not currently operate any laboratory facilities. We do not independently conduct any physical preclinical development activities of our product candidates, such as efficacy and safety studies in animals, or clinical trials for our product candidates. We rely on, or work in conjunction with, third parties, such as contract research organizations, medical institutions and clinical investigators, to perform these functions. Our reliance on these third parties for preclinical and clinical development activities reduces our control over these activities. We are responsible for ensuring that each of our pre-clinical development activities and our clinical trials is conducted in accordance with the applicable general investigational plan and protocols and in compliance with appropriate government regulations, however, we have no direct control over these researchers or contractors (except by contract), as they are not our employees. Moreover, the FDA requires us to comply with standards, commonly referred to as good clinical practices, or GCP, for conducting, recording and reporting the results of our preclinical development activities and our clinical trials to assure that data and reported results are credible and accurate and that the rights, safety and confidentiality of trial participants are protected. For our commercial products, we are required to comply with cGMP. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, comply with cGMPs, conduct our preclinical development activities or our clinical trials in accordance with regulatory requirements or our stated protocols, we may not be able to obtain, or may be delayed in obtaining, regulatory approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. Moreover, these third parties may be bought by other entities or they may go out of business, thereby preventing them from meeting their contractual obligations.
If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable.
We currently do not have an organization for the sales, marketing and distribution of pharmaceutical products and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market any products that may be approved, we must build our sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services.
We may co-promote our product candidates in various markets with pharmaceutical and biotechnology companies in instances where we believe that a larger sales and marketing presence could expand the market or accelerate penetration. If we do enter into arrangements with third parties to perform sales and marketing services, our product revenues may be lower than if we directly sold and marketed our products and any revenues received under such arrangements will depend on the skills and efforts of others. However, we may not be successful in entering into distribution arrangements and marketing alliances with third parties. Our failure to enter into these arrangements on favorable terms could delay or impair our ability to commercialize our product candidates and could increase our costs of commercialization. Dependence on distribution arrangements and marketing alliances to commercialize our product candidates will subject us to a number of risks, including:
  • we may not be able to control the amount and timing of resources that our distributors may devote to the commercialization of our product candidates;
  • our distributors may experience financial difficulties;
  • business combinations or significant changes in a distributor’s business strategy may also adversely affect a distributor’s willingness or ability to complete its obligations under any arrangement; and
  • these arrangements are often terminated or allowed to expire, which could interrupt the marketing and sales of a product and decrease our revenue.
If our third-party service providers are unable to perform in accordance with the terms of our agreements, our potential to generate future revenue from our product candidates would be significantly reduced and our business would be materially and adversely harmed.
We rely on other third parties to store and distribute drug supplies for our preclinical development activities and our clinical trials. Any performance failure on the part of our existing or future distributors could delay clinical development or regulatory approval of our product candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue.

Extensions, delays, suspensions or terminations of our preclinical development activities and our clinical trials as a result of the performance of our independent clinical investigators and contract research organizations will delay, and make more costly, regulatory approval for any product candidates that we may develop. Any change in a contract research organization during an ongoing preclinical development activity or clinical trial could seriously delay that trial and potentially compromise the results of the activity or trial.
We may not be successful in maintaining or establishing collaborations, which could adversely affect our ability to develop and, particularly in international markets, commercialize products.
For each of our product candidates, we are collaborating with physicians, patient advocacy groups, foundations and government agencies in order to assist with the marketing and development of our products. We plan to pursue similar activities in future programs and plan to evaluate the merits of retaining commercialization rights for ourselves or entering into selective collaboration arrangements with leading pharmaceutical or biotechnology companies. We also may seek to establish collaborations for the sales, marketing and distribution of our products outside the United States. If we elect to seek collaborators in the future but are unable to reach agreements with suitable collaborators, we may fail to meet our business objectives for the affected product or program. We face, and will continue to face, significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement. We may not be successful in our efforts, if any, to establish and implement collaborations or other alternative arrangements. The terms of any collaborations or other arrangements that we establish, if any, may not be favorable to us.
Any collaboration that we enter into may not be successful. The success of our collaboration arrangements, if any, will depend heavily on the efforts and activities of our collaborators. It is likely that any collaborators of ours will have significant discretion in determining the efforts and resources that they will apply to these collaborations. The risks that we may be subject to in possible future collaborations include the following:
  • our collaboration agreements are likely to be for fixed terms and subject to termination by our collaborators in the event of a material breach or lack of scientific progress by us;
  • our collaborators are likely to have the first right to maintain or defend our intellectual property rights and, although we would likely have the right to assume the maintenance and defense of our intellectual property rights if our collaborators do not, our ability to do so may be compromised by our collaborators’ acts or omissions; and
  • our collaborators may utilize our intellectual property rights in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential liability.
Furthermore, collaborations with pharmaceutical companies and other third parties often are terminated or allowed to expire by the other party. Such terminations or expirations may adversely affect us financially and could harm our business reputation in the event we elect to pursue collaborations that ultimately expire or are terminated.
Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on principal members of our management team and scientific staff. These executives each have significant pharmaceutical industry experience, including Horacio Plotkin, our Chief Medical Officer, Marc Panoff, our Chief Financial Officer, and one of our Directors. In addition, Martin Shkreli, our Chief Executive Officer, has significant experience investing in biopharmaceutical companies. We do not maintain “key person” insurance on Mr. Shkreli or on any of our other executive officers. We currently have employment agreements with our Chief Executive Officer, Chief Medical Officer and Chief Financial Officer.
Recruiting and retaining qualified scientific personnel, clinical personnel and sales and marketing personnel will also be critical to our success. Our industry has experienced a high rate of turnover in recent years. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. Although we believe we offer competitive salaries and benefits, we may have to increase spending in order to retain personnel.
We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We are a development stage company with 26 full-time employees and five consultants. Of these employees and consultants, ten work primarily in research and development and five provide administrative services. We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development and regulatory affairs. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability on the part of our management to manage growth could delay the execution of our business plans or disrupt our operations.
In the event that we attempt to acquire or develop our own in-house sales, marketing and distribution capabilities, factors that may inhibit our efforts to commercialize our products without strategic partners or licensees include:
  • our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
  • the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;
  • the lack of complementary products to be offered by our sales personnel, which may put us at a competitive disadvantage against companies with broader product lines;
  • unforeseen costs associated with creating our own sales and marketing team or with entering into a partnering agreement with an independent sales and marketing organization; and
  • efforts by our competitors to commercialize products at or about the time when our product candidates would be coming to market.
Risks Related to the Development and Commercialization of Our Product Candidates
We face substantial risks related to the development and commercialization of our product candidates.
We have invested a significant portion of our efforts and financial resources in the acquisition and development of our most advanced product candidates, Syntocinon, RE-034, RE-024, sparsentan and RE-001. Our ability to generate product revenue from these development stage compounds, which we do not expect will occur for at least the next several years, if ever, may depend heavily on the successful development and commercialization of these product candidates. The successful commercialization of our future product candidates will depend on several factors, including the following:
  • obtaining supplies of Syntocinon, RE-034, RE-024, sparsentan and RE-001, and subsequent product candidates for completion of our clinical trials on a timely basis;
  • successful completion of pre-clinical and clinical studies;
  • obtaining marketing approvals from the FDA and similar regulatory authorities outside the United States;
  • establishing commercial-scale manufacturing arrangements with third-party manufacturers whose manufacturing facilities are operated in compliance with cGMP regulations;
  • launching commercial sales of the product, whether alone or in collaboration with others;
  • acceptance of the product by patients, the medical community and third-party payors;
  • competition from other companies;
  • successful protection of our intellectual property rights from competing products in the United States and abroad; and
  • a continued acceptable safety and efficacy profile of our product candidates following approval.
Companies may not promote drugs for “off-label” uses—that is, uses that are not described in the product’s labeling and that differ from those approved by the FDA or other applicable regulatory agencies. A company that is found to have improperly promoted off-label uses may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. In addition, management’s attention could be diverted from our business operations and our reputation could be damaged.

If the market opportunities for our product candidates are smaller than we believe they are, our revenues may be adversely affected and our business may suffer.
Certain of the diseases that our current and future product candidates are being developed to address, such as IS, NS, PKAN, FSGS and DMD, are relatively rare. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates, may not be accurate.
Currently, most reported estimates of the prevalence of IS, NS, PKAN, FSGS and DMD, and are based on studies of small subsets of the population of specific geographic areas, which are then extrapolated to estimate the prevalence of the diseases in the broader world population. As new studies are performed the estimated prevalence of these diseases may change. There can be no assurance that the prevalence of IS, NS, PKAN, FSGS or DMD in the study populations accurately reflect the prevalence of these diseases in the broader world population. If our estimates of the prevalence of IS, NS, PKAN, FSGS or DMD or of the number of patients who may benefit from treatment with RE-034, RE-024, sparsentan or RE-001 prove to be incorrect, the market opportunities for our product candidates may be smaller than we believe they are, our prospects for generating revenue may be adversely affected and our business may suffer.
Our products may not achieve or maintain expected levels of market acceptance or commercial success.
Even if we are able to obtain and maintain regulatory approvals for our new pharmaceutical products, generic or branded, the success of these products is dependent upon achieving and maintaining market acceptance. Commercializing products is time consuming, expensive and unpredictable. There can be no assurance that we will be able to, either by ourselves or in collaboration with our partners or through our licensees, successfully commercialize new products or gain market acceptance for such products. New product candidates that appear promising in development may fail to reach the market or may have only limited or no commercial success.
Further, the discovery of significant problems with a product similar to one of our products that implicate (or are perceived to implicate) an entire class of products could have an adverse effect on sales of the affected products. Accordingly, new data about our products, or products similar to our products, could negatively impact demand for our products due to real or perceived side effects or uncertainty regarding efficacy and, in some cases, could result in product withdrawal.
Any products that we bring to the market, including Syntocinon, RE-034, RE-024, sparsentan and RE-001—if they receive marketing approval—may not gain market acceptance by physicians, patients, third-party payors, and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate significant product revenue and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:
  • the prevalence and severity of any side effects, including any limitations or warnings contained in a product’s approved labeling;
  • the efficacy and potential advantages over alternative treatments;
  • the pricing of our product candidates;
  • relative convenience and ease of administration;
  • the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
  • the strength of marketing and distribution support and timing of market introduction of competitive products;
  • publicity concerning our products or competing products and treatments; and
  • sufficient third-party insurance coverage or reimbursement.
Even if a potential product displays a favorable efficacy and safety profile in preclinical and clinical trials, market acceptance of the product will not be known until after it is launched. Our efforts to educate patients, the medical community, and third-party payors on the benefits of our product candidates may require significant resources and may never be successful. Such efforts to educate the marketplace may require more resources than are required by the conventional technologies marketed by our competitors.
Initial results from pre-clinical and clinical studies do not ensure that future clinical trials will be successful.
We will only obtain regulatory approval to commercialize product candidates if we can demonstrate to the satisfaction of the FDA, or applicable non-United States regulatory authorities, in well-designed and conducted clinical trials, that our product candidates are safe and effective and otherwise meet the appropriate standards required for approval for a particular

indication. Clinical trials can be lengthy, complex and extremely expensive processes with uncertain results. A failure of one or more of our clinical trials may occur at any stage of testing. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA.
Our efforts to develop certain of our product candidates are at an early stage. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and initial results from a clinical trial do not necessarily predict final results. For example, we have not identified a lead molecule in our RE-024 series of compounds, and we cannot be certain that a candidate suitable for a clinical study will ever be identified. Further, we have not begun pre-clinical evaluation of RE-001, and rely on external pre-clinical data for a closely related molecule. We cannot assure you that the pre-clinical data generated to date on TAT-u-UTR, a fusion protein between microutrophin and the TAT sequence from human immunodeficiency virus (“HIV”) which is expected to transport molecules into cells for the treatment of muscular dystrophies, including DMD, will be representative of data for RE-001. We cannot assure you that any future clinical trials of Syntocinon, RE-034, RE-024, sparsentan or RE-001 will ultimately be successful.
Patients may not be compliant with their dosing regimen or trial protocols or they may withdraw from the study at any time for any reason. Even if our early-stage clinical trials are successful, we will need to conduct additional clinical trials with larger numbers of patients receiving the drug for longer periods for all of our product candidates before we are able to seek approvals to market and sell these product candidates from the FDA and regulatory authorities outside the United States. To date, we are not aware of any product to treat PKAN, FSGS or DMD that has been approved by the FDA. As a result, we cannot be sure what endpoints the FDA will require us to measure in later-stage clinical trials of our product candidates. If we are not successful in commercializing any of our development-stage products, or are significantly delayed in doing so, our business may be materially harmed.
We have limited experience in conducting and managing the preclinical development activities and clinical trials necessary to obtain regulatory approvals, including approval by the FDA.
We have limited experience in conducting and managing the preclinical development activities and clinical trials necessary to obtain regulatory approvals, including approval by the FDA. We have not obtained regulatory approval or commercialized any product candidates. We are currently planning pre-clinical and eventual clinical studies for Syntocinon, RE-034, RE-024, sparsentan and RE-001. We plan to file a request for reactivation with the FDA with respect to Syntocinon in the first quarter of 2014. Approval of the NDA for Syntocinon was withdrawn by the FDA after Novartis withdrew the product from the market for commercial reasons. Accordingly, an approved NDA will need to be in place before we can reintroduce the product to the market. The FDA could request that we submit and obtain approval of a new NDA before the product can be reintroduced. We plan to re-launch Syntocinon in the first half of 2014. However, we may be required to submit additional information to the FDA and approval, if at all, may be delayed.
We filed an IND for the FSGS indication on July 2, 2012 and have received FDA clearance to begin a clinical study of sparsentan in FSGS, but have not filed INDs for RE-024 or RE-001. Although we plan to file an IND for the IS and NS designations for RE-034 in 2014, we cannot be certain that we will ever file INDs for any of RE-034, RE-024 or RE-001. Our limited experience might prevent us from successfully designing or implementing any clinical trials. We have limited experience in conducting and managing the application process necessary to obtain regulatory approvals and we might not be able to demonstrate that our product candidates meet the appropriate standards for regulatory approval. If we are not successful in conducting and managing our pre-clinical development activities or clinical trials or obtaining regulatory approvals, we might not be able to commercialize our developmental product candidates, or might be significantly delayed in doing so, which may materially harm our business.
We may find it difficult to enroll patients in our clinical trials for product candidates addressing rare diseases.
Certain of our product candidates that intended to treat IS, NS, PKAN, FSGS and DMD, each of which is a rare disease. Given that these development candidates are in the early stages of required testing, we may not be able to initiate or continue clinical trials if we are unable to locate a sufficient number of eligible patients willing and able to participate in the clinical trials required by the FDA or other non-United States regulatory agencies. Our inability to enroll a sufficient number of patients for any of our current or future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.
If our preclinical studies do not produce positive results, if our clinical trials are delayed, or if serious side effects are identified during drug development, we may experience delays, incur additional costs and ultimately be unable to commercialize our product candidates.
Before obtaining regulatory approval for the sale of our product candidates, we must conduct, at our own expense, extensive preclinical and clinical tests to demonstrate the safety of our product candidates in animals and in humans. Preclinical and

clinical testing is expensive, difficult to design and implement, and can take many years to complete. A failure of one or more of our preclinical studies or clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, preclinical testing and the clinical trial process that could delay or prevent our ability to obtain regulatory approval or commercialize our product candidates, including:
  • our preclinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical testing or clinical trials or we may abandon projects that we expect to be promising;
  • regulators may require us to conduct studies of the long-term effects associated with the use of our product candidates;
  • regulators or institutional review boards may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site;
  • the FDA or any non-United States regulatory authority may impose conditions on us regarding the scope or design of our clinical trials or may require us to resubmit our clinical trial protocols to institutional review boards for re-inspection due to changes in the regulatory environment;
  • the number of patients required for our clinical trials may be larger than we anticipate or participants may drop out of our clinical trials at a higher rate than we anticipate;
  • our third-party contractors or clinical investigators may fail to comply with regulatory requirements or fail to meet their contractual obligations to us in a timely manner;
  • we might have to suspend or terminate one or more of our clinical trials if we, regulators or institutional review boards determine that the participants are being exposed to unacceptable health risks;
  • regulators or institutional review boards may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;
  • the cost of our clinical trials may be greater than we anticipate;
  • the supply or quality of our product candidates or other materials necessary to conduct our clinical trials may be insufficient or inadequate or we may not be able to reach agreements on acceptable terms with prospective clinical research organizations; and
  • the effects of our product candidates may not be the desired effects or may include undesirable side effects or the product candidates may have other unexpected characteristics.
If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
  • be delayed in obtaining, or may not be able to obtain, marketing approval for one or more of our product candidates;
  • obtain approval for indications that are not as broad as intended or entirely different than those indications for which we sought approval; and
  • have the product removed from the market after obtaining marketing approval.
Our product development costs will also increase if we experience delays in testing or approvals. We do not know whether any preclinical tests or clinical trials will be initiated as planned, will need to be restructured or will be completed on schedule, if at all. Significant preclinical or clinical trial delays also could shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates. Such delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our products or product candidates.
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials. We will face an even greater risk if we obtain new products for sale or win approval for any of our drugs in development. We may be exposed to product liability claims and product recalls, including those which may arise from misuse or malfunction of, or design flaws in, such products, whether or not such problems directly relate to the products and services we have provided. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
  • decreased demand for any product candidates or products that we may develop;

  • damage to our reputation;
  • regulatory investigations that could require costly recalls or product modifications;
  • withdrawal of clinical trial participants;
  • costs to defend the related litigation;
  • substantial monetary awards to trial participants or patients, including awards that substantially exceed our product liability insurance, which we would then be required to pay from other sources, if available, and would damage our ability to obtain liability insurance at reasonable costs, or at all, in the future;
  • loss of revenue;
  • the diversion of management’s attention from managing our business; and
  • the inability to commercialize any products that we may develop.
We have liability insurance policies for our clinical trials in the geographies in which we are conducting trials. The aggregate annual limit of coverage amount under these policies expressed in United States dollars is approximately $5.0 million, and these policies are also subject to per claim deductibles. The amount of insurance that we currently hold may not be adequate to cover all liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost and we may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or a series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our available cash and adversely affect our business.
Our business activities involve the use of hazardous materials, which require compliance with environmental and occupational safety laws regulating the use of such materials. If we violate these laws, we could be subject to significant fines, liabilities or other adverse consequences.
Our research and development programs involve the controlled use of hazardous materials, including microbial agents, corrosive, explosive and flammable chemicals and other hazardous compounds in addition to certain biological hazardous waste. Ultimately, the activities of our third-party product manufacturers when a product candidate reaches commercialization will also require the use of hazardous materials. Accordingly, we are subject to federal, state and local laws governing the use, handling and disposal of these materials. Although we believe that our safety procedures for handling and disposing of these materials comply in all material respects with the standards prescribed by local, state and federal regulations, we cannot completely eliminate the risk of accidental contamination or injury from these materials. In addition, our collaborators may not comply with these laws. In the event of an accident or failure to comply with environmental laws, we could be held liable for damages that result, and any such liability could exceed our assets and resources or we could be subject to limitations or stoppages related to our use of these materials which may lead to an interruption of our business operations or those of our third-party contractors. While we believe that our existing insurance coverage is generally adequate for our normal handling of these hazardous materials, it may not be sufficient to cover pollution conditions or other extraordinary or unanticipated events. Furthermore, an accident could damage or force us to shut down our operations. Changes in environmental laws may impose costly compliance requirements on us or otherwise subject us to future liabilities and additional laws relating to the management, handling, generation, manufacture, transportation, storage, use and disposal of materials used in or generated by the manufacture of our products or related to our clinical trials. In addition, we cannot predict the effect that these potential requirements may have on us, our suppliers and contractors or our customers.
We may be unable to identify, acquire, close or integrate acquisition targets successfully.
Part of our business strategy includes acquiring and integrating complementary businesses, products, technologies or other assets, and forming strategic alliances, joint ventures and other business combinations, to help drive future growth. We may also in-license new products or compounds. Acquisitions or similar arrangements may be complex, time consuming and expensive. We may not consummate some negotiations for acquisitions or other arrangements, which could result in significant diversion of management and other employee time, as well as substantial out-of-pocket costs. In addition, there are a number of risks and uncertainties relating to our closing transactions. If such transactions are not completed for any reason, we will be subject to several risks, including the following: (i) the market price of our common shares may reflect a market assumption that such transactions will occur, and a failure to complete such transactions could result in a negative perception by the market of us generally and a decline in the market price of our common shares; and (ii) many costs relating to such transactions may be payable by us whether or not such transactions are completed.

If an acquisition is consummated, the integration of the acquired business, product or other assets into our company may also be complex and time-consuming and, if such businesses, products and assets are not successfully integrated, we may not achieve the anticipated benefits, cost-savings or growth opportunities. Potential difficulties that may be encountered in the integration process include the following:
  • integrating personnel, operations and systems, while maintaining focus on producing and delivering consistent, high quality products;
  • coordinating geographically dispersed organizations;
  • distracting employees from operations;
  • retaining existing customers and attracting new customers; and
  • managing inefficiencies associated with integrating the operations of the Company.
Furthermore, these acquisitions and other arrangements, even if successfully integrated, may fail to further our business strategy as anticipated, expose us to increased competition or challenges with respect to our products or geographic markets, and expose us to additional liabilities associated with an acquired business, product, technology or other asset or arrangement. Any one of these challenges or risks could impair our ability to realize any benefit from our acquisition or arrangement after we have expended resources on them.
Risks Related to Regulatory Approval of Our Product Candidates
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If we are found to have improperly promoted off-label uses, we may become subject to significant liability.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as our product candidates. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. The FDA may impose further requirements or restrictions on the distribution or use of our product candidates as part of a Risk Evaluation Mitigation Strategies, or REMS, plan, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry. If we receive marketing approval for our product candidates, physicians may nevertheless prescribe our products to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.
We are subject to significant ongoing regulatory obligations and oversight, which may result in significant additional expense and limit our ability to commercialize our products.
We are subject to significant ongoing regulatory obligations, such as safety reporting requirements and additional post-marketing obligations, including regulatory oversight of the promotion and marketing of our products. In addition, the manufacture, quality control, labeling, packaging, safety surveillance, adverse event reporting, storage, advertising, promotion and recordkeeping for our products are subject to extensive and ongoing regulatory requirements. If we become aware of previously unknown problems with any of our products, a regulatory agency may impose restrictions on our products, our contract manufacturers or us. If we, our products and product candidates, or the manufacturing facilities for our products and product candidates fail to comply with applicable regulatory requirements, a regulatory agency, including the FDA, may send enforcement letters, mandate labeling changes, suspend or withdraw regulatory approval, suspend any ongoing clinical trials, refuse to approve pending applications or supplements filed by us, suspend or impose restrictions on manufacturing operations, request a recall of, seize or detain a product, seek criminal prosecution or an injunction, or impose civil or criminal penalties or monetary fines. In such instances, we could experience a significant drop in the sales of the affected products, our product revenues and reputation in the marketplace may suffer, and we could become the target of lawsuits.
We are also subject to regulation by regional, national, state and local agencies, including but not limited to the FDA, Centers for Medicare and Medicaid Services, Department of Justice, the Federal Trade Commission, the Office of Inspector General of the U.S. Department of Health and Human Services and other regulatory bodies. The Federal Food, Drug, and Cosmetic Act, Social Security Act, Public Health Service Act and other federal and state statutes and regulations govern to varying degrees the research, development, manufacturing and commercial activities relating to prescription

pharmaceutical products, including preclinical testing, clinical research, approval, production, labeling, sale, distribution, post-market surveillance, advertising, dissemination of information, promotion, marketing, and pricing to government purchasers and government health care programs. Our manufacturing partners are subject to many of the same requirements.
The federal health care program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements that pharmaceutical companies have with prescribers, purchasers and formulary managers. Further, the Health Care Reform Law (as further discussed below), among other things, amends the intent requirement of the federal anti-kickback statute. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Health Care Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Although there are a number of statutory exemptions and regulatory safe harbors under the federal anti-kickback statute protecting certain common manufacturer business arrangements and activities from prosecution, the exemptions and safe harbors are drawn narrowly and an arrangement must meet all of the conditions specified in order to be fully protected from scrutiny under the federal anti-kickback statute. We seek to comply with the exemptions and safe harbors whenever possible, but our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability and may be subject to scrutiny. Violations of the federal anti-kickback statute can result in civil and criminal fines and penalties and related administrative sanctions, including exclusion from federal health care programs.
The Federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Many pharmaceutical and other health care companies have been investigated and have reached substantial financial settlements with the federal government under the Federal False Claims Act for a variety of alleged marketing activities, including providing free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting fees, grants, free travel, and other benefits to physicians to induce them to prescribe the company’s products; and inflating prices reported to private price publication services, which may be used by states to set drug payment rates under government health care programs. Companies have been prosecuted for causing false claims to be submitted because of the marketing of their products for unapproved uses. Pharmaceutical and other health care companies have also been prosecuted on other legal theories of Medicare and Medicaid fraud.
Many states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, which apply regardless of the payor. Several states now require pharmaceutical companies to report their expenses relating to the marketing and promotion of pharmaceutical products in those states and to report gifts and payments to certain individual health care providers in those states. Some of these states also prohibit certain marketing-related activities, including the provision of gifts, meals, and other items to certain health care providers. In addition, California, Connecticut, Nevada, and Massachusetts require pharmaceutical companies to implement compliance programs or marketing codes.
Compliance with various federal and state laws is difficult and time consuming, and companies that violate them may face substantial penalties. The potential sanctions include civil monetary penalties, exclusion from participation in federal health care programs, criminal fines and imprisonment. Because of the breadth of these laws and the lack of extensive legal guidance in the form of regulations or court decisions, it is possible that some of our business activities could be subject to challenge under one or more of these laws. Such a challenge, irrespective of the underlying merits of the challenge or the ultimate outcome of the matter, could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
We also could become subject to government investigations and related subpoenas. Such subpoenas are often associated with previously filed qui tam actions, or lawsuits filed under seal under the Federal False Claims Act. Qui tam actions are brought by private plaintiffs suing on behalf of the federal government for alleged violations of the Federal False Claims Act. The time and expense associated with responding to such subpoenas, and any related qui tam or other actions, may be extensive, and we cannot predict the results of our review of the responsive documents and underlying facts or the results of such actions. Responding to government investigations, defending any claims raised, and any resulting fines, restitution, damages and penalties, settlement payments or administrative actions, as well as any related actions brought by stockholders or other third parties, could have a material impact on our reputation, business and financial condition and divert the attention of our management from operating our business.

The number and complexity of both federal and state laws continues to increase, and additional governmental resources are being added to enforce these laws and to prosecute companies and individuals who are believed to be violating them. In particular, the Health Care Reform Law includes a number of provisions aimed at strengthening the government’s ability to pursue anti-kickback and false claims cases against pharmaceutical manufacturers and other healthcare entities, including substantially increased funding for healthcare fraud enforcement activities, enhanced investigative powers, amendments to the False Claims Act that make it easier for the government and whistleblowers to pursue cases for alleged kickback and false claim violations and, beginning in March 2014 for payments made on or after August 1, 2013, public reporting of payments by pharmaceutical manufacturers to physicians and teaching hospitals nationwide. While it is too early to predict what effect these changes will have on our business, we anticipate that government scrutiny of pharmaceutical sales and marketing practices will continue for the foreseeable future and subject us to the risk of further government investigations and enforcement actions. Responding to a government investigation or enforcement action would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
If we or any of our partners fail to comply with applicable regulatory requirements, we or they could be subject to a range of regulatory actions that could affect our or our partners' ability to commercialize our products and could harm or prevent sales of the affected products, or could substantially increase the costs and expenses of commercializing and marketing our products. Any threatened or actual government enforcement action could also generate adverse publicity and require that we devote substantial resources that could otherwise be used in other aspects of our business.
If we are not able to obtain and maintain required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.
Our product candidates, once approved, and the activities associated with their manufacture, marketing, distribution, and sales are subject to extensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to adhere to regulations set out by these bodies for one or more of our commercial products could prevent us from commercializing the product candidate in the jurisdiction of the regulatory authority. We have only limited experience in meeting the regulatory requirements incumbent on the sale of drugs in the United States and elsewhere, and expect to rely on third-party contract research organizations to assist us in these processes. If our third-party contract research organizations fail to adequately adhere to the regulation on drug sales we may be unable to sell our products, which could have a material effect on our ability to generate revenue.
Our product candidates and the activities associated with their development and commercialization, including testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain regulatory approval for a product candidate will prevent us from commercializing the product candidate in the jurisdiction of the regulatory authority. We have not obtained regulatory approval to market any of our product candidates in any jurisdiction. We have only limited experience in filing and prosecuting the applications necessary to obtain regulatory approvals and expect to rely on third-party contract research organizations to assist us in this process.
Securing FDA approval requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing FDA approval also requires the submission of information about the product manufacturing process to, and successful inspection of manufacturing facilities by, the FDA. Our future products may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commercial use.
Our product candidates may fail to obtain regulatory approval for many reasons, including:
  • our failure to demonstrate to the satisfaction of the FDA or comparable regulatory authorities that a product candidate is safe and effective for a particular indication;
  • the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable regulatory authorities for approval;
  • our inability to demonstrate that a product candidate’s benefits outweigh its risks;
  • our inability to demonstrate that the product candidate presents an advantage over existing therapies;
  • the FDA’s or comparable regulatory authorities’ disagreement with the manner in which we interpret the data from preclinical studies or clinical trials;

  • failure of the third-party manufacturers with which we contract for clinical or commercial supplies to satisfactorily complete an FDA pre-approval inspection of the facility or facilities at which the product is manufactured to assess compliance with the FDA’s cGMP regulations to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; and
  • a change in the approval policies or regulations of the FDA or comparable regulatory authorities or a change in the laws governing the approval process.
The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application. The FDA and non-United States regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of a product candidate. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post approval commitments that render the approved product not commercially viable. Any FDA or other regulatory approval of our product candidates, once obtained, may be withdrawn, including for failure to comply with regulatory requirements or if clinical or manufacturing problems follow initial marketing.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval or commercialization.
Undesirable side effects caused by our product candidates could interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications, and in turn prevent us from commercializing our product candidates and generating revenues from their sale.
In addition, if any of our product candidates receive marketing approval and we or others later identify undesirable side effects caused by the product:
  • regulatory authorities may require the addition of restrictive labeling statements;
  • regulatory authorities may withdraw their approval of the product; and
  • we may be required to change the way the product is administered or conduct additional clinical trials.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing the product candidate, which in turn could delay or prevent us from generating significant revenues from its sale or adversely affect our reputation.
We may not be able to obtain orphan drug exclusivity for our product candidates. If our competitors are able to obtain orphan drug exclusivity for their products that are the same drug as our product candidates, we may not be able to have competing products approved by the applicable regulatory authority for a significant period of time.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. We expect to seek orphan drug designations from the FDA for RE-034, RE-024, sparsentan and RE-001 though there can be no assurance that the FDA will grant orphan status. We also expect to seek drug orphan designation from the European Medicines Agency (the “EMA”), for RE-034, RE-024, sparsentan and RE-001. There can be no assurance that we will successfully obtain such designation. If we are unable to secure orphan status in either Europe or the United States it may have a material negative effect on our share price.
Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, that product is entitled to a period of marketing exclusivity, which precludes the applicable regulatory authority from approving another marketing application for the same drug for that time period. The applicable period is seven years in the United States and ten years in Europe. Obtaining orphan drug exclusivity for RE-034, RE-024, sparsentan and RE-001 may be important to the product candidate’s success. Even if we obtain orphan drug exclusivity for RE-034, RE-024 for PKAN, sparsentan for FSGS and RE-001 for DMD, we may not be able to maintain it. For example, if a competitive product that contains the same active moiety and treats the same disease as our product candidate is shown to be clinically superior to our product candidate, any orphan drug exclusivity we have obtained will not block the approval of such competitive product and we may effectively lose what had previously been orphan drug exclusivity. Similarly, if a competitive product that contains the same active moiety and treats the same disease as our product candidate is approved before our product candidate is approved, we may not be able to obtain approval for our

product candidate until the expiration of the competitive product’s orphan drug exclusivity unless our product candidate is shown to be clinically superior to the competitive product.
Any product for which we obtain marketing approval could be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.
Any product for which we obtain marketing approval, along with the manufacturing processes and facilities, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and comparable regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration requirements, cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping. Even if we obtain regulatory approval of a product, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. We also may be subject to state laws and registration requirements covering the distribution of our products. Later discovery of previously unknown problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in actions such as:
  • restrictions on such products, manufacturers or manufacturing processes;
  • warning letters;
  • withdrawal of the products from the market;
  • refusal to approve pending applications or supplements to approved applications that we submit;
  • voluntary or mandatory recall:
  • fines;
  • suspension or withdrawal of regulatory approvals or refusal to approve pending applications or supplements to approved applications that we submit;
  • refusal to permit the import or export of our products;
  • product seizure or detentions;
  • injunctions or the imposition of civil or criminal penalties; and
  • adverse publicity.
If we, or our suppliers, third-party contractors, clinical investigators or collaborators are slow to adapt, or are unable to adapt, to changes in existing regulatory requirements or adoption of new regulatory requirements or policies, we or our collaborators may lose marketing approval for our products when and if any of them are approved, resulting in decreased revenue from milestones, product sales or royalties.
Any drugs we develop may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, thereby harming our business.
The business and financial condition of healthcare-related businesses will continue to be affected by efforts of governments and third-party payors to contain or reduce the cost of healthcare through various means. In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for Syntocinon, RE-034, RE-024, sparsentan, RE-001 or any other product candidate that we develop, restrict or regulate post-approval activities and affect our ability to profitably sell Syntocinon, RE-034, RE-024, sparsentan, RE-001 or any other product candidate for which we obtain marketing approval.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. It is not clear whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of any Retrophin products, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject Retrophin to more stringent product labeling and post-marketing testing and other requirements.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA”), changed the way Medicare covers and pays for pharmaceutical products. As a result of this legislation and the expansion of federal coverage of drug products, Retrophin expects that there will be additional pressure to contain and reduce costs. These cost

reduction initiatives and other provisions of this legislation could decrease the coverage and price that is received for any approved products and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
More recently, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the associated reconciliation bill (collectively, the “Health Care Reform Law”), a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. Effective October 1, 2010, the Health Care Reform Law revises the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states once the provision is effective. Further, beginning in 2011, the new law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. The full effects of the Health Care Reform Law will not be known until applicable federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the effect of the Health Care Reform Law, the new law appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase regulatory burdens and operating costs.
If we are unable to obtain adequate reimbursement from governments or third-party payors for any products that we may develop or if we are unable to obtain acceptable prices for those products, our prospects for generating revenue and achieving profitability will suffer.
Our prospects for generating revenue and achieving profitability will depend heavily upon the availability of adequate reimbursement for the use of our approved product candidates from governmental and other third-party payors, both in the United States and in other markets. Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination that use of a product is:
  • a covered benefit under its health plan;
  • safe, effective and medically necessary;
  • appropriate for the specific patient;
  • cost-effective; and
  • neither experimental nor investigational.
Obtaining reimbursement approval for a product from each government or other third-party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our products to each payor. We may not be able to provide data sufficient to gain acceptance with respect to reimbursement or we might need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any future products to such payors’ satisfaction. Such studies might require us to commit a significant amount of management time and financial and other resources. Even when a payor determines that a product is eligible for reimbursement, the payor may impose coverage limitations that preclude payment for some uses that are approved by the FDA or non-United States regulatory authorities. In addition, there is a risk that full reimbursement may not be available for high-priced products. Moreover, eligibility for coverage does not imply that any product will be reimbursed in all cases or at a rate that allows us to make a profit or even cover our costs. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. A primary trend in the United States healthcare industry and elsewhere is toward cost containment. We expect recent changes in the Medicare program and increasing emphasis on managed care to continue to put pressure on pharmaceutical product pricing. For example, the MMA provides a new Medicare prescription drug benefit that began in 2006 and mandates other reforms. While we cannot predict the full outcome of the implementation of this legislation, it is possible that the new Medicare prescription drug benefit, which will be managed by private health insurers and other managed care organizations, will result in additional government reimbursement for prescription drugs, which may make some prescription drugs more affordable but may further exacerbate industry-wide pressure to reduce prescription drug prices. If one or more of our product candidates reaches commercialization, such changes may have a significant impact on our ability to set a price we believe is fair for our products and may affect our ability to generate revenue and achieve or maintain profitability.
Governments outside the United States tend to impose strict price controls and reimbursement approval policies, which may adversely affect our prospects for generating revenue.
In some countries, particularly European Union countries, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time (6

to 12 months or longer) after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our prospects for generating revenue, if any, could be adversely affected and our business may suffer.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate product revenue.
Risks Related to Our Common Stock
Our executive officers, directors and principal stockholders have the ability to strongly influence all matters submitted to our stockholders for approval.
Martin Shkreli, our Chief Executive Officer and one of our directors, is our largest stockholder. Together with other entities that he controls, Mr. Shkreli beneficially owns 3,445,615 shares of our common stock, or approximately 19% of our outstanding common stock. If he were to choose to act with other large stockholders, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, will control the election of directors and approval of any merger, consolidation, sale of all or substantially all of our assets or other business combination or reorganization. This concentration of voting power could delay or prevent an acquisition of us on terms that other stockholders may desire. The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders, and they may act, whether by meeting or written consent of stockholders, in a manner that advances their best interests and not necessarily those of other stockholders, including obtaining a premium value for their common stock, and might affect the prevailing market price for our common stock.
The market price for shares of our common stock may be volatile and purchasers of our common stock could incur substantial losses.
The price of our stock is likely to be volatile. The stock market in general, and the market for biotechnology companies in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our common stock may be influenced by many factors, including:
  • results of clinical trials of our product candidates or those of our competitors;
  • our entry into or the loss of a significant collaboration;
  • regulatory or legal developments in the United States and other countries, including changes in the health care payment systems;
  • variations in our financial results or those of companies that are perceived to be similar to us;
  • changes in the structure of healthcare payment systems;
  • market conditions in the pharmaceutical and biotechnology sectors and issuance of new or changed securities analysts’ reports or recommendations;
  • general economic, industry and market conditions;
  • results of clinical trials conducted by others on drugs that would compete with our product candidates;
  • developments or disputes concerning patents or other proprietary rights;
  • public concern over our product candidates or any products approved in the future;
  • litigation;
  • future sales or anticipated sales of our common stock by us or our stockholders; and
  • the other factors described in this “Risk Factors” section.
In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of shares of our common stock.
For these reasons and others you should consider an investment in our common stock as risky and invest only if you can withstand a significant loss and wide fluctuations in the market value of your investment.

We do not anticipate paying cash dividends in the foreseeable future and, as a result, our investors’ sole source of gain, if any, will depend on capital appreciation, if any.
We have never paid cash dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable future. You should not invest in us if you require dividend income. Any income from an investment in us would only come from a rise in the market price of our common stock, which is uncertain and unpredictable.
We have paid no cash dividends on our capital stock to date. We currently intend to retain our future earnings, if any, to fund the development and growth of our business and do not foresee payment of a dividend in any upcoming fiscal period. In addition, the terms of existing or any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
If securities or industry analysts do not publish research or reports or publish unfavorable research about our business, the price of our common stock and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of us, the trading price for our common stock would be negatively affected. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our common stock, the price of our common stock would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our common stock could decrease, which could cause the price of our common stock or trading volume to decline.
If we fail to comply with the rules and regulations under the Sarbanes-Oxley Act, our operating results, our ability to operate our business and investors’ views of us may be harmed.
We are required to comply with the rules and regulations under the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls and attestations of the effectiveness of internal controls by independent auditors. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock.
In addition, our efforts to comply with the rules and regulations under the Sarbanes-Oxley or new or changed laws, regulations, and standards may differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice. Regulatory authorities may investigate transactions disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and if legal proceedings are initiated against us, it may harm our business.
Provisions in our bylaws could discourage, delay or prevent a change of control of our company and may result in an entrenchment of management and diminish the value of our common stock.
Our bylaws provide that, unless otherwise prescribed by statute or the certificate of incorporation, special meetings of the stockholders can only be called by our President, by a majority of the Board of Directors, or at the written request of stockholders owning at least 50% in amount of the entire capital stock of the Company issued and outstanding and entitled to vote. These provisions may discourage, delay or prevent a merger, acquisition or other change of control that our stockholders may consider favorable. Such provisions could impede the ability of our common stockholders to benefit from a change of control and, as a result, could materially adversely affect the market price of our common stock and your ability to realize any potential change-in-control premium.

CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS
Certain information contained in this prospectus include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The statements herein which are not historical reflect our current expectations and projections about the our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting the businesses, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:
  • our ability to obtain regulatory approval for, and produce, market and generate sales of, our products;
  • commencement and completion of clinical trials of our products;
  • our projected future sales, profitability and other financial metrics;
  • our future financing plans;
  • our plans for expansion of our facilities;
  • our anticipated needs for working capital;
  • the anticipated trends in our industry;
  • our ability to expand our sales and marketing capability;
  • acquisitions of other companies or assets that we might undertake in the future;
  • our operations in the United States and abroad, and the domestic and foreign regulatory, economic and political conditions; and
  • competition existing today or that will likely arise in the future.
Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue our operations. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this prospectus will in fact occur. Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
The specific discussions in this prospectus about us include financial projections and future estimates and expectations about our business. The projections, estimates and expectations are presented in this prospectus only as a guide about future possibilities and do not represent actual amounts or assured events. All the projections and estimates are based exclusively on management’s own assessment of our business, the industry in which it works and the economy at large and other operational factors, including capital resources and liquidity, financial condition, fulfillment of contracts and opportunities. The actual results may differ significantly from the projections.
Potential investors should not make an investment decision based solely on our projections, estimates or expectations.

USE OF PROCEEDS
We estimate that the net proceeds from our sale of 4,705,882 shares of our common stock in this offering at a public offering price of $8.50 per share, after deducting underwriting discounts and commissions and estimated offering expenses, will be approximately $36.6 million, or $42.2 million if the underwriters’ option to purchase additional shares is exercised in full.
The principal purposes of this offering are to obtain additional capital to support our operations, to create a public market for our common stock on a national securities exchange and to facilitate our future access to the public equity markets. We anticipate that we will use the net proceeds of this offering as follows:
  • approximately $7 million to obtain regulatory approval for the reintroduction of Syntocinon into the US market for aiding milk letdown, and to initiate a sales and education campaign on the benefits of Syntocinon in the treatment of milk letdown;
  • approximately $2 million to initiate Phase 2 clinical trials of Syntocinon for the treatment of Schizophrenia;
  • approximately $4 million to initiate Phase 2 clinical trials of Syntocinon for the treatment of Autism Spectrum Disorders;
  • approximately $2 million to fund initial clinical development of RE-034 through a planned Phase 3 clinical trial for the treatment of IS;
  • approximately $3 million to fund initial clinical development of RE-034 through a planned Phase 3 clinical trial for the treatment of NS;
  • approximately $2 million to initiate a safety study and fund initial clinical development of RE-024 for the treatment of PKAN; and
  • approximately $5 million to complete Phase 2 trial of sparsentan for the treatment of FSGS.
We will use the remaining net proceeds, if any, for the further advancement of our early-stage development programs; for further product development; and for general corporate purposes, such as general and administrative expenses, working capital, and prosecution and maintenance of our intellectual property rights. This offering is also intended to facilitate our future access to public markets. We reserve the right to change the use of these proceeds as a result of certain contingencies such as competitive developments, the results of our commercialization efforts, acquisition and investment opportunities and other factors. We believe that our existing cash and marketable securities as of the date of this offering, together with the proceeds of this offering, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements for the next 12 months.
We may also use a portion of the net proceeds from this offering to in-license, acquire, or invest in complementary businesses, technologies, products or assets. We may also invest in public equity securities. However we have no current plan, commitments or obligations to do so.
Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of net proceeds will vary depending on numerous factors, including the factors described under “Risk Factors” in this prospectus. As a result, management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering. Even with the expected net proceeds from this offering, we do not expect to have sufficient cash to complete the clinical development of any of our product candidates.

DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business and do not intend to declare or pay any cash dividends in the foreseeable future. As a result, you will likely need to sell your shares of common stock to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them. Payment of cash dividends, if any, in the future will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2013:
  • on an actual basis; and
  • on an as adjusted basis to give effect to the sale of the 4,705,882 shares of our common stock that we are offering at a public offering price of $8.50 per share after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
You should read this table with our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” incorporated by reference in this prospectus.
 
 
 
 
 
As of September 30, 2013
 
 
 
 
 
 
Actual
 
 
 
As Adjusted
 
 
 
 
 
(Unaudited)
 
 
 
Cash, marketable securities, available for sale and prepaid expenses and other current assets
 
 
$
16,847,848
 
 
$
53,447,848
 
 
Stockholders’ equity (deficit):
 
 
 
 
 
 
 
 
 
 
Preferred stock, $0.001 par value, 20,000,000 Shares authorized; 0 issued and outstanding
 
 
 
 
 
 
 
 
Common stock, $0.0001 par value: 100,000,000 shares authorized; 18,376,363 shares issued and outstanding, actual; 23,082,245 shares issued and outstanding, as adjusted
 
 
 
1,838
 
 
 
2,309
 
 
Additional paid-in capital
 
 
 
48,649,970
 
 
 
85,249,499
 
 
Deficit accumulated during the development stage
 
 
 
(54,301,348
)
 
 
 
(54,301,348
)
 
 
Accumulated other comprehensive income
 
 
 
(154,834
)
 
 
 
(154,834
)
 
 
Total stockholders’ equity (deficit)
 
 
 
(5,804,374
)
 
 
 
30,795,626
 
 
Total capitalization
 
 
$
(5,804,374
)
 
 
$
30,795,626
 
 
The number of shares of common stock shown above is based on 18,376,363 shares of common stock outstanding as of September 30, 2013. This number excludes:
  • 260,000 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2013, at a weighted-average exercise price of $7.12 per share; and
  • 4,462,426 shares of our common stock issuable upon the exercise of warrants outstanding as of September 30, 2013 at a weighted-average exercise price of $5.14 per share.

DILUTION
If you invest in our common stock, you will experience immediate and substantial dilution to the extent of the difference between the public offering price of our common stock in this offering and the as adjusted net tangible book value per share of our common stock immediately after the offering.
Our historical net tangible book value (deficit) per share is determined by dividing our total tangible assets, less total liabilities, by the actual number of outstanding shares of our common stock. The historical net tangible book value (deficit) of our common stock as of September 30, 2013 was $(7.9) million, or $(0.43) per share.
After giving effect to the sale of 4,705,882 shares of our common stock offered by us at a public offering price of $8.50 per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value as of September 30, 2013 would have been approximately $28.7 million, or $1.25 per share of common stock. This represents an immediate increase in net tangible book value of $1.68 per share to existing stockholders and an immediate dilution of $7.25 per share to new investors purchasing shares of common stock in this offering at the assumed public offering price. The following table illustrates this dilution on a per share basis:
 
 
Public offering price per share
 
 
 
 
 
 
$
8.50
 
 
Net tangible book value (deficit) per share as of September 30, 2013
 
 
$
(0.43
)
 
 
 
 
 
 
Increase per share attributable to investors purchasing our common stock in this offering
 
 
 
1.68
 
 
 
 
 
 
As adjusted net tangible book value per share after this offering
 
 
 
 
 
 
 
1.25
 
 
Dilution per share to investors purchasing our common stock in this offering
 
 
 
 
 
 
$
7.25
 
 
If the underwriters exercise in full their option to purchase up to 705,882 of additional shares of common stock at the public offering price of $8.50 per share, the as adjusted net tangible book value after this offering would be $1.44 per share, representing an increase in net tangible book value of $1.87 per share to existing stockholders and immediate dilution in net tangible book value of $7.06 per share to investors purchasing our common stock in this offering at the assumed public offering price.
The above discussion and table are based on 18,376,363 shares of common stock outstanding as of September 30, 2013 and excludes:
  • 260,000 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2013, at a weighted-average exercise price of $7.12 per share; and
  • 4,462,426 shares of our common stock issuable upon the exercise of warrants outstanding as of September 30, 2013 at a weighted-average exercise price of $5.14 per share.
To the extent that options or warrants outstanding as of September 30, 2013 have been or are exercised, investors purchasing shares in this offering could experience further dilution.

Price range of common stock
Prior to this offering, our common stock was listed for quotation on the OTC QB market under the trading symbol “RTRX” (“DGTE” prior to December 17, 2012). There was limited trading in our shares since they became eligible for trading on the OTC QB market during the third quarter of 2008. In connection with this offering, our common stock has been approved for listing on The NASDAQ Global Market under the symbol “RTRX.”.
The following table sets forth the high and low bid prices for our common stock for the periods indicated as reported by the OTC QB (“N/A” indicates no trading during such period). The below quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
 
 
Quarter Ending
 
 
 
High
 
 
 
Low
 
 
Fiscal Year 2014
 
          
 
First Quarter (through January 9, 2014)
 
 
$
8.58
 
 
$
7.19
 
 
Fiscal Year 2013
 
          
 
First Quarter
 
 
$
5.78
 
 
$
3.00
 
 
Second Quarter
 
 
$
9.99
 
 
$
4.75
 
 
Third Quarter
 
 
$
7.25
 
 
$
4.50
 
 
Fourth Quarter
 
 
$
9.00
 
 
$
5.25
 
 
Fiscal Year 2012
 
          
 
First Quarter
 
 
 
N/A
 
 
 
N/A
 
 
Second Quarter
 
 
$
1.05
 
 
$
1.05
 
 
Third Quarter
 
 
$
1.05
 
 
$
1.05
 
 
Fourth Quarter
 
 
$
3.00
 
 
$
0.13
 
 
Fiscal Year 2011
 
          
 
First Quarter
 
 
$
0.90
 
 
$
0.90
 
 
Second Quarter
 
 
$
0.90
 
 
$
0.90
 
 
Third Quarter
 
 
$
1.05
 
 
$
0.90
 
 
Fourth Quarter
 
 
$
1.05
 
 
$
0.90
 
 
Fiscal Year 2010
 
          
 
First Quarter
 
 
 
N/A
 
 
 
N/A
 
 
Second Quarter
 
 
$
0.90
 
 
$
0.90
 
 
Third Quarter
 
 
$
0.90
 
 
$
0.90
 
 
Fourth Quarter
 
 
$
0.90
 
 
$
0.90
 
 
As of January 9, 2014, we had approximately 290 holders of record of our common stock.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion includes forward-looking statements about our business, financial condition and results of operations, including discussions about management’s expectations for our business. These statements represent projections, beliefs and expectations based on current circumstances and conditions and in light of recent events and trends, and you should not construe these statements either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause our actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. A description of material factors known to us that may cause our results to vary, or may cause management to deviate from its current plans and expectations, is set forth under “Risk Factors.” See “Cautionary Note Regarding Forward-Looking Statements.”
The following discussion should also be read in conjunction with our audited and unaudited consolidated financial statements, including the notes thereto, and unaudited pro forma combined financial statements appearing elsewhere in this prospectus.
Overview
We are a development-stage biopharmaceutical company focused on the development, acquisition and commercialization of therapies for the treatment of serious, catastrophic or rare diseases. We are developing SyntocinonTM Nasal Spray in the U.S. to assist initial postpartum milk ejection, and for the treatment of Schizophrenia and Autism. Syntocinon Nasal Spray is currently marketed by Novartis and Sigma-Tau in Europe and other countries for aiding milk let-down. In addition, we are developing RE-034, a synthetic hormone analogue that is composed of the first 24 amino acids of the 39 amino acids contained in ACTH for the treatment of IS and NS. We are developing RE-024, a novel small molecule, as a potential treatment for PKAN. Also, we are developing sparsentan, formerly known as RE-021, a dual acting receptor antagonist of angiotensin and endothelin receptors, for the treatment of FSGS. We also have several additional programs in preclinical development, including RE-001, a therapy for the treatment of DMD.
Our results of operations discussed below reflect our operations during the period in which we are in development stage and starting up our operations. As a result, these results should not be considered indicative of our anticipated results of operations on a going forward basis.
Restatement of December 31, 2012 Financial Statements
On September 13, 2013, we determined that we were required to file an amendment to our audited consolidated financial statement for the year ended December 31, 2012 included in our Transitional Report on Form 10-K. We determined, after consultation with our board of directors and our independent registered public accounting firm that it would be necessary to restate our December 31, 2012 consolidated financial statements to include disclosures of certain agreements that we entered into subsequent to the date of the balance sheet and corrections to our accounting for proceeds received in a financing transaction we completed in February 2013. The addition of these footnote disclosures in our December 31, 2012 consolidated financial statements had no impact on our balance sheet, or related consolidated statements of operations, changes in stockholders’ (deficit) equity, loss per share or cash flows for the year ended December 31, 2012. On September 16, 2013, we amended our Transition Report on Form 10-K for the transition period from March 1, 2012 to December 31, 2012, as filed with the SEC on June 13, 2013, solely for the purpose of amending Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 8. Financial Statements and Supplementary Data to include disclosure and a footnote to our financial statements relating to events that occurred after the conclusion of the period covered by the original filing. The disclosure below reflects the changes made in such amendment. We further determined that it would be necessary for us to restate our March 31, 2013 condensed consolidated financial statements to include the same disclosures in these financial statements that we were required to make in our December 31, 2012 financial statements, and to correct our accounting for the allocation of $360,000 in proceeds we received in the financing transaction we completed in February 2013.
Financial Overview
The following discussion summarizes the key factors our management believes are necessary for an understanding of our financial statements.

Compensation and Related Costs
Our compensation and related costs consist primarily of salaries, benefits and stock-based compensation. We expect our compensation and related costs to increase as we expand our research and development programs and general and administrative activities.
Professional Fees
Professional fees consist of expenses for outside professional services, including legal, human resource, audit, tax and accounting services.
Research and Development
Research and development expenses represent costs incurred to conduct research of our proprietary product candidates. We expense all research and development costs as they are incurred. Our research and development expenses consist of employee salaries and related benefits, including stock-based compensation, third-party contract costs relating to research, manufacturing, preclinical studies, clinical trial activities, laboratory consumables, and allocated facility costs.
At any point in time, we typically have various early stage research and drug discovery projects. Our internal resources, employees and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding these costs incurred for these early stage research and drug discovery programs on a project-specific basis.
We routinely engage vendors and service providers for scientific research, clinical trial, regulatory compliance, manufacturing and other consulting services. To date, such engagements have been generally based on pre-determined prices or rates. We also make grants to research and non-profit organizations to conduct research which may lead to new intellectual properties that we may subsequently license under separately negotiated license agreements. Such grants may be funded in lump sums or installments.
The following table summarizes our research and development expenses during the years ended December 31, 2011 and 2012 and the nine months ended September 30, 2012 and 2013. The internal costs include personnel, facility costs, laboratory consumables and discovery and research related activities associated with our pipeline. The external program costs reflect external costs attributable to our clinical development candidates and preclinical candidates selected for further development. Such expenses include third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities.
 
 
 
 
 
Nine months ended
September 30,
 
 
 
 
Year ended
December 31,
 
 
 
For the period from
March 11, 2011
(inception) through
December 31,
 
 
 
 
 
2013
 
 
 
2012
 
 
 
2012
 
 
 
2011
 
 
External service provider costs:
 
                    
 
Sparsentan
 
 
$
877,298
 
 
$
109,205
 
 
$
176,450
 
 
$
 
 
RE-024
 
 
 
390,477
 
 
 
45,568
 
 
 
124,635
 
 
 
 
 
General
 
 
 
215,681
 
 
 
132,116
 
 
 
240,034
 
 
 
94,454
 
 
Other product candidates
 
 
 
144,528
 
 
 
 
 
 
 
 
 
258,940
 
 
Total external service providers costs:
 
 
 
1,627,984
 
 
 
286,889
 
 
 
541,119
 
 
 
353,394
 
 
Internal personnel costs:
 
 
 
485,829
 
 
 
 
 
 
 
 
 
 
 
Total research and development
 
 
$
2,113,813
 
 
$
286,889
 
 
$
541,119
 
 
$
353,394
 
 
We expect our research and development expenses will increase in the future as we progress our product candidates, advance our discovery research projects into the preclinical stage and continue our early stage research. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for any of our product candidates. The probability of success of each product candidate may be affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability.
Most of our product development programs are at an early stage; therefore, the successful development of our product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. Given the uncertainty associated with clinical trial

enrollments and the risks inherent in the development process, we are unable to determine the duration and completion costs of current or future clinical trials of our product candidates or if and to what extent we will generate revenues from the commercialization and sale of any of our product candidates. We anticipate that we and our strategic alliance partners will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate, as well as an ongoing assessment as to each product candidate’s commercial potential. We will need to raise additional capital or may seek additional strategic alliances in the future in order to complete the development and commercialization of our product candidates.
Selling, General and Administrative
Selling, general and administrative expenses consist of rent, depreciation and amortization, settlement charges, travel and entertainment, recruiting, insurance, business development, advertising, and other operating expenses. We expect to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. In addition, as a public company, we expect to incur increased expenses related to additional insurance, investor relations and other increases related to needs for additional human resources and professional services.
Other Expenses
Other expenses consist of charges from the change in fair value of derivative financial instruments, interest income and expense, charges from transactions denominated in foreign currencies, realized gains and losses on the sale of marketable securities, and registration payment income and expense.
License Agreements
Novartis
On December 12, 2013, we entered into an agreement with Novartis and Novartis AG pursuant to which Novartis and Novartis AG agreed to grant us an exclusive, perpetual, and royalty-bearing license for the manufacture, development and commercialization of Syntocinon and related intranasal products in the United States. Under the license, Novartis and Novartis AG are obligated to transfer to us certain information that is necessary for or related to the development or commercialization of Syntocinon. We are responsible for conducting research and preclinical, clinical and other development of Syntocinon at our own expense, and must use commercially reasonably efforts to develop Syntocinon in the United States.
As consideration for the license, we paid to Novartis and Novartis AG a $5 million upfront fee and are required to make substantial payments upon the achievement of certain milestones. Should we commercialize Syntocinon, we will be obligated to pay Novartis and Novartis AG a 20% royalty on net sales of such products. We are also required to pay annual maintenance fees to Novartis and Novartis AG. The license agreement contains other customary clauses and terms as are common in similar agreements in the industry.
Ligand
In February 2012, we entered into an agreement pursuant to which Ligand agreed to grant us a worldwide license for the development, manufacture and commercialization of sparsentan, an ARB and ERA which we are initially using in connection with the treatment of FSGS. Under the license agreement, Ligand granted us a sublicense under certain of its patents and other intellectual property in connection with the development and commercialization of sparsentan. Under the license agreement, Ligand is obligated to transfer to us certain information, records, regulatory filings, materials and inventory controlled by Ligand and relating to or useful for developing sparsentan. We must use commercially reasonable efforts to develop and commercialize sparsentan in specified major market countries and other countries in which we believe it is commercially reasonable to develop and commercialize such products.
As consideration for the license, we are required to make substantial payments payable upon the achievement of certain milestones totaling up to $106.9 million. Should we commercialize sparsentan or any products containing any of these compounds, we will be obligated to pay to Ligand an escalating annual royalty between 10% and 20% of net sales of all such products. In the event that we desire to enter into a license arrangement with respect to any licensed compound under the license agreement, Bristol-Myers Squibb Company will have a right of first negotiation and Ligand will have a right of second negotiation with respect to any such license arrangement for a licensed compound. The license agreement contains other customary clauses and terms as are common in similar agreements in the industry. Through September 30, 2013, we made payments to Ligand of $2.55 million under the license agreement.

Central Nervous System License
On December 12, 2013, we entered into an agreement, which we refer to as the “Weg License Agreement,” with Stuart Weg, MD, pursuant to which Dr. Weg agreed to grant us an exclusive worldwide license for the manufacture, development and distribution of products to be developed for the treatment of central nervous system disorders. As consideration for the license, we are required to pay Dr. Weg an upfront fee, which amount included a $250,000 payment prior to the execution of the Weg License Agreement, as well as certain maintenance and sublicensing fees. We are also obligated to pay Dr. Weg certain royalties on sales of FDA-approved products.
The Weg License Agreement contains other customary clauses and terms as are common in similar agreements in the industry.
The Weg License Agreement will continue in perpetuity unless terminated by us or by Dr. Weg. We may terminate the agreement at any time by giving written notice to Dr. Weg. Dr. Weg may terminate the agreement due to our uncured material breach of the agreement.
Results of Operations
Three month period ended September 30, 2013 compared to the three month period ended September 30, 2012
Revenue.   We had no revenues during the three month period ended September 30, 2013 and 2012.
Operating Expenses.   Our operating expenses for the three month period ended September 30, 2013 were $5.2 million compared to $8.5 million for the three month period ended September 30, 2012 which represents a decrease of $3.3 million, or 39%. The expense decrease was principally attributable to a decrease in our compensation and related costs in the amount of $4.6 million as well as a decrease in our professional fees in the amount of $0.7 million, offset by an increase in our research and development expenses in the amount of $1.3 million and an increase in our selling, general and administrative costs in the amount of $0.7 million. Included in the decrease in our compensation and related costs is a decrease in stock based compensation to employees of $4.8 million and an increase in cash compensation to employees of approximately $200,000 due to an increase in the number of employees. Included in the decrease in our professional fees is a decrease in stock based compensation to non-employees of $0.6 million and a decrease in cash compensation to professionals of approximately $100,000 due to a decrease in consulting fees. Included in selling, general and administrative costs are settlement charges in the amount of $300,000 and an increase in cash expenditures of approximately $300,000 due to an increase in travel and related expenses associated with business development.
Other Expenses.   Other expense for the three month period ended September 30, 2013 was $5.7 million compared to other expense of $20,712 for the three month period ended September 30, 2012, which represents an increase of $5.7 million. The increase was primarily attributable to loss from the change in fair value of derivative financial instruments of $5.8 million a decrease in interest income of $6,049, offset by a realized gain on the sale of marketable securities of $59,737 and a decrease in interest expense of $26,761. Included in other income is registration payment income of $360,000 relating to a waiver we received for previous liquidated damages and expense of $360,000 from allocating the waiver of the original registration payment from the February 14, 2013 registration rights agreement as a charge to income.
Net Loss.   Our net loss for the three month period ended September 30, 2013 was $10.9 million compared to $8.5 million for the three month period ended September 30, 2012.
Nine month period ended September 30, 2013 compared to the nine month period ended September 30, 2012
Revenue.   We had no revenues during the nine month period ended September 30, 2013 and 2012.
Operating Expenses.   Our operating expenses for the nine month period ended September 30, 2013 were $12.5 million compared to $16.8 million for the nine month period ended September 30, 2012 which represents a decrease of $4.3 million, or 26%. The expense decrease was primarily attributable to a decrease in our compensation and related costs in the amount of $6.6 million as well as a decrease in our professional fees in the amount of $3.4 million, offset by an increase in our research and development expenses in the amount of $1.8 million, an increase in our selling, general and administrative costs in the amount of $3.8 million and an increase in our technology license fee in the amount of $100,000. Included in the decrease in our compensation and related costs is a decrease in stock based compensation to employees of $7.7 million and an increase in cash compensation to employees of approximately $1 million due to an increase in the number of employees. Included in the decrease in our professional fees is a decrease in stock based compensation to non-employees of $4.4 million and an increase in cash compensation to professionals of approximately $1

million due to an increase in consulting and legal fees associated with business development. Included in selling, general and administrative costs are settlement charges in the amount of $2.6 million and an increase in cash expenditures of approximately $1.2 million due to an increase in travel and related expenses associated with business development.
Other Expenses.   Other expenses for the nine month period ended September 30, 2013 was $8.2 million compared to $54,778 for the nine month period ended September 30, 2012 which represents an increase of $8.1 million. The expense increase was primarily attributable to the expense from the change in fair value of derivative financial instruments of $8.2 million, a decrease in interest income of $15,772, an increase in loss on transactions denominated in foreign currencies of $3,873, offset by a realized gain on the sale of marketable securities of $59,737 and a decrease in interest expense of $28,996. Included in other income is registration payment income of $360,000 related to the waiver we received for previous liquidated damages and expense of $360,000 from allocating the waiver of the original registration payment from the February 14, 2013 registration rights agreement as a charge to income.
Net Loss.   Our net loss for the nine month period ended September 30, 2013 was $20.7 million compared to $16.8 million for the nine month period ended September 30, 2012.
Year ended December 31, 2012
Revenue.   We had no revenue during the year ended December 31, 2012
Operating Expenses.   Operating expenses were approximately $30.26 million for the year ended December 31, 2012, which consisted of:
  • compensation and related costs of approximately $18.13 million which included approximately 2,048,000 shares of vested incentive shares granted to members and employees amounting to approximately $16.01 million;
  • professional fees of approximately $9.04 million which included
  • approximately 194,000 shares of vested incentive shares granted to consultants and direct transfers of shares to consultants by members amounting to approximately $6.40 million for services rendered;
  • research and development fees of approximately $0.52 million related to Retrophin’s drug (sparsentan and RE-024) candidate for the treatment of FSGS and PKAN and evaluation of potential new technologies;
  • legal expense of approximately $0.91 million related to licensing and production acquisition, employment and consulting agreements and general corporate work;
  • consulting fees of approximately $0.83 million related to outsourcing management roles;
  • contracted services of approximately $0.11 million; and
  • accounting fees of approximately $0.26 million related to general accounting and audit work, (iii) twelve months rent expense of approximately $0.1 million;
  • license fee of approximately $1.70 million;
  • depreciation and amortization expense of approximately $0.12 million related to the Ligand licensing agreement;
  • had debt expense of $0.56 million; and
  • the remaining balance of $0.61 million is related to travel and entertainment, advertising and other operating expenses.
Other Expenses.   Other expenses for the year ended December 31, 2012 were as follows: (i) approximately $0.003 million, which is related to a loss in foreign exchange in a vendor payment, (ii) approximately $0.022 million, which related to $0.2 million note receivable with an interest rate of 12% per annum offset by approximately $0.106 million of interest expense relate to a $0.900 million and $0.030 note payable with an interest rate of 12% and 15%, respectively, per annum.
Net Loss.   For the year ended December 31, 2012, our net loss from operations was approximately $30.26 million.
March 11, 2011 (inception) through December 31, 2011
Revenue. We had no revenue during the period from March 11, 2011 (inception) through December 31, 2011. 

Operating Expenses.   Operating expenses were approximately $3.27 million for the period from March 11, 2011 through December 31, 2011, which consisted of:
  • compensation and related costs of approximately $2.23 million which included approximately 431,000 shares of vested incentive shares granted to members and employees amounting to approximately $1.72 million;
  • professional fees of approximately $0.91 million which included:
  • approximately 60,000 shares of vested incentive shares granted to consultants amounting to approximately $0.26 million for services rendered;
  • research and development fees of approximately $0.35 million related to Retrophin’s drug (RE-001) candidate for the treatment of Duchenne Muscular Dystrophy;
  • legal expense of approximately $0.10 million related to formation of the company, employment and consulting agreements and general corporate work; and
  • consulting fees of approximately $0.20 million related to outsourcing management roles;
  • nine months rent expense of approximately $0.06 million; and
  • the remaining balance of $0.07 million is related to travel and entertainment, depreciation, advertising and other operating expenses.
Other Expenses.   Other operating expenses for the period March 11, 2011 (inception) through December 31, 2011 were approximately $5,000, which is related to a loss in foreign exchange in a vendor payment.
Income Taxes. As a limited liability company, we were treated as a partnership for the purposes of U.S. federal and most applicable state and local income tax during the start-up period from March 11, 2011 through September 21, 2012. Accordingly, no provision has been made for U.S. federal and state income taxes in the accompanying financial statements for such period, since all items of income or loss were required to be reported on the income tax returns of the members, who are responsible for any taxes thereon.
Net Loss.   For the period March 11, 2011 (inception) through December 31, 2011, our net loss was approximately $3.27 million.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Liquidity and Capital Resources
Management believes that we will continue to incur losses for the foreseeable future. Therefore we will either need additional equity or debt financing, or enter into strategic alliances on products in development, to sustain our operations until we can achieve profitability and positive cash flows from operating activities, if ever.
Our continued operations will depend on whether we can successfully raise additional funds through equity and/or debt financing. Such additional funds may not become available on acceptable terms, if at all, and we cannot assure you that any additional funding we do obtain will be sufficient to meet our needs in the long term. Since inception, through September 30, 2013, we had raised approximately $40.2 million through capital contributions and notes payable from Retrophin shareholders and related parties.
Since inception through September 30, 2013, we have incurred a net loss of approximately $54 million, including stock-based compensation charge of approximately $26 million for the period from March 11, 2011 (inception) to September 30, 2013. At September 30, 2013, we had a working capital deficit of approximately $10 million; however, the working capital deficit includes a derivative liability of approxima