ACHN 2017 Annual Report

In interim data from the first four patients enrolled in our phase II clinical trial for PNH patients, ACH-4471 demonstrated reductions in lactate dehydrogenase, or LDH, a marker of intravascular hemolysis, increases in hemoglobin, and improvements in fatigue score. We believe that our alternative pathway factor D inhibitor compounds may have a pharmacological advantage by potentially preventing extravascular hemolysis, or the destruction of red blood cells outside of blood vessels, while also preventing intravascular hemolysis, or red blood cell destruction within blood vessels. In addition, we believe our alternative pathway factor D inhibitor compounds may be able to treat the proportion of patients with PNH who have suboptimal response to, or who fail to respond to, currently approved treatments for PNH. We have also generated a platform of additional potent and specific orally-administered compounds that bind to factor D with high affinity, resulting in alternative pathway inhibition. One of these compounds, ACH-5228, is in phase I clinical testing in healthy volunteers, and another compound, ACH-5548, is in late-stage preclinical development. We may seek to advance certain of these factor D inhibitors for oral systemic administration to treat C3G, IC-MPGN, PNH, or other complement mediated diseases. We were incorporated on August 17, 1998 in Delaware. Since our inception, we have spent substantial research and development funds to develop our drug candidate pipeline and expect to continue to do so for the foreseeable future. We have incurred losses of $588.8 million from inception through December 31, 2017 and had an accumulated deficit of $602.7 million as of December 31, 2017, which includes preferred stock dividends recognized until our initial public offering in 2006. Our net losses were $85.2 million, $61.7 million, and $5.0 million for the years ended December 31, 2017, 2016, and 2015, respectively. We expect to incur substantial losses for at least the next several years as we seek to continue preclinical and clinical development of certain complement inhibitor drug candidates. We will need substantial additional financing to obtain regulatory approvals, fund operating losses, and, if deemed appropriate, establish manufacturing and sales and marketing capabilities for our complement inhibitor program, which we will seek to raise through public or private equity or debt financings, collaborative or other arrangements with third parties or through other sources of financing. There can be no assurance that such funds will be available on terms favorable or acceptable to us, if at all. In addition to the risks associated with being an early-stage drug development company, there can be no assurance that we or any future collaborators will successfully advance or complete our research and development programs, obtain adequate patent protection for our technology, obtain necessary government regulatory approval for drug candidates we develop, find and maintain appropriate collaboration partners or that any approved drug candidates will be commercially viable. In addition, we may not be profitable even if we or any future collaborators succeed in commercializing any of our drug candidates. Recent Development—Restructuring In February 2018, we implemented a restructuring plan that will reduce employee headcount by approximately 20% to approximately 70 employees in March 2018. The restructuring plan was implemented following a strategic assessment of our portfolio. During the assessment, our management team and board of directors concluded that our strategic focus would be on the development of our existing clinical candidates, ACH-4471 and ACH-5228, and late-stage preclinical compound, ACH-5548. We assessed the staffing levels required to accomplish our revised strategic goals and determined to reduce our staff across several functional areas, while retaining the biology and chemistry core strengths necessary to advance our complement factor D portfolio. Our Strategy Our objective is to become a leading biopharmaceutical company by discovering, developing and commercializing small molecule therapies that specifically target the alternative pathway of the human complement system. Specifically, our near-term strategy includes the following efforts: • Advance ACH-4471, the first oral drug candidate to inhibit factor D within the alternative pathway, in clinical development for C3G. We believe ACH-4471 is the first small molecule alternative 2