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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2013

For the transition period from                      to                     

Commission File Number 0-23155

SYNAGEVA BIOPHARMA CORP.

(Exact name of registrant as specified in its charter)

128 Spring Street, Suite 520,

Lexington, MA 02421

(Address of principal executive offices, including zip code)

(781) 357-9900

Registrant’s telephone number, including area code

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

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

The number of shares outstanding of the registrant’s common stock as of May 1, 2013 was 27,268,539.

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SYNAGEVA BIOPHARMA CORP.

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PART I. FINANCIAL INFORMATION

SYNAGEVA BIOPHARMA CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except per share amounts)

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

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SYNAGEVA BIOPHARMA CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)

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

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SYNAGEVA BIOPHARMA CORP.

STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited and in thousands)

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

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SYNAGEVA BIOPHARMA CORP.

STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

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

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SYNAGEVA BIOPHARMA CORP.

NOTES TO THE FINANCIAL STATEMENTS

(In thousands, except per share amounts or as otherwise indicated)

(Unaudited)

Synageva BioPharma Corp. (“Synageva” or the “Company”) is a clinical stage biopharmaceutical company focused on the discovery, development, and commercialization of therapeutic products for patients with life-threatening rare diseases for which there is an unmet medical need. Synageva’s lead program, sebelipase alfa, is a recombinant form of the human lysosomal acid lipase (“LAL”) enzyme currently under global clinical investigation for the treatment of patients with early onset and late onset LAL deficiency (“LAL Deficiency”), which is a rare, devastating disease that causes significant morbidity and mortality. Synageva has several protein therapeutics in its pipeline, including two enzyme replacement therapies for lysosomal storage disorders and additional programs for other serious genetic conditions for which there are currently no approved treatments. The most advanced of these other pipeline programs in SBC-103, an enzyme replacement therapy for the treatment of mucopolysaccharidosis IIIB (MPS IIIB), also known as Sanfilippo B syndrome. Synageva has not yet received approval to market sebelipase alfa and is not currently commercializing any other products.

The Company’s business is subject to risks including those common to companies in the biopharmaceutical industry, such as the successful development of products, patient enrollment, clinical trial uncertainty, regulatory approval, fluctuations in operating results and financial risks, potential need for additional funding, protection of proprietary technology and patent risks, compliance with government regulations, dependence on key personnel, competition, technological and medical risks and management of growth.

The Company has incurred losses since inception and at March 31, 2013, had an accumulated deficit of $173.3 million. The Company expects to incur losses over the next several years as it continues to expand its drug discovery, development efforts and commercial activities. As a result of continuing losses, the Company may seek additional funding through a combination of public or private financing, collaborative relationships or other arrangements. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into new collaboration or license agreements. If we are unable to obtain additional funding on a timely basis, whether through sales of debt or equity or through third-party collaboration or license arrangements, we may be required to curtail or terminate some or all of our development programs, including some or all of our drug candidates.

Through March 31, 2013, the Company funded its operations primarily from proceeds of the sale of stock, issuance of convertible notes, royalty proceeds and proceeds from government grants and collaboration agreements. On January 9, 2013, the Company announced the closing of a $117.5 million underwritten public offering of approximately 2.5 million shares of common stock at a price of $47.53. The Company received net proceeds of approximately $111.1 million from this offering. In addition to this offering, the Company received net proceeds of $192.7 million from two public equity offerings in fiscal 2012.

The Company intends to use the proceeds from these offerings for general corporate purposes, which may include working capital, capital expenditures, research and development expenditures, preclinical and clinical trial expenditures, commercial expenditures, acquisitions of new technologies or businesses that are complementary to our current technologies and business focus and investments. The Company expects that it will have sufficient cash and cash equivalents to sustain operations for more than two years.

Basis of Presentation

The accompanying Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for Quarterly Reports on Form 10-Q and do not include all of the information and note disclosures required by the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. The Financial Statements should therefore be read in conjunction with the Financial Statements and Notes thereto for the fiscal year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2013.

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SYNAGEVA BIOPHARMA CORP.

NOTES TO THE FINANCIAL STATEMENTS

(In thousands, except per share amounts or as otherwise indicated)

(Unaudited)

The accompanying Financial Statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect amounts reported in the Financial Statements and accompanying disclosures. Although these estimates are based on the information reasonably available and actions that the Company may undertake in the future, actual results may be different from those estimates. The Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair statement of results for these interim periods. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013.

Reverse Merger

On November 2, 2011, Trimeris, Inc., a Delaware corporation (“Trimeris”), closed a merger transaction (the “Reverse Merger”) with Synageva BioPharma Corp., a privately held Delaware corporation (“Private Synageva”), pursuant to an Agreement and Plan of Merger and Reorganization, dated as of June 13, 2011 (the “Merger Agreement”), by and among Trimeris, Private Synageva and Tesla Merger Sub, Inc., a wholly owned subsidiary of Trimeris (“Merger Sub”). Pursuant to the Merger Agreement, Private Synageva became a wholly owned subsidiary of Trimeris through a merger of Merger Sub with and into Private Synageva, and the former stockholders of Private Synageva received shares of Trimeris that constituted a majority of the outstanding shares of Trimeris. In connection with the Reverse Merger, Trimeris changed its name to Synageva BioPharma Corp.

The Reverse Merger was accounted for as a reverse acquisition under which Private Synageva was considered the acquirer of Trimeris.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2013, as compared to the significant accounting policies disclosed in Note 2, Summary of Significant Accounting Policies, of the Company’s financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued an accounting standard update related to Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The revised standard requires companies to present information about reclassification adjustments from accumulated other comprehensive income in their annual financial statements in a single note or on the face of the financial statements. The Company adopted this standard in the first quarter of 2013 and presented this information in Note 6, Accumulated Other Comprehensive Income (Loss) to these condensed consolidated financial statements. The adoption of this standard did not have an impact on our financial position or results of operations.

Principles of Consolidation

Synageva’s consolidated financial statements include the accounts of Synageva and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

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SYNAGEVA BIOPHARMA CORP.

NOTES TO THE FINANCIAL STATEMENTS

(In thousands, except per share amounts or as otherwise indicated)

(Unaudited)

Cash and Cash Equivalents

The Company considers all highly liquid investments with a remaining maturity at the date of purchase of 90 days or less to be cash equivalents. At March 31, 2013 and December 31, 2012, substantially all cash equivalents were U.S. treasury bills and amounts held in money market accounts at commercial banks.

Investments

All of the Company’s investments were classified as available-for-sale at March 31, 2013 and December 31, 2012. The principal amounts of short-term investments are summarized in the tables below:

The Company completed an evaluation of its investments and determined that it did not have any other-than-temporary impairments as of March 31, 2013 or December 31, 2012.

Fair Value Measurements

Under current accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The current accounting guidance also establishes a hierarchy to categorize how fair value is measured and which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

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SYNAGEVA BIOPHARMA CORP.

NOTES TO THE FINANCIAL STATEMENTS

(In thousands, except per share amounts or as otherwise indicated)

(Unaudited)

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2013:

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012:

Prepaid expenses and other current assets consist of the following:

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SYNAGEVA BIOPHARMA CORP.

NOTES TO THE FINANCIAL STATEMENTS

(In thousands, except per share amounts or as otherwise indicated)

(Unaudited)

Accrued expenses consist of the following:

The Company’s stock-based compensation plans include the 1996 Stock Option Plan and the 2005 Stock Plan, as well as options outstanding under Trimeris, Inc.’s 1993 Plan and 2007 Stock Incentive Plan. As part of the Reverse Merger, options outstanding under Trimeris’s option plans were adjusted by the conversion ratio, and remain in existence as options in the combined entity. The Board of Directors has the authority to determine to whom options will be granted, the number of shares, the term, and the exercise price.

At the Company’s annual meeting of stockholders held June 27, 2012, stockholders approved amendments to the 2005 Stock Plan to increase the number of shares of common stock available for issuance by 1.5 million shares, increasing the maximum number of shares that may be issued under the 2005 Stock Plan to approximately 3.5 million shares. Shares subject to outstanding awards under the 2005 Stock Plan totaled 2.0 million as of March 31, 2013.

In addition, at the Company’s annual meeting of stockholders held June 27, 2012, stockholders approved the Employee Stock Purchase Plan (the “ESPP”), which allows eligible employees to use payroll deductions to purchase shares of the Company’s common stock at a discount of 15%. The plan is considered a compensatory employee stock purchase plan, and will result in incremental stock-based compensation expense in future periods. Option periods under the ESPP will run from January 1 to June 30 and July 1 to December 31 of each year, with the first option period commencing in fiscal 2013.

Determining the Fair Value of Stock Options

The Company uses the Black-Scholes option pricing model to measure the fair value of its option awards. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The expected life assumption is based on the limited exercise historical experience at the Company, management’s expectations based on the length of time that an employee will stay at the Company, the vesting period of four years and the contractual term of ten years. Volatility has been determined based on an analysis of reported data for a peer group of companies that granted options with substantially similar terms. The risk-free interest rate is based on the rate of U.S. Treasury zero coupon rate with a remaining term approximating the expected term used as the input to the Black-Scholes option pricing model.

Our Black-Scholes assumptions for options granted in the first three months of fiscal 2013 were consistent with those disclosed in Note 8, Share Based Payments, of the Company’s financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012.

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SYNAGEVA BIOPHARMA CORP.

NOTES TO THE FINANCIAL STATEMENTS

(In thousands, except per share amounts or as otherwise indicated)

(Unaudited)

A summary of stock option activity under all equity plans for the three months ended March 31, 2013 is as follows:

The Company recognized stock-based compensation expense on all stock option awards for the three months ended March 31, 2013 and 2012, as follows:

The following table summarizes the changes in accumulated other comprehensive income (loss), net of tax by component:

Securities Available for Sale: Balances included within accumulated other comprehensive income (loss) related to unrealized holding gains (losses). There were no amounts reclassified from accumulated other comprehensive income (loss) during the three months ended March 31, 2013.

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SYNAGEVA BIOPHARMA CORP.

NOTES TO THE FINANCIAL STATEMENTS

(In thousands, except per share amounts or as otherwise indicated)

(Unaudited)

Basic net loss per common share has been computed by dividing net loss by the weighted average number of shares outstanding during the period. Diluted net income per share, if applicable, has been computed by dividing diluted net income by the diluted number of shares outstanding during the period. Except where the result would be antidilutive to loss from continuing operations, diluted net loss per share has been computed assuming the exercise of stock options, as well as their related income tax effects.

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

The Company’s potential dilutive securities which include stock options have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average common stock outstanding used to calculate both basic and diluted net loss per share are the same. The following shares of potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as the effect of including such securities would be antidilutive (in thousands):

Collaborations

In August 2011, the Company entered into a collaboration agreement with Mitsubishi Tanabe Pharma Corporation (“Mitsubishi Tanabe”) whereby the Company utilizes its proprietary expression technology for the development of a certain targeted compound. The agreement included an upfront development payment to the Company of $3.0 million, on-going reimbursement or funding of development costs, estimated during the initial development period to be approximately $1.5 million, and the potential for an additional payment of $3.0 million due upon the successful completion of the initial development.

In March 2012, the Company entered into a second agreement with Mitsubishi Tanabe to develop a second protein therapeutic. The agreement included an upfront license payment to the Company of $9.0 million and on-going reimbursement or funding of development costs, estimated during the initial development period to be approximately $0.8 million, as well as the potential for an additional payment of $3.0 million due upon successful completion of the initial development stage of the second program.

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SYNAGEVA BIOPHARMA CORP.

NOTES TO THE FINANCIAL STATEMENTS

(In thousands, except per share amounts or as otherwise indicated)

(Unaudited)

Under both agreements, Mitsubishi Tanabe has an option to obtain an exclusive royalty-bearing license, with the right to grant sublicenses, to further develop and commercialize the licensed compound that is the subject of the agreement (the “Option”). Additionally, upon exercise of the Option under the applicable agreement, the parties intend to negotiate a follow-on collaboration and license agreement that may include potential future development and commercial sales based milestone payments, and potential royalty payments. The Company determined that the Option is substantive as the decision to exercise is in the control of Mitsubishi Tanabe and is not essential to the functionality of the other deliverables in either agreement. Therefore, the Option was not considered to be a deliverable at the inception of either collaboration agreement. The Option terminates sixty days after the date the Joint Steering Committee (“JSC”) determines that the initial development met certain criteria.

The Company evaluated the collaboration agreements in order to determine whether the deliverables at the inception of the agreements: (i) the upfront license payments, (ii) the research services during the development periods, and (iii) the JSC’s participation should be accounted for as a single unit or multiple units of accounting. The Company concluded that the upfront license payments do not have standalone value to Mitsubishi Tanabe because (i) Mitsubishi Tanabe does not have the ability to transfer or sublicense and (ii) the activities to be conducted during the development period are highly dependent on the Company’s unique knowledge and understanding of its proprietary technology which is critical to optimizing the compounds. The Company determined that the JSC is a deliverable through the development period. In both agreements, the Company concluded that there are two units of accounting which are being delivered over the same performance period.

Revenue recognized under the first and second Mitsubishi Tanabe development programs totaled $0.5 million and $2.9 million for the three months ended March 31, 2013, respectively. For the three months ended March 31, 2012, collaboration revenue under the first development program totaled $0.9 million. Revenue is recognized using the proportional performance method. As of March 31, 2013, the deferred revenue balance includes $1.3 million and $1.2 million related to the first and second development programs, respectively.

The Company accrues estimated liabilities for loss contingencies when it is probable that a liability has been incurred and the amount of the claim assessment or damages can be reasonably estimated. Synageva expenses legal fees, intellectual property related costs as they are incurred.

Occupancy Arrangements

On January 15, 2013, the Company entered into a lease agreement to accommodate the Company’s continued growth and to relocate its corporate headquarters in Lexington, Massachusetts. The Company will occupy the location in stages as building modifications are completed. The Company currently anticipates that it will begin occupying a portion of the facility in May 2013. The initial lease term is for 77 months after the Company begins occupying the entire location, with an option to extend the lease term for two separate three year renewal periods. Future minimum lease payments for the Lexington lease are as follows:

On April 5, 2013, the Company, Shire Human Genetics Therapies, Inc. and its affiliates (“Shire”) and Cincinnati Children’s Hospital Research Foundation, an operating division of Children’s Hospital Medical

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SYNAGEVA BIOPHARMA CORP.

NOTES TO THE FINANCIAL STATEMENTS

(In thousands, except per share amounts or as otherwise indicated)

(Unaudited)

Center, and their respective affiliates entered into a settlement agreement under which the parties settled the outstanding sebelipase alfa patent-related issues between them, including the revocation actions in the United Kingdom and France and the outstanding opposition in the European Patent Office.

Simultaneously with the execution of the settlement agreement, the Company entered into a sublicense agreement with Shire whereby the Company received exclusive, worldwide rights to multiple patents and patent applications owned by Cincinnati Children’s Hospital Research Foundation, and its affiliates, which had been exclusively licensed to, or co-owned with, Shire. The patents and patent applications cover the use of LAL including for the treatment of LAL Deficiency and atherosclerosis. These additional patents and patent applications complement the Company’s existing and planned patent portfolio covering its LAL Deficiency program including patents and patent applications for composition of matter, methods of use, and manufacturing.

In exchange for the settlement and the rights acquired from Shire, the Company paid an upfront payment of $2.5 million, and will be obligated to make two sales-based milestones (each a low single-digit million dollar payment), and low, single-digit percentage tiered royalty payments on sales of sebelipase alfa in the U.S. and certain countries in Europe. The obligation to make tiered royalty payments is expected to expire in 2021. The Company will expense the $2.5 million upfront license payment as in-process research and development expense in the second quarter of fiscal 2013.

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined under federal securities laws. Many of these statements can be identified by the use of words such as “believes,” “expects,” “anticipates,” “plans,” “may,” “will,” “projects,” “continues,” “estimates,” “potential,” “opportunity” or the negative versions of these terms and other similar expressions. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” in Part II, Item 1A of this Quarterly Report on Form 10-Q. You should carefully consider that information before you make an investment decision.

We cannot guarantee any future results, levels of activity, performance or achievements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Quarterly Report on Form 10-Q as anticipated, believed, estimated or expected. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our estimates as of the date of this Quarterly Report on Form 10-Q (unless another date is indicated) and should not be relied upon as representing our expectations as of any other date. While we may elect to update these forward-looking statements, we specifically disclaim any obligation to do so.

The following discussion of our financial condition and results of operations should be read in conjunction with our Financial Statements and the related Notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a clinical stage biopharmaceutical company focused on the discovery, development, and commercialization of therapeutic products for patients with life-threatening rare diseases for which there is an unmet medical need. Our management team is experienced in the development and commercialization of drugs for diseases with small patient populations, including clinical and translational research, working with payors to establish reimbursement, and designing and building commercial organizations to reach highly specialized physicians to facilitate patient identification. Our lead program, sebelipase alfa, is a recombinant form of the human lysosomal acid lipase enzyme, or LAL, currently under global clinical investigation for the treatment of patients with early onset and late onset LAL deficiency, or LAL Deficiency, which is a rare, devastating disease that causes significant morbidity and mortality. We have several protein therapeutics in our pipeline, including two enzyme replacement therapies for lysosomal storage disorders and additional programs for other serious genetic conditions for which there are currently no approved treatments. The most advanced of these other pipeline programs is SBC-103, an enzyme replacement therapy for the treatment of mucopolysaccharidosis IIIB, or MPS IIIB, also known as Sanfilippo B syndrome. We have not yet received approval to market sebelipase alfa and are not currently commercializing any other products.

Financial Operations Overview

General

Our future operating results will depend on the progress of drug candidates currently in our research and development pipeline. The results of our operations will vary significantly from year-to-year and quarter-to-quarter and will depend largely on, among other factors, the cost and outcome of any preclinical development or clinical trials then being conducted.

A discussion of certain risks and uncertainties that could affect our liquidity, capital requirements and ability to raise additional funds is set forth under the section entitled “Risk Factors” in this Quarterly Report on Form 10-Q.

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Revenue

Royalty Revenue

Royalty revenues are recognized in the period earned, based on contract terms when reported sales are reliably measurable and collectability is reasonably assured. Royalty revenue relates to amounts earned from the sale of FUZEON by F. Hoffman-La Roche Ltd. (“Roche”). The FUZEON royalty stream was acquired in the Reverse Merger in the fourth quarter of fiscal 2011.

Collaboration and License Revenue

Collaboration and license revenue primarily relates to our collaboration agreements with Mitsubishi Tanabe whereby we utilize our proprietary expression technology in two development programs, in exchange for upfront license payments, funded development, and the potential for additional payments upon the successful completion of the development programs. Under the first program, which was entered into in August 2011, we received an upfront license payment of $3.0 million, on-going funding of development costs, and the potential for an additional payment of $3.0 million due upon the successful completion of the initial development. Additionally, we entered into a second agreement in March 2012, where we received an upfront license payment of $9.0 million, on-going funding of development costs, and the potential for an additional payment of $3.0 million due upon the successful completion of the initial development stage of the second program. We are recognizing revenue on consideration received under a proportional performance method. Under both agreements, Mitsubishi Tanabe has an option to obtain an exclusive royalty-bearing license, with the right to grant sublicenses, to further develop and commercialize the licensed compound. If Mitsubishi Tanabe exercises its option, the parties intend to negotiate a follow-on collaboration and license agreement that may include potential future development and commercial sales based milestone payments, and potential royalty payments.

Other Revenue

Other revenues relate to a National Institutes of Health (“NIH”) grant, which was completed in the first quarter of fiscal 2012.

Research and Development

We expense research and development costs as incurred. Research and development expense consists of costs incurred to discover, research and develop drug candidates, including personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs, outside consulting services and other external costs. Research and development expense includes any costs associated with generating collaboration or grant revenue.

General and Administrative

General and administrative expense consists primarily of salaries, stock-based compensation expense and other related costs for personnel in executive, business development, commercial, finance, human resource, legal, information technology, and support personnel functions. We also expense patent costs and expenses associated with maintaining our intellectual property as incurred. Other costs include facility costs not otherwise included in research and development expense, insurance, and professional fees for legal, accounting and commercial services.

Amortization of Developed Technology

We provide for the cost of amortization of developed technology, computed using an accelerated method based on the undiscounted cash flows received from the FUZEON royalty stream, in proportion to the estimated total undiscounted cash flows.

Interest Income, net

Interest income relates to interest earned on our cash equivalent and short-term investment balances.

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Results of Operations

Three Months Ended March 31, 2013 and 2012

Revenues

The following table presents total revenue for the three months ended March 31, 2013 and 2012, respectively (in thousands):

Total revenues increased by approximately $2.7 million for the three months ended March 31, 2013, as compared to the comparable period of the prior year. The increase in revenues was the result of higher collaboration revenue and FUZEON royalty revenue.

Royalty revenues of $1.7 million relate to the royalty payment earned from Roche, based on total worldwide net sales of FUZEON. Collaboration and license revenue for the three months ended March 31, 2013 relates to revenue recognized from development programs with Mitsubishi Tanabe. For the three months ended March 31, 2013, we recognized $0.5 million and $2.9 million related to the first and second Mitsubishi Tanabe programs, respectively. For the three months ended March 31, 2012, collaboration and license revenue totaled $0.9 million primarily related to revenue recognized related to the first Mitsubishi Tanabe program. Other revenues relate to an NIH Grant, which totaled approximately $0.1 million for the three months ended March 31, 2012.

On an annualized basis, we expect FUZEON royalty revenues to decrease over time. As of March 31, 2013, our deferred revenue balance related to both of the Mitsubishi Tanabe collaboration agreements, totaled $2.5 million. We expect to recognize both the upfront payments and additional funded development payments related to both arrangements over the next year, in proportion to our performance under the arrangements.

Research and Development Expenses

Research and development expenses for the three months ended March 31, 2013 and 2012 are summarized as follows (in thousands):

Research and development expense increased by approximately $7.2 million, or 117%, to $13.3 million for the three months ended March 31, 2013, as compared to $6.1 million for the comparable prior year period. The increase in total research and development expense is due to increased clinical trial costs and manufacturing fees, as

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well as other development related external services, associated with on-going development of sebelipase alfa and our pipeline programs and higher compensation expense from hiring additional staff to move the sebelipase alfa and pipeline programs forward. Additionally, for the three months ended March 31, 2013, research and development expense includes $0.7 million of stock-based compensation expense, compared to $0.2 million in the comparable prior year period. We expect research and development expense to continue to increase from those experienced in the first quarter as development activities for sebelipase alfa and our other pipeline programs continue.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2013 and 2012 are summarized as follows (in thousands):

General and administrative expense increased by approximately $2.7 million, or 94%, to $5.7 million for the three months ended March 31, 2013 as compared to $2.9 million for the comparable prior year period. The increase was primarily due to higher compensation-related expenses of $1.1 million and increased stock-based compensation expense of $0.7 million, resulting from hiring additional staff to support expanded operations and increasing financial and legal costs associated with expanded operations and commercial preparations. Additionally, external fees and professional service costs increased $1.0 million period over period, primarily as a result of higher commercial related spending, higher public company costs, including insurance expense and higher professional service fees. We expect general and administrative expense to continue to increase in the future as our business grows.

Amortization of Developed Technology

Costs recognized for the amortization of developed technology for the three months ended March 31, 2013 and 2012 are summarized as follows (in thousands):

For both the three months ended March 31, 2013 and 2012, we recognized $0.7 million of amortization related to the developed technology acquired in the Reverse Merger.

Liquidity and Capital Resources

Sources of Liquidity

We have financed our operations to date primarily through the placement of our equity and debt securities and debt financings, and, to a lesser extent, license and royalty fees, upfront cash payments and research and development funding from collaborators, government grants and licensors. In November 2011, we acquired $50.1 million in cash as a result of the Reverse Merger with Trimeris. On January 10, 2012, we announced the closing of a $90.0 million underwritten public offering of approximately 3.6 million shares of our common stock at a price of $25.18 per share. We received net proceeds of approximately $84.6 million from this offering. In addition, on

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July 13, 2012, we announced the closing of a $115.0 million, second underwritten public offering of approximately 2.8 million shares of common stock at a price of $41.20 per share. We received net proceeds of approximately $108.1 million. On January 9, 2013, we announced the closing of a $117.5 million underwritten public offering of approximately 2.5 million shares of common stock at a price of $47.53 per share. We received net proceeds of approximately $111.1 million from this offering. We intend to use the net proceeds from these offerings for general corporate purposes, which may include working capital, capital expenditures, research and development expenditures, preclinical and clinical trial expenditures, commercial expenditures, acquisitions of new technologies or businesses that are complementary to our current technologies and business focus and investments.

We do not expect to generate any revenue from the direct sale of products currently in development for several years, if ever. As a result of our acquisition of Trimeris, we now receive royalties from the sale of FUZEON by Roche, which we expect to decrease over time. A significant portion of our revenues for the foreseeable future will be quarterly royalty payments from Roche based on sales of FUZEON, up-front license payments and funded research and development that we may receive under existing or new collaboration agreements, if any.

As of March 31, 2013, our principal sources of liquidity consisted of cash and cash equivalents and short-term investments of approximately $308.9 million. Our cash equivalents are highly liquid investments with a maturity of three months or less at date of purchase and consist of U.S. treasury bills and amounts held in money market funds.

Cash Flows

The use of our cash flows for operations has primarily consisted of salaries and wages for our employees, facility and facility-related costs for our office, laboratory, and manufacturing facilities, fees paid in connection with preclinical studies, clinical studies, outsourced manufacturing, laboratory supplies, consulting fees, commercial fees and legal fees. We expect that costs associated with clinical studies and manufacturing costs as well as commercial planning costs will increase in future periods as sebelipase alfa advances into further stages of clinical testing and our other preclinical candidates, including SBC-103, move forward in development.

Net cash used in operating activities was $17.2 million for the three months ended March 31, 2013, and was primarily the result of a net loss of $14.5 million, the drivers of which are discussed in further detail in “Results of Operations.” In addition, non-cash items and changes in certain operating assets and liabilities affected operating cash during the first quarter of fiscal 2013. Non-cash items partially offsetting net loss include depreciation of fixed assets of $0.6 million, amortization of developed technology of $0.7 million, stock-based compensation of $1.7 million, and the amortization of discount on available for sale investments of $0.7 million. Changes in operating assets and liabilities resulted in a net use of cash of $6.4 million, which was primarily the result of increased prepaid expenses and other assets of $2.5 million, decreased deferred revenue of $2.9 million and decreased accounts payable and accrued expenses of $1.0 million from December 31, 2012. The increase in prepaid expense and other assets was primarily driven by cash outlays for clinical and manufacturing activities. The decrease in deferred revenue in the period was primarily the result of the recognition of upfront license fees related to the Mitsubishi Tanabe development programs.

Net cash used in operating activities was $6.0 million for the three months ended March 31, 2012. Non-cash items partially offsetting net loss include depreciation of fixed assets of $0.1 million, amortization of developed technology of $0.7 million and stock-based compensation of $0.6 million. Changes in operating assets and liabilities resulted in a net use of cash of $0.1 million, which was primarily the result of a decrease in deferred revenue and accounts payable and accrued expenses of $0.6 million and $0.3 million from December 31, 2011, respectively. Sources of cash from changes in operating assets and liabilities included a net decrease of $0.4 million in accounts receivable and a net decrease of $0.4 million in prepaid expenses and other current assets. The decrease in deferred revenue in the period was primarily the result of revenue being recognized on the initial upfront license fee of $3.0 million from the initial Mitsubishi Tanabe development program.

We expect to continue to use cash in operations as we continue to seek to advance our pipeline programs through preclinical testing and clinical development. In addition, in the future, we may owe royalties and other contingent payments to our licensors based on the achievement of developmental milestones, product sales, and other specified objectives.

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Net cash used in investing activities totaled $66.1 million in the three months ended March 31, 2013, and was primarily a result of the purchase of available-for-sale investments of $103.8 million, partially offset by cash received from the maturity of available for sale investments totaling $43.0 million. Other uses of cash for investing activities included $2.9 million of restricted cash and $2.4 million for capital expenditures. The restricted cash outlay relates to a short-term letter of credit associated with construction activities at our planned headquarters in Lexington, MA. We anticipate cash spent on capital expenditures will continue to increase as we expand our internal production and development capabilities. In the corresponding period of the prior year, net cash used in investing activities totaled $0.2 million and related to capital expenditures.

Financing activities provided cash of approximately $113.1 million in the three months ended March 31, 2013, resulting from net cash received in secondary offerings of $111.1 million and proceeds from the exercise of stock options of $2.0 million. Financing activities provided cash of approximately $84.9 million for the three months ended March 31, 2012, resulting from net cash received in the secondary offering of $84.6 million and proceeds from the exercise of stock options of $0.3 million.

Funding Requirements

We have incurred significant losses since our inception. As of March 31, 2013, we had an accumulated deficit of approximately $173.3 million. Our cash and cash equivalents and investments balance at March 31, 2013 totaled $308.9 million. We expect to use our existing cash and cash equivalents and investments to continue our research and development programs and commercialization activities and to fulfill our planned operating goals. In particular, our currently planned operating and capital requirements include the need for working capital to support our research and development activities for sebelipase alfa and other preclinical candidates that we are seeking to develop, and to fund our general and administrative and commercial costs and expenses. We expect that we will have sufficient cash and cash equivalents to sustain operations for more than the next two years.

Our ability to finance our operations into the future and to generate revenues will depend heavily on our ability to obtain favorable results in the ongoing clinical trials of sebelipase alfa and to successfully develop and commercialize sebelipase alfa. We expect that our significant sources of cash flows from operations for the foreseeable future will be quarterly royalty payments from Roche based on sales of FUZEON and additional collaboration revenues, if any. Net sales of FUZEON by Roche have decreased in each of the last three years and are expected to continue to decline.

We may not be able to successfully enter into any new corporate collaborations and the timing, amount, and likelihood of us receiving additional payments under our current collaborations is highly uncertain. As a result, we cannot assure that we will attain any further funding from collaborations or licensing arrangements.

There are a number of factors that may adversely affect our planned future capital requirements and accelerate our need for additional financing, many of which are beyond our control, including the following:

We may seek additional funding through debt or equity financings. The fundraising environment for life science companies, in general, is highly volatile. Due to this and various other factors, including currently adverse general market conditions and the early-stage status of our development pipeline, additional funding may not be available on acceptable terms, if at all. In addition, the terms of any financing may be dilutive or otherwise adversely affect other rights of our stockholders. We also expect to seek additional funds through arrangements with collaborators, licensees or other third parties. These arrangements would generally require us to relinquish or

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encumber rights to some of our technologies or drug candidates, and we may not be able to enter into such arrangements on acceptable terms, if at all. If we are unable to obtain additional funding on a timely basis, whether through sales of debt or equity or through third-party collaboration or license arrangements, we may be required to curtail or terminate some or all of our development programs, including some or all of our drug candidates.

Contractual Obligations and Requirements

As of March 31, 2013, our contractual obligations consisted primarily of operating leases for our headquarters and other facilities, contractual purchase obligations and to a lesser extent, minimum contractual payments on licensed technology.

On January 15, 2013, we entered into a lease agreement to accommodate our continued growth and to relocate our corporate headquarters in Lexington, Massachusetts. We will occupy the location in stages as building modifications are completed. We currently anticipate that we will begin occupying a portion of the facility in May 2013. The initial lease term is for 77 months after we begin occupying the entire location, with an option to extend the lease term for two separate three year renewal periods. Future minimum lease payments for the Lexington lease are as follows:

There have been no other significant changes to our contractual obligations and requirements during the three months ended March 31, 2013, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2013, which was filed with the SEC on March 14, 2013.

Off-Balance Sheet Arrangements

As of March 31, 2013, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Critical Accounting Policies and Estimates

In preparing our Financial Statements in accordance with accounting principles generally accepted in the U.S. and pursuant to the rules and regulations promulgated by the SEC, we make assumptions, judgments and estimates that can have a significant impact on our net income/loss and affect the reported amounts of certain assets, liabilities, revenue and expenses, and related disclosures. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with the Audit Committee of our Board of Directors.

We believe that the assumptions, judgments and estimates involved in the revenue recognition, research and development expense, amortization of intangible assets, and income taxes have the greatest impact on our Financial Statements, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

There have been no significant changes to our critical accounting policies and estimates during the three months ended March 31, 2013, as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the SEC on March 14, 2013.

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Our market risks during the three months ended March 31, 2013 have not materially changed from those discussed in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the SEC on March 14, 2013.

We maintain disclosure controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the Securities and Exchange Commission (“SEC”) and to process, summarize and disclose this information within the time periods specified in the rules and forms of the SEC. Based on the evaluation of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), Rules 13a-15(e) and 15d-15(e)) as of March 31, 2013, our Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions

There has been no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

On April 5, 2013, we entered into a settlement agreement with Shire and Cincinnati Children’s Hospital Research Foundation, an operating division of Children’s Hospital Medical Center, and their respective affiliates under which the parties settled the outstanding sebelipase alfa patent-related issues between them, including revocation actions in the United Kingdom and France and the outstanding opposition in the European Patent Office.

Simultaneously with the execution of the settlement agreement, we entered into a sublicense agreement with Shire whereby we received exclusive, worldwide rights to multiple patents and patent applications owned by Cincinnati Children’s Hospital Research Foundation, and its affiliates, which had been exclusively licensed to, or co-owned with, Shire. The licensed patents and patent applications cover the use of LAL, including for the treatment of LAL Deficiency and atherosclerosis.

RISK FACTORS

Investing in our securities involves risk. Prior to making a decision about investing in our securities, you should carefully consider the specific risk factors discussed below and all of the other information contained or incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 14, 2013. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our operations. If any of these risks were to occur, our business, financial condition or results of operations would likely suffer. In that event, the trading price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Business

We are largely dependent on the success of our leading product candidate, sebelipase alfa. All of our product candidates, including sebelipase alfa, are still in either preclinical or clinical development. Clinical trials of our product candidates may not be successful. If we are unable to commercialize sebelipase alfa, or experience significant delays in doing so, our business will be materially harmed.

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Our business prospects are largely dependent upon the successful development and commercialization of sebelipase alfa. We are currently enrolling patients in our global ARISE (Acid Lipase Replacement Investigating Safety and Efficacy) clinical trial, a randomized, double-blind, placebo-controlled Phase III trial of sebelipase alfa in children and adults with late onset LAL Deficiency. We are currently enrolling infants with early onset LAL Deficiency in a Phase II/III open-label trial with sebelipase alfa. Before we can commercialize product candidates, including sebelipase alfa, we need to:

This process involves a high degree of risk and takes many years. Our product development efforts with respect to a product candidate may fail for many reasons, including:

Few research and development projects result in commercial products, and success in preclinical studies or early clinical trials often is not replicated in later studies.

We may decide to abandon development of a product candidate or service at any time, or we may be required to expend considerable resources repeating clinical trials or conducting additional trials, either of which would increase costs of development and delay any revenue from those programs.

In addition, a regulatory authority may deny or delay an approval because it is not satisfied with the structure or conduct of clinical trials or due to its assessment of the data we supply. A regulatory authority, for instance, may not believe that we have adequately addressed negative safety signals. Clinical data is subject to varied interpretations, and regulatory authorities may disagree with our assessments of data. In any such case, a regulatory authority could insist that we provide additional data, which could substantially delay or even prevent commercialization efforts, particularly if we are required to conduct additional pre-approval clinical studies.

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The results of our clinical trials may not prove sufficient to obtain regulatory approval of our product candidates, and subsequent trials may fail to replicate promising data seen in earlier preclinical studies and clinical trials.

Our Phase I/II study in adults with late onset LAL Deficiency completed enrollment in December 2011. Interim data from this study provided encouraging indications regarding safety and tolerability as well as effects consistent with preclinical findings and the known mechanism of action for LAL. We are currently enrolling the global ARISE clinical trial, a randomized, double-blind, placebo-controlled Phase III trial of sebelipase alfa in children and adults with CESD, the late onset form of LAL Deficiency. Our Phase II/III study in infants with early onset LAL Deficiency is currently on-going. We also are developing other product candidates for other rare diseases, including SBC-103 targeting a disease known as MPS IIIB, or Sanfilippo B. In February 2013, we presented preclinical data from the SBC-103 program that shows that dosing with SBC-103 reduces the accumulation of substrate in the brain of an MPS IIIB animal model.

Promising results in our preclinical studies or clinical trials may not be replicated in ongoing and future studies or trials, and final data analysis may differ from interim data analysis. Even if our additional trials of sebelipase alfa are conducted and completed as planned, the results may not prove sufficient to obtain regulatory approval. Success in preclinical testing does not ensure success in clinical trials, and success in early stage clinical trials does not ensure success in later clinical trials. Phase III clinical trials often fail to replicate encouraging results seen in preclinical studies and early clinical trials. We will incur substantial expenses moving our product candidates through stages of development, with no assurance that any of our product candidates will ultimately be commercialized. Future studies may, for example, indicate safety concerns that regulatory authorities view as unacceptable. Final data analysis of our completed, ongoing and future clinical trials may fail to demonstrate that our product candidates are sufficiently safe and effective for pursued indications. Any such failure could cause us to abandon a product candidate, substantially delay development of other product candidates, or require substantial expenditures to conduct additional trials. Both preclinical and clinical data are often susceptible to varying interpretations that may delay, limit or prevent regulatory approvals or commercialization. Any delay in, or termination of, our clinical trials would delay our obtaining regulatory approval of the affected product candidate and, consequently, our ability to commercialize that product candidate and potentially our other product candidates. Development and commercialization of therapies for rare diseases requires expenditure of significant funds with no assurance of success.

We may find it difficult to enroll patients in our clinical trials.

Sebelipase alfa is being developed to treat LAL Deficiency, which is very rare. Studies by investigators who screened various populations for a common mutation that causes LAL Deficiency indicate a prevalence range of 1:40,000 to 1:300,000 for late onset LAL Deficiency. There is no (or very little) prevalent population for early onset LAL Deficiency, since these infants rarely survive beyond the first year of life. Potential patients for our product candidates, including sebelipase alfa, may not be adequately diagnosed or identified with the diseases being targeted by our product candidates. We may not be able to initiate or continue clinical trials if we are unable to locate a sufficient number of eligible patients to participate in the clinical trials required by the FDA or other non-U.S. regulatory agencies. In addition, the process of finding and diagnosing patients may prove costly. We are currently enrolling patients in the ARISE trial, a randomized, double-blind, placebo-controlled Phase III trial of sebelipase alfa in children and adults with CESD, the late onset form of LAL Deficiency. We are currently enrolling infants with early onset LAL Deficiency, or Wolman disease, in a Phase II/III open-label trial with sebelipase alfa. 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 tests to demonstrate the safety of our product candidates in animals, and clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Preclinical and clinical testing is

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expensive, difficult to design and implement, and can take many years to complete. A failure of one or more 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, which could delay or prevent our receipt of regulatory approval for, or the commercialization of, our product candidates, including:

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate or are unable to successfully complete our clinical trials or other testing or if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

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 could also 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.

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We have neither obtained marketing approval, nor commercialized any of our current rare disease product candidates.

We have neither obtained marketing approval nor commercialized any of our current product candidates and do not expect to receive marketing approval or generate revenue from the direct sale of our products, including sebelipase alfa, for several years, if ever. We still have only limited experience in conducting clinical trials for sebelipase alfa even though we are currently enrolling patients in the ARISE trial, a randomized, double-blind, placebo-controlled Phase III trial of sebelipase alfa in children and adults with CESD, the late onset form of LAL Deficiency. We are also currently enrolling infants with early onset LAL Deficiency, or Wolman disease, in a Phase II/III open-label trial with sebelipase alfa. Additionally, we are conducting preclinical studies with other product candidates for various other indications. Our limited experience might prevent us from successfully designing or implementing a clinical trial for any of these diseases. We may 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 preclinical development activities or clinical trials or obtaining regulatory approvals, we might not be able to commercialize our lead product candidates, or might be significantly delayed in doing so, which will materially harm our business.

If we infringe the rights of third parties we might have to forgo selling our future products, pay damages, or defend litigation.

If our product candidates, methods, processes, or other technologies infringe the proprietary rights of other parties, we could incur substantial costs and might have to:

Any of these events could substantially harm our earnings, financial condition, and operations.

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.

We focus our research and product development on treatments for rare diseases. 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, are based on estimates. Currently, most reported estimates of the prevalence of these diseases 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. For example, studies estimate the prevalence of late onset LAL Deficiency between 1:40,000 and 1:300,000. These estimates may prove to be incorrect and new studies may change the estimated prevalence of these diseases.

The commercial success of any product candidate that we may develop, including sebelipase alfa, will depend upon the degree of market acceptance by physicians, patients, third party payors and others in the medical community.

Any future product that we may bring to the market, including sebelipase alfa, may not gain market acceptance by physicians, patients, third party payors and others in the medical community. If our products do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of these product candidates, if approved for commercial sale, will depend on a number of factors, including:

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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 the medical community and third party payors on the benefits of the 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.

Uncertainties relating to third-party reimbursement and health care reform measures could limit payments or reimbursements for future products that we may develop could materially adversely affect our business.

In the U.S. and elsewhere, sales of prescription drugs depend in part on the consumer’s ability to obtain reimbursement for the cost of the drugs from third-party payors, such as private and government insurance programs. Third-party payors are increasingly challenging the prices charged for medical products and services, including those related to rare diseases, in an effort to promote cost containment measures and alternative health care delivery systems. Our prospects for 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 U.S. 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:

Obtaining reimbursement approval for a product from each governmental 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 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-U.S. 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 costs and may not be made permanent.

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We are exposed to product liability and preclinical and clinical liability risks which could place a substantial financial burden upon us, should we be sued, if we do not have adequate liability insurance or general insurance coverage for such a claim.

Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of products like ours. Foreign regulations may require us, as sponsor, to be liable for medical outcomes even if an adverse event is not directly related to our product candidate. In addition, the use in our clinical trials of pharmaceutical formulations and products that our potential collaborators may develop and the subsequent sale of these formulations or products by us or our potential collaborators may cause us to bear a portion or all of the product liability risks. As is common for companies sponsoring such clinical testing, we carry product liability insurance. The limit of this insurance may in some instances may be insufficient to offset a negative judgment or settlement payment. As a result, a successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.

We are subject to regulations regarding the manufacturing of therapeutic proteins.

We are subject to ongoing periodic unannounced inspections by the FDA, corresponding state agencies or non-U.S. regulatory authorities to ensure strict compliance with current good manufacturing practice (“cGMP”) and other government regulations and corresponding foreign standards. The cGMP requirements govern quality control and documentation policies and procedures. Complying with cGMP and non-U.S. regulatory requirements will require that we expend time, money, and effort in production, recordkeeping, and quality control to assure that the product meets applicable specifications and other requirements. We must also pass a pre-approval inspection prior to regulatory approval. Failure to pass a pre-approval inspection might significantly delay FDA approval of our products. If we fail to comply with these requirements, we would be subject to possible regulatory action and might be limited in the jurisdictions in which we are permitted to sell our products. As a result, our business, financial condition, and results of operations might be materially harmed.

We currently manufacture the therapeutic protein products used in the production of sebelipase alfa; however, we have limited experience in manufacturing or procuring products in commercial quantities and our manufacturing system has never produced a product approved by regulatory authorities for commercial use. We may not be able to manufacture enough product to conduct clinical trials or for later commercialization at an acceptable cost or at all. We may not be able to produce, or sufficiently test the comparability of, drug materials derived from different manufacturing facilities operating by us or from processes run by our third party manufacturing partners, which could impact our ability or timing with respect to receiving regulatory approval for our product candidates.

Our current and anticipated future reliance on a limited number of third parties to complete the manufacturing process for our products exposes us to certain risks.

We currently rely on third parties to complete the manufacturing process, including purifying, finishing and filling our products. Our anticipated future reliance on a limited number of third-party manufacturers exposes us to the following risks:

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Each of these risks could delay our clinical trials or the approval, if any, of our product candidates by the FDA or the commercialization of our product candidates and could result in higher costs or deprive us of potential product revenues. As a result, our business, financial condition, and results of operations might be materially harmed.

We face significant competition from other pharmaceutical and biotechnology companies. Our operating results will suffer if we fail to compete effectively.

The pharmaceutical and biotechnology industries are intensely competitive and subject to rapid and significant technological change. Our competitors include organizations such as major multinational pharmaceutical companies, established biotechnology companies and specialty pharmaceutical and generic drug companies. Many competitors have greater financial and other resources than we have, such as larger research and development staff, more extensive marketing, distribution, sales and manufacturing organizations and experience, more extensive clinical trial and regulatory experience, expertise in prosecution of intellectual property rights and access to development resources like personnel and technology. As a result, these companies may obtain regulatory approval more rapidly than we are able to and may be more effective in selling and marketing their products.

Our operations are subject to the economic, political, legal and business conditions in the countries in which we do business, and our failure to operate successfully or adapt to changes in these conditions could cause our operations to be limited or disrupted.

We have expanded our operations outside of the United States and expect to continue to do so in the future. Our current operations in foreign countries subject us to certain risks that could cause our operations to be limited or disrupted, including volatility in international economies, political instability, difficulties enforcing contractual and intellectual property rights, changes in laws, regulations or enforcement practices with respect to our business, compliance with tax, employment and labor laws, costs and difficulties in recruiting and retaining qualified managers and employees to manage and operate the business in local jurisdictions and costs and difficulties in managing and monitoring international operations.

Our business depends on protecting our intellectual property.

We are pursuing intellectual property protection for sebelipase alfa and other product candidates in the form of patent applications that have been and will continue to be filed in the U.S. and in other countries; however, there can be no assurance that patents will issue with the scope for which they are originally filed, if at all.

If we and our licensors do not obtain protection for our respective intellectual property rights and our products are not, or are no longer, protected by regulatory exclusivity protection, such as orphan drug protection, our competitors might be able to take advantage of our research, development, and manufacturing efforts to develop and commercialize competing drugs.

Our success, competitive position, and future revenues, if any, depend in part on our ability and the abilities of our licensors to obtain and maintain patent protection for our products, methods, processes, and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights, and to operate without infringing on the proprietary rights of third parties. We currently hold various issued patents and exclusive rights to issued patents and own and have licenses to various patent applications, in each case in the U.S. as well as rights under foreign patents and patent applications. We anticipate filing additional patent applications both in the U.S. and in other countries, as appropriate. However, the patent process is subject to numerous risks and uncertainties, and there can be no assurance that we will be successful in protecting our products by obtaining and defending patents. These risks and uncertainties include the following:

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In addition, the USPTO and patent offices in other jurisdictions have often required that patent applications concerning pharmaceutical and/or biotechnology-related inventions be limited or narrowed substantially to cover only the specific innovations exemplified in the patent application, thereby limiting the scope of protection against competitive challenges. Thus, even if we or our licensors are able to obtain patents, the patents might be substantially narrower than anticipated.

Patent and other intellectual property protection is crucial to the success of our business and prospects, and there is a risk that such protections will prove inadequate. Our business and prospects might be materially harmed if these protections prove insufficient.

On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The USPTO has issued regulations and procedures to govern administration of the Leahy-Smith Act, but many of the substantive changes to patent law associated with the Leahy-Smith Act have only recently become effective and other changes will not become effective until early 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.

We rely on trade secret protections through confidentiality agreements with our employees and third parties, and the breach of these agreements could adversely affect our business and prospects.

We rely on trade secrets, which we seek to protect, in part, through confidentiality and non-disclosure agreements with our employees, collaborators, suppliers, and other parties. There can be no assurance that these agreements will not be breached, that we would have adequate remedies for any such breach, or that our trade secrets will not otherwise become known to or independently developed by our competitors. We might be involved from time to time in litigation to determine the enforceability, scope, and validity of our proprietary rights. Any such litigation could result in substantial cost and divert management’s attention from operations. If any of these events occurs, or we otherwise lose protection for our trade secrets or proprietary know-how, the value of this information may be greatly reduced.

We are dependent on certain license relationships.

We have licensed technology that is related to our proprietary expression technology from the University of Georgia, University of Minnesota and Pangenix. In addition, we obtained exclusive worldwide rights to multiple patents and patent applications covering the use of LAL for the treatment of LAL Deficiency and atherosclerosis from Shire and Cincinnati Children’s Hospital Research Foundation. We might enter into additional licenses in the future. Licenses to which we are a party contain, and we expect that any future licenses will contain, provisions requiring up-front, milestone, and royalty payments to licensors and other conditions to maintaining the license rights. If we fail to comply with our obligations under any such license, the applicable licensor may have the right to

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terminate the license on relatively short notice and as a result, we may not be able to commercialize drug candidates or technologies that were covered by the applicable license. Also, the milestone and other payments associated with these licenses will make it less profitable for us to develop our drug candidates.

We will be dependent on orphan drug status to commercialize sebelipase alfa and SBC-103. A competitor may receive orphan drug marketing authorization prior to us for the same indication for which we are seeking approval.

We expect to rely heavily on the orphan drug exclusivity for sebelipase alfa and SBC-103, which grants seven years of marketing exclusivity under the Federal Food, Drug, and Cosmetic Act, and up to 10 years of marketing exclusivity in Europe. While the orphan drug exclusivity for sebelipase alfa and SBC-103 will provide market exclusivity in the U.S., Europe, and other countries, we will not be able to exclude other companies from manufacturing and/or selling drugs using the same active ingredient for the same indication beyond that timeframe. Furthermore, the marketing exclusivity in Europe can be reduced from 10 years to six years if the initial designation criteria have significantly changed since the market authorization of the orphan drug. Even if we have orphan drug exclusivity for a particular drug indication, we cannot guarantee that another company also with orphan drug exclusivity will not receive marketing authorization for the same indication before we do. If that were to happen, our applications for that indication may not be approved until the competing company’s period of exclusivity has expired. Even if we are the first to obtain marketing authorization for an orphan drug indication, there are circumstances under which a competing product may be approved for the same indication during the seven-year period of marketing exclusivity in the U.S., such as if the later product is shown to be clinically superior to our product, or if the later product is a different drug than sebelipase alfa or SBC-103. Further, the seven-year marketing exclusivity in the U.S. would not prevent competitors from obtaining approval of the same compound for other indications or the use of other types of drugs for the same use as the orphan drug.

If we are unable to retain and recruit qualified scientists and advisors, or if any of our key executives, key employees or key consultants discontinues his or her employment or consulting relationship with us, it may delay our development efforts or otherwise harm our business.

The loss of any of our key executives, employees or key consultants could impede the achievement of our research and development objectives. Furthermore, recruiting and retaining qualified scientific personnel to perform research and development work in the future is critical to our success. We may be unable to attract and retain personnel on acceptable terms given the competition among biotechnology, biopharmaceutical, and health care companies, universities, and non-profit research institutions for experienced scientists and other disciplines. Competition for employees may impact our ability to recruit and retain qualified personnel in the future. Certain of our officers, directors, scientific advisors, and/or consultants or certain of the officers, directors, scientific advisors, and/or consultants hereafter appointed may from time to time serve as officers, directors, scientific advisors, and/or consultants of other biopharmaceutical or biotechnology companies. We do not maintain “key man” insurance policies on any of our officers or employees. We currently have employment contracts with our Chief Executive Officer, Sanj K. Patel, and other executive officers which provide for certain severance benefits. Consistent with our current employment policies, all of our employees are employed “at will” and, therefore, each employee may leave our employment at any time. If we are unable to retain our existing employees, including qualified scientific personnel, and attract additional qualified candidates, our business and results of operations could be adversely affected. We are not aware of any key personnel who intend to retire or otherwise leave us in the near future.

We derive a significant portion of our income from royalties on sales of FUZEON. If FUZEON sales continue to decline, our business could suffer.

Royalties on sales of FUZEON are currently a significant source of revenue for us. FUZEON competes with numerous existing therapies for the treatment of HIV. From 2007 through 2012, overall FUZEON net sales reported by our commercialization partner Roche have declined, totaling $112.2 million, $88.4 million, $50.7 million and $41.3 million for fiscal 2009, 2010, 2011 and 2012, respectively. We cannot predict if or when sales levels for FUZEON will stabilize.

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Uncertainties relating to third-party reimbursement and health care reform measures could limit payments or reimbursements for FUZEON, which could adversely affect our business.

Currently, because of the high cost of the treatment of HIV, many state legislatures are reassessing reimbursement policies for this therapy. If third-party payor reimbursements for FUZEON are limited or reduced, our results of operations will be adversely affected. In addition, emphasis in the U.S. on the reduction of the overall costs of health care through managed care has increased and will continue to increase the pressure to reduce the prices of pharmaceutical products.

The wholesale acquisition cost of a one-year supply of FUZEON in the U.S. is approximately $32,500. A high drug price could also negatively affect patients’ ability to receive reimbursement coverage for FUZEON from third-party payors, such as private or government insurance programs. If Roche is unable to obtain and maintain reimbursement from a significant number of third-party payors, it would have a material adverse effect on our business, financial condition and results of operations.

Currently, FUZEON is covered by Medicaid in all 50 states in the U.S. In addition, the AIDS Drug Assistance Programs in all 50 states and a majority of private insurers provide some amount of access to FUZEON. However, there are reimbursement challenges remaining. Some of the payors require patients to meet minimum medical requirements, such as maintaining certain cell levels associated with HIV, to receive reimbursement. Other payors limit the number of patients to which they will provide reimbursement for FUZEON, and other payors may require co-payments by the patient in order to receive reimbursement for FUZEON that are significantly higher than those required for other anti-HIV drugs.

Several major pharmaceutical companies have offered to sell their anti-HIV drugs at or below cost to certain countries in Africa and Least Developed Countries (as defined by the United Nations), which could adversely affect the reimbursement climate of, and the prices that may be charged for, HIV medications in the U.S. and the rest of the world. Third-party payors could exert pressure for price reductions in the U.S. and the rest of the world based on these lower costs offered in Africa and Least Developed Countries. This price pressure could limit the price that Roche would be able to charge for FUZEON, thereby adversely affecting our results of operations

If the sale of FUZEON infringes the proprietary rights of third parties, we may need to obtain licenses, pay damages or defend litigation.

If the sale of FUZEON infringes the proprietary rights of third parties, we could incur substantial costs and may have to:

Any of these events could substantially harm our earnings, financial condition, and operations.

On November 20, 2007, Novartis filed a lawsuit against us and Roche and certain of its affiliated entities, alleging infringement of the ‘271 Patent, related to the manufacture, sale and offer for sale of FUZEON. On September 23, 2010, we entered into a settlement agreement (the “Settlement Agreement”) with Roche and Novartis settling the lawsuit and the lawsuit was dismissed with prejudice from the Eastern District of North Carolina on September 28, 2010. Under the terms of the Settlement Agreement, we, in collaboration with Roche, have the right to continue to sell FUZEON under a license to Novartis’ ‘271 Patent in exchange for the payment of royalties to Novartis on net sales of FUZEON. We will share responsibility for payment of these royalties equally with Roche.

We may pursue rapid expansion of our workforce or diversify our business strategy through mergers, acquisitions, licensing arrangement or other contractual arrangements with third parties which may require substantial resources and substantial amounts of time from members of our senior management and involve numerous risks.

We may spend substantial resources to hire additional employees or pursue acquisitions of new technologies or businesses that are complementary to our current technologies or business focus through mergers, acquisitions, licensing arrangement or other contractual arrangements with third parties. Acquisitions involve numerous risks,

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including potential difficulties in the integration of acquired operations such as retaining key employees of the acquired business, integrating research and development programs, not meeting financial objectives, increased costs, undisclosed liabilities not covered by insurance or terms of acquisition, and diversion of management’s attention and resources in connection with an acquisition. No assurance can be given as to our success in identifying, executing, and integrating acquisitions in the future.

Our success will depend in part on relationships with third parties. Any adverse changes in these relationships could adversely affect our business, financial condition, or results of operations.

Our success will be dependent on our ability to maintain and renew business relationships with third parties and to establish new business relationships. There can be no assurance that our management will be able to maintain such business relationships, or enter into or maintain new business contracts and other business relationships, on acceptable terms, if at all. The failure to maintain important business relationships could have a material adverse effect on our business, financial condition, or results of operations.

Our charter documents and indemnification agreements require us to indemnify our directors and officers to the fullest extent permitted by law, which may obligate us to make substantial payments and to incur significant insurance-related expenses.

Our charter documents require us to indemnify our directors and officers to the fullest extent permitted by law. This could require us, with some legally prescribed exceptions, to indemnify our directors and officers against any and all expenses, judgments, penalties, fines, and amounts reasonably paid in defense or settlement of an action, suit, or proceeding brought against any of them by reason of the fact that he or she is or was our director or officer. In addition, expenses incurred by a director or officer in defending any such action, suit, or proceeding must be paid by us in advance of the final disposition of that action, suit or proceeding if we receive an undertaking by the director or officer to repay us if it is ultimately determined that he or she is not entitled to be indemnified. We have also entered into indemnification agreements with each of our directors and officers. In furtherance of these indemnification obligations, we maintain directors’ and officers’ insurance in the amount of $30,000,000. For future renewals, if we are able to retain coverage, we may be required to pay a higher premium for our directors’ and officers’ insurance than in the past and/or the amount of its insurance coverage may be decreased.

Risks Relating Our Financial Position and Capital Requirements

We may be unable to raise the substantial additional capital that we will need to further develop and commercialize our products.

As is typical of biotechnology companies at our stage of development, our operations consume substantial amounts of cash and we will need substantial additional funds to further develop and commercialize our products.

While we will need to seek additional funding, we may not be able to obtain financing on acceptable terms, or at all. In addition, the terms of our financings may be dilutive to, or otherwise adversely affect, holders of our common stock. We may also seek additional funds through arrangements with collaborators or other third parties. These arrangements would generally require us to relinquish rights to some of our technologies, product candidates or products, and we may not be able to enter into such agreements, on acceptable terms, if at all. If we are unable to obtain additional funding on a timely basis, we may be required to curtail or terminate some or all of our development programs, including some or all of our product candidates.

We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We are a clinical-stage company with limited historical revenues, which makes it difficult to assess our future viability.

We are a clinical-stage biopharmaceutical company. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We expect our expenses to increase in connection with our efforts to seek approval for and commercialize sebelipase alfa and our research and development of our other product candidates, including but not limited to, SBC-103. As a result, we expect to continue to incur significant research and development and other expenses related to our ongoing operations for the foreseeable future. If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never become profitable. Even if we

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achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

Our ability to utilize Trimeris’ net operating loss and tax credit carryforwards in the future is subject to substantial limitations and may be further limited as a result of the Reverse Merger.

Federal and state income tax laws impose restrictions on the utilization of net operating loss (“NOL”) and tax credit carryforwards in the event that an “ownership change” occurs for tax purposes, as defined by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). In general, an ownership change occurs when stockholders owning 5% or more of a “loss corporation” (a corporation entitled to use NOL or other loss carryforwards) have increased their aggregate ownership of stock in such corporation by more than 50 percentage points during any three-year period. If an “ownership change” occurs, Section 382 of the Code imposes an annual limitation on the amount of post-ownership change taxable income that may be offset with pre-ownership change NOLs of the loss corporation experiencing the ownership change. The annual limitation is calculated by multiplying the loss corporation’s value immediately before the ownership change by the greater of the long-term tax-exempt rate determined by the IRS in the month of the ownership change or the two preceding months. This annual limitation may be adjusted to reflect any unused annual limitation for prior years and certain recognized built-in gains and losses for the year. Section 383 of the Code also imposes a limitation on the amount of tax liability in any post-ownership change year that can be reduced by the loss corporation’s pre-ownership change tax credit carryforwards.

On November 2, 2011, we completed the Reverse Merger which resulted in an “ownership change” of Trimeris. Trimeris previously experienced an “ownership change” in 2008. Accordingly, our ability to utilize Trimeris’ NOL and tax credit carryforwards may be substantially limited. These limitations could, in turn, result in increased future tax payments for us, which could have a material adverse effect on our business, financial condition.

Our management is required to devote substantial time to comply with public company regulations.

As a public company, we incur significant legal, accounting and other expenses. The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), as well as rules implemented by the SEC and the NASDAQ Global Select Market, impose various requirements on public companies, including those related to corporate governance practices. Our management and other personnel will need to devote substantial time to these requirements. Certain members of our management do not have experience in addressing these requirements.

Sarbanes-Oxley requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of Sarbanes-Oxley (“Section 404”). We will incur substantial accounting and related expenses to comply with Section 404. We may need to hire additional accounting and financial staff to satisfy the ongoing requirements of Section 404. Moreover, if we are not able to comply with the requirements of Section 404, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the NASDAQ Global Select Market, the SEC, or other regulatory authorities.

We rely on Roche to timely deliver important financial information relating to sales of FUZEON. In the event that this information is inaccurate, incomplete, or not timely, we will not be able to meet our financial reporting obligations as required by the SEC.

Under the Roche License Agreement, Roche has exclusive control over the flow of information relating to sales of FUZEON that we require to meet our SEC reporting obligations. Roche is required under the Roche License Agreement to provide us with timely and accurate financial data related to sales of FUZEON so that we may meet our reporting requirements under federal securities laws. In the event that Roche fails to provide us with timely and accurate information, we may incur significant liability with respect to the federal securities laws, our disclosure controls and procedures under Sarbanes-Oxley may be inadequate, and we may be forced to restate our financial statements, any of which could adversely affect the market price of our common stock.

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Changes in the estimated performance periods of our collaboration arrangements may negatively impact current period revenue.

We account for our collaboration arrangements under the proportional performance method, whereby the amount of revenue recognized in the current period is based on our performance compared to the total estimate to complete the project. If our estimates to complete change in future periods, our collaboration revenue may be reduced and could potentially be negative.

Risks Related to Ownership of Our Common Stock

The market price and trading volume of our common stock may be volatile.

The market price of our common stock could fluctuate significantly for many reasons, including the following factors: