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cbio-10k_20221231.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

For the year ended December 31, 2022

For the transition period from to

Commission file number: 000-51173

Catalyst Biosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

611 Gateway Blvd. Suite 710 South San Francisco, California 94080

(Address of Chief Executive Offices) (Zip Code)

(650) 871-0761

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered

Common stock CBIO NASDAQ

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act. Yes ☐No☒

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☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes☒ No ☐

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

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b).☐

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

As of March 24, 2023, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 37,759,825. The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2022, was $55,642,222.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s proxy statement for its 2023 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed with the U.S. Securities and Exchange Commission, no later than 120 days after the Registrant’s fiscal year ended December 31, 2022, are incorporated by reference to Part III of this Annual Report on Form 10-K.

CATALYST BIOSCIENCES, INC.

Annual Report on Form 10-K

TABLE OF CONTENTS

Page

PART I

Item 1. Business 6

Item 1A. Risk Factors 26

Item 1B. Unresolved Staff Comments 59

Item 2. Properties 59

Item 3. Legal Proceedings 59

Item 4. Mine Safety Disclosures 59

PART II

Item 6. [Reserved] 60

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 69

Item 8. Financial Statements and Supplementary Data 70

Item 9A. Controls and Procedures 100

Item 9B. Other Information 102

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 102

PART III

Item 10. Directors, Executive Officers and Corporate Governance 103

Item 11. Executive Compensation 103

Item 14. Principal Accountant Fees and Services 103

PART IV

Item 15. Exhibit and Financial Statement Schedules 104

LIST OF EXHIBITS 105

PART I

Forward-Looking Statements and Market Data

This Annual Report on Form 10-K and the documents incorporated by reference herein contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical facts, included or incorporated by reference in this Annual Report on Form 10-K regarding our strategy, future results of operations, future financial condition, future revenues, projected costs, prospects, plans, intentions and objectives of management, as well as the assumptions that underlie these statements, are forward-looking statements. These forward-looking statements should not be relied upon as predictions of future events as Catalyst Biosciences, Inc. and its subsidiary (the “Company” or “Catalyst”) cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. Forward-looking statements are identified by words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology, although not all forward-looking statements contain these identifying words. Such forward-looking statements are based on our management’s assumptions and assessments in light of information currently available to our management, its experience and its perception of historical trends, current conditions, expected future developments and other factors our management believes to be appropriate.

You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. For example, forward-looking statements include any statements regarding:

• the timing, scope or likelihood of foreign regulatory filings and approvals;

• our manufacturing, commercialization and marketing capabilities and strategy;

• expectations regarding the impact of the COVID-19 pandemic on our business;

• our financial performance;

• statements regarding the approval and closing of the Business Combination;

• the timing of the consummation of the Business Combination;

• satisfaction of conditions to the completion of the Business Combination;

• the expected benefits of the Business Combination;

• Catalyst’s ability to complete the Business Combination;

• the impact of laws and regulations; and

Any such forward-looking statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in or contemplated by such forward-looking statements. Factors that might cause such a difference include, but are not limited to, the risks and uncertainties described in this Annual Report on Form 10-K, including those risks described in Part I, Item 1A, “Risk Factors,” as well as others that it may consider immaterial or do not anticipate at this time. The risks and uncertainties described in this report, including in Part I, Item 1A, “Risk Factors,” are not exclusive and further information concerning our company and our businesses, including factors that potentially could materially affect our operating results or financial condition, may emerge from time to time. All forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and Catalyst undertake no obligation to update or revise these statements considering future developments. The Company cautions investors that our business and financial performance are subject to substantial risks and uncertainties and they should carefully consider the factors set forth in other reports or documents that Catalyst files from time to time with the Securities and Exchange Commission (the “SEC”).

This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our business, and the markets for certain drugs, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, Catalyst obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources. In some cases, the Company does not expressly refer to the sources from which this data is derived. In that regard, when Catalyst refers to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

Item 1. BUSINESS.

Summary

Catalyst Biosciences, Inc., together with its subsidiary (“Catalyst”), is a biopharmaceutical company focused on the development and commercialization of Hydronidone for the treatment of NASH (nonalcoholic steatohepatitis, a severe form of nonalcoholic fatty liver disease) in the United States. Hydronidone is being evaluated for the treatment of liver fibrosis associated with a broad spectrum of chronic liver diseases. A Phase 1 clinical trial of Hydronidone has been completed in the United States and generated pharmacokinetic (“PK”), safety and tolerability data of single and multiple ascending doses of Hydronidone in U.S. healthy subjects.

Overview

Prior to ceasing research and development activities in March 2022, Catalyst had engineered several protease assets that were designed to address unmet medical needs in disorders of the complement or coagulation systems. Prior to the F351 Agreement (as defined below), Catalyst had engaged in the research and development of product candidates from Catalyst’s protein engineering platform. In February 2022, Catalyst announced that it engaged Perella Weinberg Partners as a financial advisor to assist Catalyst in exploring strategic alternatives to monetize its assets.

In March 2022, Catalyst ceased research and development activities and in May 2022, Catalyst entered into an asset purchase agreement with Vertex Pharmaceuticals Inc. (“Vertex”), pursuant to which Vertex purchased Catalyst’s complement portfolio, including CB 2782-PEG and CB 4332, as well as its complement-related intellectual property, including the ProTUNETM and ImmunoTUNETM platforms, for $60.0 million in cash consideration. $55.0 million was received upfront and the remaining $5.0 million was retained by Vertex as a hold-back until one year after the closing date to satisfy certain post-closing indemnification obligations. Any amounts received from Vertex with respect to this hold-back will be distributed to holders of the contingent value right issued to Catalyst stockholders of record on January 5, 2023.

On September 20, 2022, the Company paid a special, one-time cash dividend payment of $1.43 per share, or approximately $45.0 million, to holders of our common stock.

On December 26, 2022, Catalyst executed an Asset Purchase Agreement, dated December 26, 2022 (the “F351 Agreement”), with GNI Group Ltd. and GNI Hong Kong Limited (together “GNI”) to purchase all of the assets and intellectual property rights primarily related to GNI’s proprietary Hydronidone compound (collectively, the “F351 Assets”), other than such assets and intellectual property rights located in the People’s Republic of China. At the closing of the agreement on December 26, 2022, it paid GNI $35.0 million in the form of 6,266,521 shares of our common stock and 12,340 shares of a newly designated series of preferred stock (“Catalyst Convertible Preferred Stock”). Each share of Catalyst Convertible Preferred Stock is convertible into 10,000 shares of common stock, subject to stockholder approval under Nasdaq rules and subject to a beneficial ownership conversion blocker.

On December 26, 2022, Catalyst, GNI USA, Inc., a Delaware corporation (“GNI USA”), GNI Japan, GNI Hong Kong, Shanghai Genomics, Inc., a company organized under the laws of the People’s Republic of China (“SG” and collectively with GNI USA, GNI Japan and GNI Hong Kong, “Contributors,” and each a “Contributor”), the individuals (each, a “Minority Holder” and collectively, the “Minority Holders”) listed on an annex to that certain Business Combination Agreement, as amended (the “Business Combination Agreement”) and Continent Pharmaceuticals Inc., a Cayman Islands company limited by shares (“CPI”), entered into the Business Combination Agreement. The Business Combination Agreement contains the terms and conditions of the proposed business combination pursuant to which Catalyst will acquire an indirect controlling interest in Beijing Continent Pharmaceuticals Co., Ltd, a company organized under the laws of the People’s Republic of China (“BC”). Pursuant to the Business Combination Agreement, (a) GNI USA will contribute all of its ordinary shares in the capital of CPI, par value $0.0001 per share (each a “CPI Ordinary Share”) to Catalyst in exchange for 688,850,101 shares of Catalyst common stock, par value $0.001 per share (the “Catalyst Common Stock”) (the “CPI Contribution”), (b) GNI USA will contribute its interest in Further Challenger International Limited, a company incorporated and existing under the laws of the British Virgin Islands with company number 1982271 (“Further Challenger”), to Catalyst in exchange for 264,971,695 shares of Catalyst Common Stock (the “FC Contribution”) and (c) each Minority Holder will contribute 100% of the interest he or she holds in his or her respective Entity (as defined in the Business Combination Agreement) to Catalyst in exchange for an aggregate of 156,954,428 shares of Catalyst Common Stock in the amounts set forth

on an annex to the Business Combination Agreement (the “Minority Holder Contributions” and together with the CPI Contribution and the FC Contribution, the “Contributions”). At the election of GNI USA or any Minority Holder, GNI USA or such Minority Holder shall be issued shares of Catalyst Convertible Preferred Stock in lieu of some or all of the shares of Catalyst Common Stock GNI USA or such Minority Holder is entitled to receive. Catalyst expects that the transactions under the Business Combination Agreement (the “Transactions”) will close in the third quarter of 2023, subject to obtaining necessary stockholder approvals.

In accordance with the Business Combination Agreement, on December 26, 2022, Catalyst and the Rights Agent (as defined therein) executed a contingent value rights agreement (the “CVR Agreement”), pursuant to which each holder of our common stock as of January 5, 2023 (“CVR Holders”), received one contractual contingent value right (“CVR”) issued by us, subject to and in accordance with the terms and conditions of the CVR Agreement, for each share of our common stock held by such holder. Each CVR entitles the holder thereof to receive (i) certain cash payments from the net proceeds related to the disposition of our legacy assets (MarzAA, DalcA, and CB 2679d-GT), (ii) 100% of the excess cash (net of all current or contingent liabilities, including transaction-related expenses) retained by us in excess of $1.0 million as of the closing date of the Business Combination Agreement, (iii) 100% of the amount actually received by us pursuant to the Vertex asset purchase agreement, and (iv) 100% of the excess, by which the preapproved costs to manage, negotiate, settle and finalize certain third party claims exceed the costs actually incurred with respect to such claims. Catalyst anticipates one or more additional distributions to the holders of the CVRs in the future, although there can be no assurance as to the timing or amounts of any distributions it makes. The actual amount of any distributions will depend on many factors, including, without limitation, the timing of any distributable proceeds to Catalyst and the costs and expenses for activities related to those distributions.

On December 27, 2022, Catalyst declared another special cash dividend of $0.24 per share, or approximately $7.6 million, to holders of our common stock, excluding GNI, which was paid on January 12, 2023.

On February 27, 2023, Catalyst signed an asset purchase agreement with GC Biopharma Corp. (“GCBP”) pursuant to which GCBP acquired Catalyst’s legacy rare bleeding disorders programs including marzeptacog alpha activated (“MarzAA”), dalcinonacog alpha (“DalcA”) and CB-2679d-GT for a total of $6.0 million, $1.0 million payable on signing and $5.0 million payable on February 28, 2025, subject to satisfaction of post-closing indemnification obligations. In March 2023, Catalyst distributed net proceeds of approximately $0.2 million to the CVR Holders. Once received, any additional net proceeds from the transaction will be distributed to the CVR Holders.

Catalyst is also pursuing certain legal claims against a third party related to payments under a 2016 asset purchase agreement, and any net recoveries related to these claims will be distributed to the CVR Holders.

Current Product Development Plans

Catalyst anticipates filing an IND application for the treatment of NASH in the United States in late 2023. NASH is a severe form of nonalcoholic fatty liver disease (“NAFLD”), characterized by inflammation and fibrosis in the liver that can progress to cirrhosis, liver failure, HCC and death. There are currently no approved products for the treatment of NASH.

Hydronidone is a structural analogue of the approved anti-fibrotic (pulmonary fibrosis) drug pirfenidone. Hydronidone has been shown to inhibit in vitro both p38γ kinase activity and TGF-ß1-induced excessive collagen synthesis in hepatic stellate cells (“HSCs”),which are recognized as critical events in the development and progression of fibrosis in the liver. This is further supported by its anti-proliferative effects on the HSCs in the liver. In vitro anti-fibrotic effects of Hydronidone were also confirmed in several established in vivo rodent models of liver fibrosis such as carbon tetrachloride (“CCl4”)-induced liver fibrosis mouse model, DMN-induced liver fibrosis rat model, and HSA-induced liver fibrosis rat model, as well as mouse model of NASH fibrosis (CCl4 +Western [High Fat] Diet). In the NASH mouse model, Hydronidone significantly reduced the severity of liver fibrosis, as well as demonstrating improvement in functional, biochemical and histopathological attributes of the affected liver tissue, including significant reduction of hydroxyproline content and liver enzymes (ALT), aspartate (AST), decrease in liver fatty degeneration, and levels of a spectrum of inflammatory cytokines, at doses 3-10 mg/kg/day, as well as decrease in NAS score and the CCl4 and western diet (“WD”)-induced fibrosis and cell ballooning in NASH model at doses of 15-50 mg/kg bid (HEDs of 144 – 480 mg) which are relevant to human exposure. Thus, the key attributes of

Hydronidone’s molecular mechanisms of action in animal models of liver fibrosis, support its efficacy potential in liver fibrosis of various etiologies including those associated with NASH.

Catalyst plans to initiate clinical development of Hydronidone in NASH fibrosis in a randomized, double-blind, placebo-controlled, parallel group, Phase 2a, PoC clinical study evaluating the safety, tolerability, PK, and Pharmacodynamics (“PD”) of Hydronidone capsules administered daily at an oral dose of 360 mg (given as 120 mg TID) for 24 weeks to adult subjects with advanced liver fibrosis associated with noncirrhotic NASH. The main goal of the proposed Phase 2a study is to obtain early PoC for Hydronidone in subjects with NASH fibrosis as a basis of expansion into a more comprehensive Phase 2/3 clinical program. The study will include a small sample size (total of 60 evaluable subjects) who will receive in a 2:1 ratio Hydronidone or Placebo. A single dose level that was shown to be safe and effective in a 52-week clinical study in Chinese subjects with advanced fibrosis associated with chronic Hepatitis B (“CHB”) infection will be used. The study will evaluate trends of changes from baseline in a set of noninvasive biochemical and imaging biomarkers relevant to assessment of NASH fibrosis in the context of drug exposure, as well as the mechanism of anti-fibrotic action of Hydronidone. The study will include PK blood sampling and assessment of the initial population PK and preliminary PK/PD relationship to inform Hydronidone treatment in future clinical studies in NASH fibrosis. In addition, this trial will include a disease-specific PROs, a validated composite CLDQ – NASH, to collect patient-reported data about the impact of Hydronidone treatment on quality of life of subjects with advanced NASH fibrosis.

NASH represents a large and rapidly growing problem in the United States and worldwide. Diagnoses have been on the rise and are expected to increase dramatically in the next decade. The prevalence of NAFLD, which affects approximately 25% of the global population, and NASH, which develops in approximately 20% to 25% of NAFLD patients, is driven primarily by the worldwide obesity epidemic. As a result, the prevalence of NASH has increased significantly in recent decades, paralleling similar trends in the prevalence of obesity, insulin resistance and Type 2 diabetes. The prevalence of these conditions is expected to increase further in view of the unhealthy nutrition habits, such as consumption of a diet high in fructose, sucrose and saturated fats, and sedentary behavior that characterize modern lifestyle.

Hydronidone is a structural analogue of the approved drug pirfenidone. Hydronidone has been shown to inhibit in vitro both p38γ kinase activity and TGF-ß1-induced excessive collagen synthesis in HSCs, which are recognized as critical events in the development and progression of fibrosis in the liver. This is further supported by its anti-proliferative effects on the HSCs in the liver. The key attributes of Hydronidone’s molecular mechanisms of action in animal models of liver fibrosis included that of NASH, support its efficacy potential in liver fibrosis of various etiologies including that associated with NASH. Hydronidone has exhibited protective effects on CCl4+WD induced NASH; the total NAS and fibrosis scores were statistically significantly lower following Hydronidone dosing at 15-50 mg/kg/day.

In the NASH mouse model, Hydronidone significantly reduced the severity of fibrosis, as well as demonstrating improvement in functional, biochemical and histopathological attributes of the affected liver tissue, including significant reduction of hydroxyproline content and liver enzymes (ALT, AST), decrease in liver fatty degeneration, and levels of a spectrum of inflammatory cytokines, at doses 3-10 mg/kg/day, as well as decrease in NAS score and the CCl4 and WD-induced fibrosis and cell ballooning in NASH model at doses of 15-50 mg/kg bid (HEDs of 144 – 480 mg) which are relevant to human exposure.

In preclinical studies, the key attributes of Hydronidone’s molecular mechanisms of action in animal models of liver fibrosis included that of NASH, support its efficacy potential in liver fibrosis of various etiologies including that associated with NASH. To support the indication of NASH-associated fibrosis, GNI USA evaluated the anti-fibrotic effects of Hydronidone in a murine NASH model which is characterized by a rapid progression of extensive liver fibrosis. The model was induced by feeding male C57BL/6J mice (n=20/group) a high fat diet for 14 weeks. Subcutaneous injections of CCl4 in weeks 11-14 served as an accelerator of the liver pathology and exacerbated histological features of NASH and associated fibrosis. The establishment of the NASH model was indicated by statistically significantly higher body weights, lower food intake, and histopathologically observed fatty degeneration, inflammatory infiltrates, and hepatocellular ballooning in NASH mice vs negative control. The NAS total score, ballooning, and steatosis score in the NASH mice (positive control, model) group increased significantly compared to Naive (negative control group). Hydronidone exhibited protective effect on CCl4+WD induced NASH; the total NAS and fibrosis score were statistically significantly lower following Hydronidone dosing at 15-50 mg/kg/day. Fibrosis

and cell ballooning were significantly inhibited by Hydronidone, but no effects on inflammation and steatosis were observed. Hydronidone performed better than Pirfenidone in this model, at comparable dose.

On February 27, 2023, the Company signed an asset purchase agreement with GC Biopharma (“GCBP”) pursuant to which GCBP acquired the Company’s legacy rare bleeding disorders programs including MarzAA, DalcA and CB-2679d-GT for a total of $6 million, $1 million payable on signing and $5 million payable on February 28, 2025, subject to satisfaction of post-closing indemnification obligations. In March 2023, Catalyst distributed net proceeds of approximately $206,000 to the CVR Holders. Once received, any additional net proceeds from the transaction will be distributed to the CVR Holders. Catalyst is also pursuing certain legal claims against a third party related to payments under a 2016 asset purchase agreement, and any net recoveries related to these claims will be distributed to the CVR Holders.

Catalyst is located in South San Francisco, California and operates in one segment.

Disease Overview - NASH

NASH, a severe form of NAFLD, is characterized histologically by the additional presence of inflammation and hepatocellular injury, such as visible ballooning, and has a significantly worse prognosis, with the potential to progress to liver fibrosis, cirrhosis or HCC.

NASH represents a large and rapidly growing problem in the United States and worldwide. Diagnoses have been on the rise and are expected to increase dramatically in the next decade. The prevalence of NAFLD, which affects approximately 25% of the global population, and NASH, which develops in approximately 20% to 25% of NAFLD patients, is driven primarily by the worldwide obesity epidemic. As a result, the prevalence of NASH has increased significantly in recent decades, paralleling similar trends in the prevalence of obesity, insulin resistance and Type 2 diabetes. The prevalence of these conditions is expected to increase further due to unhealthy nutrition habits, such as consumption of a diet high in fructose, sucrose and saturated fats, and sedentary behavior.

The critical pathophysiologic mechanisms underlying the development and progression of NASH include reduced ability to metabolize and clear lipids, increased insulin resistance, injury to hepatocytes and liver fibrosis in response to hepatocyte injury. NASH patients have an excessive accumulation of fat in the liver resulting primarily from a caloric intake above and beyond energy needs. A healthy liver contains less than 5% fat, but a liver in someone with NASH can contain more than 20% fat. This abnormal liver fat contributes to the progression to NASH, a liver necro-inflammatory state, that can lead to scarring, also known as fibrosis, and, for some, can progress to cirrhosis and liver failure—cirrhosis develops in approximately 20% to 45% of patients. In some cases, cirrhosis progresses to decompensated cirrhosis, which results in permanent liver damage that can lead to liver failure. In addition, it is estimated that 8% of patients with advanced fibrosis will develop HCC. NASH is a complex, multifaceted disease that does not just affect the liver. Patients with NASH frequently have other significant metabolic co-morbidities such as obesity, hyperglycemia, dyslipidemia and systemic hypertension (a constellation of which is commonly referred to as metabolic syndrome) and these further contribute to the risk of cardiovascular disease.

Etiology of NASH

Understanding of the pathophysiologic mechanisms that lead to NASH has evolved in recent years. Excessive caloric overload, metabolic dysregulation, cardio-metabolic co-morbidities and genetic risk factors increase the likelihood of developing NASH, with a multitude of potential mechanistic contributors to pathophysiology. In NASH, the liver’s capacity to handle the primary metabolic energy substrates, carbohydrates and fatty acids, is overwhelmed. This occurs when there is an excess of free fatty acids deposited in the liver or their disposal from the liver is impaired. The accumulation of surplus free fatty acids leads to the formation of toxic lipid species. These toxic lipids then induce endoplasmic reticulum stress, oxidative stress and an inflammatory response, which can result in hepatocellular injury and death. This may lead to fibrosis and genomic instability, which may worsen over time to cirrhosis and HCC, respectively.

The critical pathophysiologic mechanisms underlying development and progression of NASH include (1) reduced ability to handle lipids, (2) increased insulin resistance, (3) injury to hepatocytes and (4) development and progression of liver fibrosis in response to hepatocyte injury.

Diagnosis

Most people with NASH are asymptomatic and their disease is often discovered incidentally following a liver imaging procedure, such as an ultrasound, prescribed for other reasons or as part of an investigation for elevated liver enzymes. Once suspected clinically, a liver biopsy is required to definitively diagnose NASH, which necessitates the joint presence of steatosis, ballooning and lobular inflammation. Once pathologically confirmed, the severity of NAFLD and NASH is determined using the histologically validated NAS, which grades disease activity on a scale of 0 to 8. The NAS is the sum of the individual scores for steatosis (0 to 3), lobular inflammation (0 to 3), and hepatocellular ballooning (0 to 2) but does not include a score for fibrosis. Fibrosis staging (F0-F4) relies on the Kleiner classification (F0 = no fibrosis; F1 = perisinusoidal or periportal fibrosis (not both); F2 = both perisinusoidal and periportal fibrosis; F3 = bridging fibrosis; F4 = cirrhosis).

Histological diagnosis remains the gold standard for assessment of NASH and fibrosis. However, given that liver biopsy is associated with risks of pain, bleeding and other morbidity, as well as significant cost, the procedure is not practical for general patient screening. Additionally, histology diagnosis is confounded by evaluation of a small sliver of a large heterogenous organ that may not represent the full organ, and significant variability in reading of slides including inter- and intra-reader variability. Several non-invasive tools such as clinical risk scores, serum markers and imaging techniques are increasingly used to assess NASH patients. Non-invasive tests (“NITs”) such as the Fibroscan-AST score, Fibrosis-4 index, the Enhanced Liver Fibrosis score and vibration-controlled transient elastography, have been validated and are increasingly used. These NITs have an excellent negative predictive value and an acceptable positive predictive value for detection of advanced (≥ F3) fibrosis and are increasingly used in clinical settings. Additionally, evidence is emerging that shows a correlation between reduction in steatosis as measured by MRI-proton density fat fraction (MRI-PDFF) and reduction in ALT ≥17 U/L and histologic improvement on liver biopsy. In draft guidance, the FDA encouraged sponsors to identify biochemical or noninvasive imaging biomarkers that, once characterized and agreed by the FDA, could replace liver biopsies for patient selection and efficacy assessment in clinical trials.

We expect that the validation and subsequent adoption of these NITs will result in an increase in the diagnosis and treatment rates for NASH in the future.

Hydronidone Overview

Hydronidone, Catalyst’s phase 1 clinical-stage drug, has the potential to treat NASH. To date, there are no approved products for the treatment of NASH. The phase 1 clinical trial results have demonstrated Hydronidone’s potential efficacy in the reversal of the fibrosis process. Hydronidone may reverse liver fibrosis by inhibiting hepatic stellate cell proliferation and the TGF-ß1 signaling pathway, both of which play major roles in the liver fibrosis associated with NASH.

Mechanism of Action

Hydronidone is a structural analogue of the approved drug pirfenidone. Hydronidone has been shown to inhibit both p38γ kinase activity and TGF-ß1-induced excessive collagen synthesis in vitro in HSCs, which are recognized as critical events in the development and progression of fibrosis in the liver. This is further supported by its anti-proliferative effects on the HSCs in the liver.

In vitro anti-fibrotic effects of Hydronidone were also confirmed in several established in vivo models of liver fibrosis such as CCl4-induced liver fibrosis mouse model, DMN-induced liver fibrosis rat model, and HSA-induced liver fibrosis rat model, as well as mouse model of NASH fibrosis (CCl4 +Western [High Fat] Diet).

Thus, the key attributes of Hydronidone’s molecular mechanisms of action in animal models of liver fibrosis support its efficacy potential in liver fibrosis of various etiologies, including those associated with NASH.

The diagram below illustrates the mechanism of action of Hydronidone:

Biological Effects of Hydronidone

Hydronidone is a new chemical entity, structural analogue of an approved anti-fibrotic drug, pirfenidone. The chemical structure and formula of Hydronidone are presented below.

N-(4-hydroxyphenyl)-5-methyl-2-pyridone

C12H11NO2

Hydronidone has been shown to inhibit both p38γ kinase activity and TGF-ß1-induced excessive collagen synthesis in HSCs, which are recognized as critical events in the development and progression of fibrosis in the liver. This is further supported by its anti-proliferative effects on the HSCs in the liver.

In a NASH mouse model, Hydronidone significantly reduced the severity of fibrosis, as well as demonstrating improvement in functional, biochemical and histopathological attributes of the affected liver tissue, including significant reduction of hydroxyproline content and liver enzymes (ALT, AST), decrease in liver fatty degeneration, and levels of a spectrum of inflammatory cytokines, at doses 3-10 mg/kg/day, as well as decrease in NAS score and the CCl4 and WD-induced fibrosis and cell ballooning in NASH model at doses of 15-50 mg/kg bid (HEDs of 144 – 480 mg) which are relevant to human exposure.

Hydronidone Pre-Clinical Development in NASH

Phase 1

The primary objective of this study was to assess the PK of Hydronidone capsules when administered as single and repeated doses to healthy adult volunteers, and the secondary objective was to evaluate the safety and tolerability of Hydronidone capsules following single and multiple dose oral administrations to healthy adult volunteers. This was an open-label, two-part study. Part I was a single escalating dose, sequential cohort study of oral capsules of Hydronidone 30 mg and Hydronidone 120 mg. Part II was a multiple escalating dose, sequential cohort study of oral capsules of Hydronidone 30 mg TID for seven days and Hydronidone 120 mg TID for seven days. In Part II, subjects received an extra dose on the morning of Study Day 8.

Following single oral doses of Hydronidone 30 mg or 120 mg in Part I of the study, Hydronidone was rapidly absorbed showing a linear PK pattern of exposure, with mean elimination half-life of Hydronidone was 5 to 6 hours, and was 5 to 7 hours for M3 and M4 metabolites. Following repeated oral doses of Hydronidone 30 mg or 120 mg TID for seven days in Part II of the study, Hydronidone capsules were rapidly absorbed with similar PK pattern of exposure as seen following single doses of Hydronidone and similar half-life. Modest accumulation (less than 1.5-fold increase) was observed for Hydronidone, M3 and M4 with repeated 30 mg or 120 mg TID. Dose-normalized Hydronidone Cmax and AUC values were similar in males and females.

Overall, Hydronidone was well tolerated when administered as a single oral dose of 30 mg or 120 mg and when administered as repeated oral doses of 30 mg or 120 mg TID for 7 days (22 total doses). There were no premature discontinuations due to adverse events (“AEs”), no serious adverse events (“SAEs”) nor deaths reported in this study. Treatment-emergent AEs reported following single dose administration in Part I of the study included a single AE of rhinorrhoea and scattered, isolated, reversible laboratory abnormalities. Treatment-emergent AEs reported following repeated dose administration in Part II of the study included headache (25.0%), constipation (16.7%) and somnolence (12.5%). Abdominal discomfort and flatulence were also reported as GI AEs in 1 subject each. Scattered, isolated, reversible or stable laboratory abnormalities were reported in 1 or 2 subjects. There were no clinically significant overall changes in safety laboratory tests that were attributable to study drug, including no evidence of any significant drug-induced liver injury, nor clinically significant overall changes in vital signs, ECG parameters or physical examinations that were attributable to study drug.

Phase 2

To support the IND filing and initiation of the proposed Phase 2a clinical study, Catalyst plans to cross-reference all clinical data obtained in studies currently completed under the IND, as well as those completed in the PRC. Specifically, the initiation of this clinical study is supported by the completed Phase 1 study bridging safety, tolerability, and PK in the United States in healthy subjects (single and multiple dosing), and the recently completed 52-week Phase 2 clinical study of Hydronidone in Chinese subjects with liver fibrosis associated with CHB infection conducted by BC. Catalyst believes that the results obtained in these studies provide adequate information on the current clinical risk/benefit profile of the drug and allow for safe initiation of the proposed Phase 2a clinical study of Hydronidone in NASH associated fibrosis.

Catalyst plans to initiate clinical development of Hydronidone in NASH fibrosis in a randomized, double-blind, placebo-controlled, parallel group, Phase 2a, Proof-of-Concept (“PoC”) clinical study evaluating the safety, tolerability, PK, and Pharmacodynamics (“PD”) of Hydronidone capsules administered daily at an oral dose of 360

mg (given as 120 mg TID) for 24 weeks to adult subjects with advanced liver fibrosis associated with noncirrhotic NASH. The main goal of the proposed Phase 2a study is to obtain early PoC for Hydronidone in subjects with NASH fibrosis as a basis of expansion into a more comprehensive Phase 2/3 clinical program. The study population will be further characterized by inclusion and exclusion criteria at baseline, which will include, among the others, serum biomarkers (i.e., NAFLD scoring) and imaging modality, such as LSM via FibroScan. Magnetic Resonance Elastography may be evaluated in a selected number of subjects as an exploratory measure. The cut-offs of both non-invasive biomarkers as well as elastography will be consistent with identifying patients with advanced fibrosis while separating them from those indicative of cirrhosis.

The proposed severity of fibrosis will allow more space for separation from placebo, if any. It has been shown that more severe fibrosis responds favorably to Hydronidone in the clinical trial of Hepatitis B-associated liver fibrosis, without significant safety concerns. In addition, these patients are at high risk for progression to cirrhosis without adequate treatment options, and as such, they are a suitable population for treatment with Hydronidone.

Agreements Relating to the Hydronidone Program

F351 Asset Purchase Agreement

On December 26, 2022, Catalyst acquired the F351 Assets from the GNI Japan and GNI Hong Kong. Pursuant to the F351 Agreement, Catalyst acquired all of the assets and intellectual property rights primarily related to GNI Japan’s and GNI Hong Kong’s proprietary Hydronidone compound, other than such assets and intellectual property rights located in the PRC. The F351 Assets include 15 issued or pending patents and patent applications outside of the PRC, with the last acquired issued patent expected to expire in August 2037.

Under the terms of the F351 Agreement and upon the effective time of the transactions contemplated by the F351 Agreement, Catalyst paid GNI Japan and GNI Hong Kong $35,000,000 in the form of: 6,266,521 shares of Catalyst Common Stock; and 12,340 shares of Catalyst Convertible Preferred Stock.

Competition

The biopharmaceutical industry is intensely competitive and subject to rapid innovation and significant technological advancements. We believe the key competitive factors that will affect the development and commercial success of Hydronidone and any future product candidates are efficacy, safety and tolerability profile, reliability, convenience of dosing, price, the level of generic competition and reimbursement. Our competitors include multinational pharmaceutical companies, specialized biotechnology companies, universities and other research institutions. A number of biotechnology and pharmaceutical companies are pursuing the development or marketing of pharmaceuticals that target the same diseases that we are targeting. Smaller or earlier-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Given the high incidence of NASH, it is likely that the number of companies seeking to develop products and therapies for the treatment of liver and cardio-metabolic diseases, such as NASH, will increase.

If Hydronidone is approved for the treatment of NASH, future competition could also arise from select products currently in development, including: Firsocostat/GS-0976, an ACC inhibitor, and Cilofexor/GS-9674, an FXR agonist, from Gilead Sciences, Inc.; Clesacostat/PF-05221304, an ACC inhibitor, and PF-06835919, a KHK inhibitor, from Pfizer Inc.; Ocaliva, an FXR agonist from Intercept Pharmaceuticals, Inc.; Resmetirom, a beta-thyroid hormone receptor agonist from Madrigal Pharmaceuticals, Inc.; VK2809, a beta-thyroid hormone receptor agonist from Viking Therapeutics, Inc.; Aldafermin, an FGF19 analog from NGM Biopharmaceuticals, Inc.; MK-3655, an FGFR1c/KLB agonist antibody from Merck & Co., Inc.; Efruxifermin, a FGF21 fusion protein from Akero Therapeutics, Inc.; Pegozafermin, a FGF21 fusion protein from 89bio, Inc.; Belapectin, a Galectin-3 inhibitor from Galectin Therapeutics Inc.; Aramchol, a synthetic conjugate of cholic acid and arachidic acid from Galmed Pharmaceuticals Ltd.; Semaglutide, a GLP-1 receptor agonist from Novo Nordisk A/S; Pemvidutide/ALT-801, a dual GLP-1/glucagon agonist from Altimmune; Tirzepatide, a dual GIP/GLP-1 receptor agonist from Eli Lilly and Company; Lanifibranor, a PPAR alpha/delta/gamma agonist from Inventiva; NNC0194-0499, an FGF21 analog from Novo Nordisk; BOS-580, an FGF21 analog from Boston Pharmaceuticals; and BFKB8488A, an FGFR1/KLB agonist antibody from Genentech; and pegozafermin, a specifically engineered glycoPEGylated analog of fibroblast growth factor 21 from 89bio, Inc.

Many of our competitors have substantially greater financial, technical, human and other resources than we do and may be better equipped to develop, manufacture and market technologically superior products. In addition, many of these competitors have significantly longer operating histories and greater experience than we have in undertaking nonclinical studies and human clinical trials of new pharmaceutical products and in obtaining regulatory approvals of human therapeutic products. Many of our competitors have established distribution channels for the commercialization of their products, whereas we have no such channel or capabilities. In addition, many competitors have greater name recognition and more extensive collaborative relationships. As a result, our competitors may obtain regulatory approval of their products more rapidly than we do or may obtain patent protection or other intellectual property rights that limit our ability to develop or commercialize our product candidate or any future product candidates. Our competitors may also develop and succeed in obtaining approval for drugs that are more effective, more convenient, more widely used and less costly or have a better safety profile than our products and these competitors may also be more successful than we are in manufacturing and marketing their products. If we are unable to compete effectively against these companies, then we may not be able to commercialize our product candidate or any future product candidates or achieve a competitive position in the market. This would adversely affect our ability to generate revenue. Our competitors also compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and enrolling patients for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Manufacturing and Supply

Currently, the manufacturing of Hydronidone active pharmaceutical ingredients (“API”) and drug product supplies required for supporting the Phase 2a clinical study in NASH is being outsourced to WuXi STA, based in the PRC. The API and drug product will be of cGMP grade quality, and batch release and stability studies will comply with applicable regulatory requirements. Currently, the manufacturing and quality agreements for the Hydronidone API and drug product supplies to support the Phase 2a clinical study in NASH are under negotiation.

Intellectual Property

Our success depends in part upon our ability to protect our core technology and intellectual property. Our intellectual property is critical to our business and we strive to protect it through a variety of approaches, including by obtaining and maintaining patent protection in the United States and internationally for our product candidates, new targets, indications and applications and other inventions important to our business. For our product candidates, we generally pursue patent protection covering compositions of matter, methods of manufacture and methods of use. As we further develop our product candidates, we plan to identify additional novel candidates for patent protection that may potentially enhance commercial success, including pursuit of claims directed to new therapeutic indications.

Hydronidone Patents

Our Hydronidone patent portfolio currently consists of five (5) patent families, including patents and/or patent applications in the United States, the Patent Cooperation Treaty, the European Patent Convention and Japan.

The first patent family is entitled “DERIVATIVES OF PYRIDONE AND THE USE OF THEM”. The patent family provides granted patent protection in six countries, including the United States (U.S. Patent Number 7,824,133, expiry date: September 22, 2024; U.S. Patent Numbers 8,022,087 and 8,084,465, expiry dates: November 14, 2023), Japan (JP Patent Number 4614884, expiry date: November 14, 2023), and Germany (DE Patent Number 60340364, expiry date: November 14, 2023). The granted claims protect our lead drug candidate Hydronidone and pharmaceutical compositions thereof, as well as methods for preparing or using Hydronidone to treat fibrosis.

The second patent family is entitled “USE OF PYRIDONE DERIVATIVES IN THE PREVENTION OR TREATMENT OF TISSUE OR ORGAN TOXICITY INDUCED BY CYTOTOXIC AGENTS AND RADIATION”. The patent family provides granted patent protection in four countries, including the United States (U.S. Patent Number 8,765,726, expiry date: July 17, 2028), Japan (JP Patent Number 5213852, expiry date: September 25, 2026), and Germany (DE Patent Number 602006025897, expiry date: September 25, 2026). The granted claims relate to methods for using Hydronidone to treat certain cytotoxic- or radiation-induced injuries, such as pneumonitis.

The third patent family is entitled “METHOD FOR PREPARING HYDRONIDONE”. The patent family provides granted patent protection in Japan (JP Patent Number 6764998, expiry date: August 3, 2037) for a method of preparing Hydronidone.

The fourth patent family is entitled “METHOD FOR PREPARING HYDRONIDONE”. The patent family provides granted patent protection in Japan (JP Patent Number 6764999, expiry date: August 3, 2037) for a method of preparing Hydronidone.

The fifth patent family is entitled “PHARMACEUTICAL HYDRONIDONE FORMULATIONS FOR DISEASES”. The patent family comprises a pending Patent Cooperation Treaty application (PCT/CN2021/088104, international filing date: April 19, 2021). The pending claims relate to methods for using Hydronidone to treat liver fibrosis, liver cirrhosis, advanced hepatitis B viral infection, or NASH fibrosis.

We expect to continue to file patent applications to cover methods of treating additional indications, as well as new forms, formulations, and methods of manufacturing Hydronidone.

Government Regulation

Government authorities in the United States, at the federal, state and local levels, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, product approval, manufacture, quality control, manufacturing changes, packaging, storage, recordkeeping, labeling, promotion, advertising, sales, distribution, marketing, and import and export of drugs and biologic products. Our current product candidates are expected to be regulated as drugs. The processes for obtaining regulatory approval in the United States and in foreign countries and jurisdictions, along with compliance with applicable statutes and regulations and other regulatory authorities both pre- and post-commercialization, are a significant factor in the production and marketing of our products and our research and development activities and require the expenditure of substantial time and financial resources.

Review and Approval of Drugs in the United States

In the United States, the FDA and other government entities regulate drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”) and the regulations promulgated thereunder, as well as other federal and state statutes and regulations. Failure to comply with applicable legal and regulatory requirements in the United States at any time during the product development process, approval process, or after approval, may subject us to a variety of administrative or judicial sanctions, such as a delay in approving or refusal by the FDA to approve pending applications, withdrawal of approvals, delay or suspension of clinical trials, issuance of warning letters and other types of regulatory letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil monetary penalties, refusals of or debarment from government contracts, exclusion from the federal healthcare programs, restitution, disgorgement of profits, civil or criminal investigations by the FDA, U.S. Department of Justice, State Attorneys General, and/or other agencies, False Claims Act suits and/or other litigation, and/or criminal prosecutions.

An applicant seeking approval to market and distribute a new drug in the United States must typically undertake the following:

• preparation and submission to the FDA of an NDA;

• review of the NDA by an FDA advisory committee, where applicable;

• payment of user fees, as applicable, and securing FDA approval of the NDA; and

Preclinical Studies and an IND

Preclinical studies can include in vitro and animal studies to assess the potential for adverse events and, in some cases, to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. Other studies include laboratory evaluation of the purity, stability and physical form of the manufactured drug substance or API and the physical properties, stability and reproducibility of the formulated drug or drug product. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, to the FDA as part of an IND. Some preclinical testing, such as longer-term toxicity testing, animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Following commencement of a clinical trial under an IND, the FDA may place a clinical hold on that trial. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical work requested under the IND. For example, a specific protocol or part of a protocol is not allowed to proceed, while other protocols may do so. No more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. The FDA will base that determination on information provided by the sponsor correcting the deficiencies previously cited or otherwise satisfying the FDA that the investigation can proceed.

Human Clinical Studies in Support of an NDA

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations.

Information about certain clinical trials must be submitted within specific timeframes to the NIH for public dissemination on its ClinicalTrials.gov website.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

Phase 1: The product candidate is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness.

Phase 2: The product candidate is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

Phase 3: The product candidate is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product.

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2, and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites in late-stage clinical trials to assure compliance with GCP and the integrity of the clinical data submitted.

Submission of an NDA to the FDA

Assuming successful completion of required clinical testing and other requirements, the results of the preclinical and clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the drug product for one or more indications. Under federal law, the submission of most NDAs is additionally subject to an application user fee, currently $2.876 million for fiscal year 2021, for applications requiring clinical data, and the sponsor of an approved NDA is also subject to an annual program fee, currently $336,432 for fiscal year 2021. These fees are adjusted annually.

Under certain circumstances, the FDA will waive the application fee for the first human drug application that a small business, defined as a company with less than 500 employees, including employees of affiliates, submits for review. An affiliate is defined as a business entity that has a relationship with a second business entity if one business entity controls, or has the power to control, the other business entity, or a third-party controls, or has the power to control, both entities. In addition, an application to market a prescription drug product that has received orphan designation is not subject to a prescription drug user fee unless the application includes an indication for other than the rare disease or condition for which the drug was designated. Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a disease or condition that affects fewer than 200,000 individuals in the United States, or for which there is no reasonable expectation that U.S. sales will be sufficient to recoup the development and production costs.

The FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by the 74th day after the FDA’s receipt of the submission to determine whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. Most such applications are meant to be reviewed within ten months from the date of filing, and most applications for “priority review” products are meant to be reviewed within six months of filing. The review process may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in

compliance with GMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with cGCP.

The FDA also may require submission of a REMS plan to mitigate any identified or suspected serious risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.

The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

The FDA’s Decision on an NDA

On the basis of the FDA’s evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information for the FDA to reconsider the application. If those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies be conducted to further assess the drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. After approval, the FDA may seek to prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. Some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Fast Track Designation, Accelerated Approval, Priority Review, Orphan Drug Designation and Breakthrough Therapy Programs

Fast Track

There are several FDA programs intended to help facilitate the development of new drugs and biologics that meet certain criteria. Specifically, new drugs and biological products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a new drug or biological product may request the FDA to designate the drug or biological product as a Fast Track product at any time during the clinical development of the product. Under a Fast Track designation, the FDA may consider for review sections of the marketing application on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable and the sponsor pays any required user fees upon submission of the first section of the application.

Priority Review

A product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biological product designated for priority review to facilitate the review.

Accelerated Approval

A product that is being studied for safety and effectiveness in treating serious or life-threatening illnesses and provides meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that it may be approved on the basis of adequate and well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. In addition, the FDA currently requires pre-approval of promotional materials as a condition for accelerated approval, which could adversely impact the timing of the commercial launch of the product.

Orphan Drug Designation

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. If a product that has orphan drug designation subsequently receives FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, for seven years. These circumstances are an inability to supply the drug in sufficient quantities or a situation in which a new formulation of the drug has shown superior safety or efficacy or a major contribution to patient care. This exclusivity, however, could also block the approval of its product for seven years if a competitor obtains earlier approval of the same drug for the same indication.

Rare Pediatric Drug Designation

There are FDA programs intended to help facilitate the development of new drugs and biologics that meet certain criteria. Specifically, new drugs and biological products are eligible for rare pediatric disease designation if they treat a serious or life-threatening condition that affects less than 200,000 individuals in the United States per year and who are primarily less than 18 years of age. Under the FDA’s rare pediatric disease designation program, the FDA may grant a priority review voucher to a sponsor who receives a product approval for a rare pediatric disease.

Breakthrough Therapy Designation

A product may also be eligible for receipt of a Breakthrough Therapy designation. The Breakthrough Therapy designation is intended to expedite the FDA’s review of a potential new drug for serious or life-threatening diseases where “preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.” The designation of a drug as a Breakthrough Therapy provides the same benefits as are available under the Fast Track program, as well as intensive FDA guidance on the product’s development program. Fast Track designation, priority review, accelerated approval and Breakthrough Therapy designation do not change the standards for approval, but they may expedite the development or approval process.

Post-Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies and are subject to periodic unannounced

inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented.

FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events or problems with manufacturing processes of unanticipated severity or frequency, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

• fines, warning letters or holds on post-approval clinical trials;

• injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant criminal and civil liability.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, (“PDMA”), which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Hatch-Waxman Patent Certification and the 30-Month Stay

Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or a method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an Abbreviated New Drug Application (“ANDA”) applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval.

Specifically, the applicant must certify with respect to each patent that:

• the required patent information has not been filed;

• the listed patent has expired;

A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicate that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that is favorable to the ANDA applicant.

To the extent that a Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. As a result, approval of a 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.

Legislative Developments

The 21st Century Cures Act (the “Cures Act”), which was signed into law in December 2016, includes provisions to accelerate the development and delivery of new treatments. For example, the Cures Act requires the FDA to establish a program to evaluate the potential use of real world evidence to help to support the approval of a new indication for an approved drug and to help to support or satisfy post-approval study requirements, to issue guidance on adaptive and novel clinical trial designs for new drugs, and to establish a process for qualifying drug development tools used to support FDA approval for marketing or investigational use of a drug. The Cures Act also permits the FDA to rely on qualified data summaries to support the approval of a supplemental application for an already approved drug. The FDA is in the process of implementing the Cures Act requirements.

Disclosure of Clinical Trial Information

Sponsors of clinical trials of FDA-regulated products, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, trial sites and investigators and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

Other U.S. Healthcare Laws and Compliance Requirements

In the United States, its activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including but not limited to CMS, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice, or DOJ and individual U.S. Attorney offices within the DOJ and state and local governments. For example, sales, marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the false claims laws, the privacy provisions of the Health Insurance Portability and Accountability Act, or HIPAA and similar state laws, each as amended.

The federal Anti-Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. There are statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that

may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Catalyst’s practices may not in all cases meet all the criteria for protection under a statutory exception or regulatory safe harbor.

Additionally, the intent standard under the Anti-Kickback Statute was amended by the Affordable Care Act (“ACA”) to a stricter standard such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it to have committed a violation. In addition, the ACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act (discussed below).

The civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

The federal False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to, or approval by, the federal government or knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved and thus non-reimbursable, uses. HIPAA created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of, or payment for healthcare benefits, items or services.

Also, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

Catalyst may be subject to data privacy and security regulations by both the federal government and the states in which Catalyst conducts its business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH and its implementing regulations, imposes requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates, independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Additionally, the federal Physician Payments Sunshine Act within the ACA and its implementing regulations, require that certain manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members.

To distribute products commercially, Catalyst must comply with state laws that require the registration of manufacturers and wholesale distributors of drug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and biotechnology companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing and to prohibit certain other sales and marketing practices. All its activities are potentially subject to federal and state consumer protection and unfair competition laws.

If its operations are found to be in violation of any of the federal and state healthcare laws described above or any other governmental regulations that apply to Catalyst, Catalyst may be subject to penalties, including without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions brought by individual whistleblowers in the name of the government, or refusal to allow Catalyst to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings and the curtailment or restructuring of its operations, any of which could adversely affect its ability to operate its business and its results of operations.

Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which Catalyst obtains regulatory approval. In the United States and markets in other countries, sales of any products for which Catalyst receives regulatory approval for commercial sale will depend, in part, on the extent to which third-party payors provide coverage and establish adequate reimbursement levels for such products. In the United States, third-party payors include federal and state healthcare programs, privately managed care providers, health insurers and other organizations. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the price of a product or for establishing the reimbursement rate that such a payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all the FDA-approved products for a particular indication. Third-party payors are increasingly challenging the price, examining the medical necessity and reviewing the cost effectiveness of medical products, therapies and services, in addition to questioning their safety and efficacy. Catalyst may need to conduct expensive pharmaco-economic studies to demonstrate the medical necessity and cost-effectiveness of its products, in addition to the costs required to obtain the FDA approvals. Its product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. This is also true of Medicare reimbursement, where different vendors process payments, so that coverage by one vendor does not assure that all other vendors will provide coverage. Adequate third-party reimbursement may not be available to enable Catalyst to maintain price levels sufficient to realize an appropriate return on its investment in product development. In addition, the United States federal government position on matters related to drug pricing is evolving and uncertain and any changes could have a material impact on drug pricing generally in the United States, including for its product candidates if approved.

Different pricing and reimbursement schemes exist in other countries. In the EU, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines but monitor and control company profits. The National Institute for Health and Care Excellence (NICE) in the United Kingdom also requires consideration of cost-benefit analysis. The downward pressure on healthcare costs has become very intense. As a result, increasingly high barriers are being

erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.

The marketability of any product candidates for which Catalyst receives regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and Catalyst expects will continue to increase the pressure on healthcare pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which Catalyst receives regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

The Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries and to devise and maintain an adequate system of internal accounting controls for international operations.

Additional Regulation

In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect its business. These and other laws govern the use, handling and disposal of various biological, chemical and radioactive substances used in and wastes generated by, its operations. If its operations result in contamination of the environment or expose individuals to hazardous substances, Catalyst could be liable for damages and governmental fines. Catalyst believes that it is in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse effect on its business. Catalyst cannot predict, however, how changes in these laws may affect its future operations.

Government Regulation Outside of the United States

In addition to regulations in the United States, Catalyst will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales and distribution of its products. Whether or not Catalyst obtains FDA approval of a product, Catalyst must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. Certain countries outside of the United States have a similar process that requires the submission of a clinical trial application much like the IND prior to the commencement of human clinical trials. In the EU, for example, a clinical trial application must be submitted to each country’s national health authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the clinical trial application is approved in accordance with a country’s requirements, clinical trial development may proceed. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries.

The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

To obtain regulatory approval of an investigational drug or biological product under EU regulatory systems, Catalyst must submit a marketing authorization application.

For other countries outside of the EU, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

If Catalyst or its potential collaborators fail to comply with applicable foreign regulatory requirements, Catalyst may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

Employees

We consider our ability to recruit, retain and motivate our employees to be critical to our success. We are an equal opportunity employer and we are fundamentally committed to creating and maintaining a work environment in which employees are treated with respect and dignity. All human resources policies, practices and actions related to hiring, promotion, compensation, benefits and termination are administered in accordance with the principal of equal employment opportunity, meaning that they are made on the basis of individual skills, knowledge, abilities, job performance and other legitimate criteria and without regard to race, color, religion, sex, sexual orientation, gender expression or identity, ethnicity, national origin, ancestry, age, mental or physical disability, genetic information, any veteran status, any military status or application for military service, or membership in any other category protected under applicable law.

As of December 31, 2022, we had 7 full-time employees. Of the full-time employees, as of such date, 1 employee was engaged in manufacturing and clinical development activities and 6 employees were engaged in finance, business development, facilities and general management. Of our employees as of December 31, 2022, 72% were male and 28% were female. We have no collective bargaining agreements with our employees, and we have not experienced any work stoppages. We consider our relations with our employees to be good.

We aim to provide our employees with competitive salary and benefits that enable them to achieve a good quality of life and plan for the future. Our benefits are based on local norms and market preferences, but include all salary and social benefits required by local law (including paid time off for vacation and sick leave) and many additional benefits that go beyond legal requirements.

To maintain and enhance the safety of our employees, we promote a culture of continuous improvement and individual accountability to provide safe workplaces. The safety of our employees has been a priority throughout our response to the COVID-19 pandemic. Our management team guided our operations in the processes and procedures to comply with applicable government-imposed health and safety-related operating restrictions, and to enhance the safety of our facilities to protect the health of our employees. The management team continues to operate, updating guidance as the pandemic has continued and the medical science and government guidance and orders have evolved. We continue to enforce COVID-19 health and safety protocols and have implemented protocols to address actual and suspected cases of COVID-19 and resulting contact tracing and quarantine requirements. Throughout the pandemic, we have been communicating regularly with our employees and monitoring their views on issues related to COVID-19 and the workplace as well as general levels of engagement. In addition, management has regularly updated our Board of Directors on our COVID-19 status and response, including with respect to employee safety.

Business Organization

We commenced operations in 2002 and are a Delaware corporation. On August 20, 2015, we merged with Targacept, Inc. Our corporate headquarters are in South San Francisco, California. We conduct our research and development activities and general and administrative functions primarily from our South San Francisco, California location.

Available Information

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are available for free at www.catalystbiosciences.com as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. They are also available for free on the SEC’s website at www.sec.gov. The information in or accessible through the SEC and our website are not incorporated into, and are not considered part of, this filing.

Item 1A.RISK FACTORS

The following section includes the most significant factors that may adversely affect our business and operations. You should carefully consider the risks and uncertainties described below and all information contained in this Annual Report on Form 10-K before deciding to invest in our common stock. If any of the following risks actually occur, our business, financial condition, results of operations and growth prospects may be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose all or part of your investment.

Summary of Risk Factors

Investing in our securities involves a high degree of risk. Below please find a summary of the principal risks we face. These risks are discussed more fully below.

Risks Related to the Strategic Transactions

Risks Related to the Business Combination Transactions

Catalyst’s CVR was distributed to its stockholders of record on January 5, 2023; other stockholders, including purchasers of Catalyst common stock after January 5, 2023, will not benefit from the distribution under the CVR. CVR holders may potentially not receive any payment on the CVRs and the CVRs may otherwise expire valueless.

Pursuant to the Contingent Value Rights Agreement (the “CVR Agreement”) dated December 26, 2022, Catalyst’s CVR was distributed to its stockholders of record on January 5, 2023. CVR distributions, if any, will consist of net proceeds from any potential future sale of Catalyst’s legacy assets or claims, net cash in excess of $1.0 million, as of the closing of the Transactions, net cash received from the transaction with Vertex in May 2022, up to $5.0 million, net proceeds from the payment of the remaining $5.0 million due from the sale of Catalyst’s legacy hemophilia assets to GCBP, and net proceeds from certain legal claims that Catalyst has against a third party. The amount that can be distributed will depend on a variety of factors, including the value, if any, received for Catalyst’s legacy assets or claims, the amount of expenses Catalyst incurs before the closing of the Transactions, and the amount, if any, received from Vertex and GCBP. There can be no assurance as to the timing or amount of distributions to Catalyst’s stockholders pursuant to the CVR Agreement, and such amounts may ultimately be higher or lower than anticipated.

Furthermore, other Catalyst stockholders, including purchasers of Catalyst common stock after January 5, 2023, will not benefit from the distribution under the CVR.

Catalyst may not be able to achieve successful results from the disposition of such assets as described above. If this is not achieved for any reason within the time periods specified in the CVR Agreement, or the permitted deductions set forth in the CVR Agreement are greater than any gross proceeds, no payments will be made under the CVRs, and the CVRs will expire valueless.

During the pendency of the Transactions, Catalyst may not be able to enter into a business combination with another party on more favorable terms because of restrictions in the Business Combination Agreement, which could adversely affect its business prospects.

Covenants in the Business Combination Agreement impede the ability of Catalyst to make acquisitions during the pendency of the Transactions, subject to specified exceptions. In addition, while the Business Combination Agreement is in effect, Catalyst is generally prohibited from soliciting, proposing, seeking or knowingly encouraging, facilitating or supporting any inquiries, indications of interest, proposals or offers that constitute or may reasonably be expected to lead to certain transactions involving a third party, including a merger, sale of assets or other business combination, subject to specified exceptions. Any such transactions could be favorable to Catalyst’s stockholders, but Catalyst may be unable to pursue them. In addition, if the Business Combination Agreement is terminated under specified circumstances, Catalyst would be required to pay the Contributors a termination fee of $2.0 million and reimburse the Contributors for all of their reasonable out-of-pocket fees and expenses up to $2.0 million. This termination fee and expense reimbursement may discourage third parties from submitting competing proposals to Catalyst or its stockholders, and may cause the Catalyst Board of Directors to be less inclined to recommend a competing proposal.

Certain provisions of the Business Combination Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the transactions contemplated by the Business Combination Agreement.

The terms of the Business Combination Agreement prohibit Catalyst from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances. In addition, if the Business Combination Agreement is terminated under specified circumstances, Catalyst would be required to pay the Contributors a termination fee of $2.0 million and reimburse the Contributors for all of their reasonable out-of-pocket fees and expenses up to $2.0 million. This termination fee and expense reimbursement may discourage third parties from submitting competing proposals to Catalyst or its stockholders, and may cause the Catalyst board of directors to be less inclined to recommend a competing proposal.

Because the lack of a public market for BC’s common shares makes it difficult to evaluate the fair market value of BC’s common shares, Catalyst may pay more than the fair market value of the indirect controlling interest in BC and/or GNI USA and the Minority Holders may receive consideration in the Transactions that is less than the fair market value of their indirect ownership of BC.

The outstanding common shares of BC are privately held and are not traded in any public market. The lack of a public market makes it difficult to determine the fair market value of BC’s common shares. Because the percentage of Catalyst equity to be issued to GNI USA and the Minority Holders was determined based on negotiations between the parties, it is possible that the value of the Catalyst Common Stock to be received by GNI USA and the Minority Holders will be less than the fair market value of their indirect ownership of BC, or Catalyst may pay more than the aggregate fair market value for the indirect controlling interest in BC.

The U.S. federal income tax treatment of the CVRs is unclear, and there can be no assurance that the Internal Revenue Service would not assert, or that a court would not sustain, a position that could result in adverse U.S. federal income tax consequences to holders of the CVRs.

The U.S. federal income tax treatment of the CVRs is unclear. There is no legal authority directly addressing the U.S. federal income tax treatment of the receipt of, and payments on, the CVRs, and there can be no assurance that the IRS would not assert, or that a court would not sustain, a position that could result in adverse U.S. federal income tax consequences to holders of the CVRs. Catalyst will treat the issuance of the CVRs as a distribution of property with respect to its stock. However, there is no authority directly addressing whether contingent value rights with characteristics similar to the CVRs should be treated as a distribution of property with respect to the corporation’s stock, a distribution of equity, a “debt instrument” or an “open transaction” for U.S. federal income tax purposes. In addition, although Catalyst will estimate the value of the CVRs for purposes of reporting the distribution on Form 1099 to Catalyst stockholders, the value of the CVRs is uncertain, and the IRS or a court could determine that the value of the CVRs at the time of issuance was higher. In such case, the Catalyst stockholders could be treated as having additional income or gain upon receipt of the CVRs. Further, notwithstanding Catalyst’s position that the receipt of CVRs and the proposed reverse stock split are appropriately treated as separate transactions, it is possible that the IRS or a court could determine that the Catalyst stockholders’ receipt of the CVRs and the proposed reverse stock split constitute a single “recapitalization” for U.S. federal income tax purposes. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to Catalyst’s position, which could result in adverse U.S. federal income tax consequences to holders of the CVRs.

Catalyst may be subject to a new 1% U.S. federal excise tax in connection with the issuance of the CVRs.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA”), which, among other things, imposes a 1% excise tax (the “Excise Tax”) on certain repurchases of stock by publicly-traded domestic corporations. The Excise Tax will apply to repurchases occurring in 2023 and beyond. The amount of the Excise Tax is generally 1% of the fair market value of the repurchased stock at the time of the repurchase. The U.S. Department of the Treasury has authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of, the Excise Tax. On December 27, 2022, the U.S. Department of the Treasury issued Notice 2023-2, which provides interim guidance regarding the application of the Excise Tax pending forthcoming proposed regulations. Catalyst is in the process of performing analysis of the Company’s earnings and profits which could result in the treatment of some or all of the distribution to be treated as a dividend for U.S. federal income tax purposes. Any portion of the issuance of CVRs that is not treated as a dividend may be subject to the 1% Excise Tax under the IRA.

The extent of the Excise Tax that Catalyst may incur would depend on a number of factors, including the extent such issuances could be treated as dividends and not repurchases, fair market value of the Catalyst Common Stock treated as being redeemed (if any), and the content of any regulations and other guidance from the U.S. Department of the Treasury that may be issued and applicable to such issuances. In addition, the amount of Excise Tax imposed with respect to repurchases of stock by a repurchasing corporation may be reduced by the fair market value of stock issued by the repurchasing corporation during the same taxable year. Absent the issuance of applicable guidance to the contrary, Catalyst currently expects that this reduction may be available with respect to the issuance of the Catalyst Common Stock in the Contributions. It is possible, however, that applicable guidance is issued that would prevent or limit the potential application of this rule.

The Excise Tax is imposed on the repurchasing corporation itself, not the investors from which shares are repurchased, and the mechanics of any required payment of the Excise Tax have not yet been determined. The imposition of the Excise Tax, if any, with respect to the issuance of the CVRs could reduce the amount of cash available to Catalyst and have a material adverse effect on liquidity and operations.

Catalyst may not be able to continue as a going concern if the conversion of Catalyst Convertible Preferred Stock is not approved by its stockholders.

As part of the F351 Agreement, Catalyst issued 12,340 shares of Catalyst Convertible Preferred Stock, which upon stockholder approval, will be converted to Catalyst Common Stock, subject to applicable beneficial ownership limitations. The terms of the Catalyst Convertible Preferred Stock include a cash settlement feature which provides that if Catalyst stockholders fail to approve the conversion of the Catalyst Convertible Preferred Stock by September 30, 2023, Catalyst could be required to make cash payments to the holders of Catalyst Convertible Preferred Stock significantly in excess of its current liquidity. Catalyst believes that stockholders who are entitled to vote on the conversion proposal at Catalyst’s 2023 Annual Meeting of Stockholders, which is expected to be held in the third quarter of 2023, will vote to approve the proposal. However, the vote of the Company’s common stockholders is outside of Catalyst’s control. Our independent registered public accounting firm has issued a report that raised substantial doubt about Catalyst’s ability to continue as a going concern.

Risks Related to Catalyst

As described below, if the Transactions are not completed, Catalyst will reconsider its strategic alternatives, including dissolving and liquidating its assets, pursuing another strategic transaction, or operating its business. If the Transactions are not completed, Catalyst will face various risks related to its financial condition and need for capital; its ability to execute on alternative strategies; discovery, development and commercialization of its product candidates; its intellectual property; regulatory and compliance matters; and its status as a public company, all as further discussed in the Risk Factors, including this subsection titled “—Risks Related to Catalyst.”

Risks Related to Catalyst’s Financial Condition and Capital Requirements

Catalyst has incurred significant losses since its inception and is expected to continue to incur significant losses for the foreseeable future.

Catalyst is a preclinical-stage biotechnology company and has not yet generated significant revenues. Catalyst has incurred net losses in each year since its inception in August 2002, including net losses of $8.2 million and $87.9 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, Catalyst had an accumulated deficit of $410.9 million.

Even after the acquisition of the F351 Assets, Catalyst is still in the early stages of development of its product candidates, and has no products approved for commercial sale. To date, Catalyst has financed its operations primarily through issuances of shares of common stock, from private placements of convertible preferred stock, and from payments under collaboration agreements.

Catalyst has devoted most of its financial resources to research and development, including its preclinical and clinical development activities. If the Transactions are not consummated, Catalyst expects to continue to incur significant expenses and operating losses over the next several years as it continues the development of its complement product candidates. Catalyst’s operating losses may fluctuate significantly from quarter to quarter and year to year. Catalyst is expected to continue to incur significant expenses and operating losses for at least the next several years as it:

• continues clinical development of Hydronidone;

• further develops the manufacturing process for its product candidates;

• attracts, hires and retains skilled personnel;

• acquires or in-licenses other product candidates and technologies;

• maintains, protects and expands its intellectual property portfolio;

• experiences any delays or other issues with any of the above.

To become and remain profitable, Catalyst must succeed in developing and eventually commercializing products that generate significant revenue. This will require Catalyst to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling any products for which regulatory approval is obtained. Catalyst is only in the preliminary stages of most of these activities. Catalyst may never succeed in these activities and, even if it does, it may never generate revenues that are significant enough to achieve profitability.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, Catalyst is unable to accurately predict the timing or amount of increased expenses or when, or if, Catalyst will be able to achieve profitability. Even if Catalyst does achieve profitability, Catalyst may not be able to sustain or increase profitability on a quarterly or annual basis. Failure to become and remain profitable would depress the value of Catalyst’s common stock and could impair Catalyst’s ability to raise capital, expand its business, maintain research and development efforts, diversify product offerings or even continue operations. A decline in the value of Catalyst’s common stock could also cause you to lose all or part of your investment.

If the Transactions are not completed, Catalyst will reconsider its strategic alternatives, including dissolving and liquidating its assets, pursuing another strategic transaction, or operating its business. Catalyst’s future capital requirements depend on many factors, and adequate additional financing may not be available to it on acceptable terms, or at all.

Catalyst expects to devote significant time and resources to the completion of the Transactions. However, there can be no assurances that such activities will result in the completion of the Transactions. If the Transactions are not completed, Catalyst will reconsider its strategic alternatives. Catalyst considers one of the following courses of action to be the most likely alternatives if the Transactions are not completed:

Dissolve and liquidate its assets. If, for any reason, the Transactions do not close, Catalyst’s board of directors may conclude that it is in the best interest of stockholders to dissolve the Company and liquidate its assets. In that event, Catalyst would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims. There would be no assurances as to the amount or timing of available cash remaining to distribute to stockholders after paying Catalyst’s obligations and setting aside funds for reserves.

Pursue another strategic transaction. Catalyst may resume the process of evaluating a potential strategic transaction in order to attempt another strategic transaction like the Transactions.

Operate its business. Catalyst’s board of directors may elect to seek new product candidates for development.

Raise additional capital. Catalyst may raise additional capital to fund its development of Hydronidone, which may be dilutive to Catalyst stockholders. For details regarding the risks related to raising additional capital, see the Risk Factor entitled “—Catalyst will need additional capital to continue product development and may not be able to do so. If Catalyst is unable to raise sufficient capital, it will be forced to delay, reduce or eliminate product development programs.”

If Catalyst’s board of directors elects to seek new product candidates for development, Catalyst expects that it would incur significant research and development expenses. If Catalyst is unable to raise capital when needed or on attractive terms, it would be forced to delay, reduce or eliminate any such future research and development programs or commercialization efforts and/or Catalyst could be forced to revise or abandon its current business strategy.

Catalyst will need additional capital to continue product development and may not be able to do so. If Catalyst is unable to raise sufficient capital, it will be forced to delay, reduce or eliminate product development programs.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. If Catalyst continues with preclinical and clinical development activities, it will continue to incur expenses related to the preclinical and clinical development of its complement product candidates. Catalyst believes that its available cash and cash equivalents will be sufficient to fund its operations for at least the next 12 months assuming Catalyst’s stockholders approve the conversion of Catalyst Convertible Preferred Stock. However, Catalyst expects to need to raise substantial additional capital to continue the clinical development of Hydronidone and depending on the availability of capital, may need to delay or cease development of some or all of its product candidates. Even if Catalyst raises additional capital, it may elect to focus its efforts on one or more development programs and delay or cease other development programs.

Until Catalyst can generate sufficient revenue from its product candidates, if ever, it expects to finance future cash needs through public or private equity offerings, debt financings, corporate collaborations and/or licensing arrangements. Additional funds may not be available when Catalyst needs them on terms that are acceptable, or at all. If adequate funds are not available, Catalyst may be required to delay, reduce the scope of or eliminate some or all of its research or development programs.

Because successful development of its product candidates is uncertain, Catalyst is unable to estimate the actual funds required to complete research and development and commercialize its products under development. Catalyst’s future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

• the number and characteristics of product candidates that it pursues;

• the costs it incurs related to the sale of its legacy assets or claims;

• its headcount and costs associated with hiring or retaining personnel;

• the outcome, timing and cost of regulatory approvals;

• the effect of competing technological and market developments;

• the cost and timing of completing outsourced manufacturing activities;

If the Transactions are not consummated, Catalyst will require additional capital to achieve its business objectives. Additional funds may not be available on a timely basis, on favorable terms or at all, and such funds, if raised, may not be sufficient to enable it to continue to implement Catalyst’s long-term business strategy. Any additional fundraising efforts may divert its management from their day-to-day activities, which may adversely affect its ability to develop and commercialize its product candidates. Further, its ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic or the conflict between Russia and Ukraine. If Catalyst is unable to raise sufficient additional capital, it could be forced to curtail its planned operations and the pursuit of its strategy.

As discussed above, if the Transactions are not completed, Catalyst will reconsider its strategic alternatives, including dissolving and liquidating its assets, pursuing another strategic transaction, or operating its business. If Catalyst’s board of directors elects to seek product candidates for development, Catalyst will face the risks related to discovery, development and commercialization of its product candidates set forth in this section, in addition to other risks described in this Risk Factors section.

Raising additional funds by issuing securities or through licensing arrangements may cause dilution to stockholders, restrict Catalyst’s operations or require Catalyst to relinquish proprietary rights.

To the extent that Catalyst raises additional capital through the sale of equity or convertible debt securities, stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Catalyst currently has in place an Equity Distribution Agreement with Piper Sandler & Co. that permits it, subject to applicable SEC regulations, to issue up to $50.0 million worth of shares of its common stock in “at the market” transactions at prevailing market prices.

Debt financing, if available at all, may involve agreements that include covenants limiting or restricting its ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If Catalyst raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, Catalyst may have to relinquish valuable rights to its technologies, product candidates or future revenue streams or grant licenses on terms that are not favorable to Catalyst. Catalyst may also seek to access the public or private capital markets whenever conditions are favorable, even if it does not have an immediate need for additional capital at that time. There can be no assurance that Catalyst will be able to obtain additional funding if, and when necessary. If Catalyst is unable to obtain adequate financing on a timely basis, Catalyst could be required to delay, curtail or eliminate one or more, or all, of its development programs or grant rights to develop and market product candidates that Catalyst would otherwise prefer to develop and market ourselves.

Catalyst currently has an effective registration statement on Form S-3 that allows Catalyst to offer up to $150.0 million of securities in one or more offerings, subject to limitations under applicable SEC rules, including up to $50.0 million of common stock issuable under its Equity Distribution Agreement with Piper Sandler & Co. Any additional sales in the public market of its common stock or other securities under these shelf registration statements could adversely affect prevailing market prices for its common stock.

Risks Related to Catalyst’s Business Operations and Product Candidates

Catalyst has no history of obtaining regulatory approval or commercialization of pharmaceutical products, and it may be unable to do so for any product candidates Catalyst acquires or develops, including F351, which may make it difficult to evaluate Catalyst’s prospects.

Catalyst began operations in August 2002. Catalyst’s operations to date have been limited to financing and staffing the Company, developing its technology and product candidates, establishing collaborations and conducting phase 2 clinical trials on small numbers of patients. Catalyst has not yet demonstrated an ability to successfully conduct a phase 3 clinical trial, obtain marketing approvals, manufacture a product at commercial scale repeatedly, or arrange for a third party to do so on its behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, predictions about Catalyst’s future product development timelines, clinical trial plans, expenses, success or viability may not be as accurate as they could be if Catalyst had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.

If Catalyst is required to conduct additional preclinical studies or clinical trials of Hydronidone beyond those that Catalyst currently contemplates, if Catalyst is unable to successfully complete clinical trials of Hydronidone 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, Catalyst may:

Catalyst is substantially dependent on the success of its lead product candidate, Hydronidone, and its future clinical trials of Hydronidone may not be successful.

Catalyst’s future success is substantially dependent on its ability to timely obtain marketing approval for, and then successfully commercialize, Hydronidone, Catalyst’s lead product candidate. Catalyst expects to invest a majority of its efforts and financial resources into the research and development of Hydronidone. Catalyst is planning to initiate a Phase 2a, Proof-of-Concept (“PoC”) clinical trial in late 2023 to evaluate the safety, tolerability, PK, and PD of Hydronidone for patients with advanced liver fibrosis associated with noncirrhotic NASH. The FDA has provided pre-IND advice on the design of the planned Phase 2a trial of Hydronidone and provided clear guidance on the requirements for the IND filing. If Catalyst observes positive trends in the Phase 2a trial of Hydronidone, it expects to initiate a Phase 2 trial of Hydronidone.

Hydronidone will require additional clinical development, evaluation of clinical, preclinical and manufacturing activities, marketing approval in multiple jurisdictions, substantial investment and significant marketing efforts before Catalyst generates any revenues from product sales. Catalyst is not permitted to market or promote Hydronidone, or any other product candidates, before Catalyst receives marketing approval from the FDA and comparable foreign regulatory authorities, and Catalyst may never receive such marketing approvals.

The success of Hydronidone will depend on a variety of factors. Catalyst does not have complete control over many of these factors, including certain aspects of clinical development and the regulatory submission process, potential threats to Catalyst’s intellectual property rights and the manufacturing, marketing, distribution and sales efforts of any future collaborator. Accordingly, Catalyst cannot assure you that it will ever be able to generate revenue through the sale of Hydronidone, even if approved. If Catalyst is not successful in commercializing Hydronidone, or is significantly delayed in doing so, Catalyst’s business will be materially harmed.

If Catalyst experiences delays or difficulties in the commencement of clinical trials or patient enrollment in clinical trials, its regulatory approvals could be delayed or prevented.

Catalyst or its collaborators may not be able to initiate or continue clinical trials for its product candidates if Catalyst is unable to locate, enroll and maintain enrollment of a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Furthermore, there are inherent difficulties in enrolling NASH patients, which can currently only be definitively diagnosed through a liver biopsy. Specifically, identifying patients most likely to meet NASH enrollment criteria on biopsy is an on-going challenge, with existing clinical indicators lacking both sensitivity and specificity. As a result, NASH trials often suffer from high levels of screen failure following central review of the baseline liver biopsy, which can lead to lower enrollment. As a result of such difficulties and the significant competition for recruiting NASH patients in clinical trials, Catalyst or its future collaborators may be unable to enroll the patients Catalyst needs to complete clinical trials on a timely basis, or at all. In addition, Catalyst’s competitors, some of whom have significantly greater resources than Catalyst does, are conducting clinical trials for the same indications and seek to enroll patients in their studies that may otherwise be eligible for Catalyst’s clinical studies or trials. Since the number of qualified clinical investigators is limited, Catalyst expects to conduct some of its clinical trials at the same clinical trial sites that some of Catalyst’s competitors use, which could further reduce the number of patients who are available for Catalyst’s clinical trials in these sites. The availability of other approved products and other products in clinical trials have and may limit the number of patients willing to participate in Catalyst’s clinical trials.

Patient enrollment is affected by other factors including:

• the severity of the disease under investigation;

• the eligibility criteria for the study in question;

• the perceived risks and benefits of the product candidate under study;

• the efforts to facilitate timely enrollment in clinical trials;

• clinical trials of other product candidates in the same indication;

• the patient referral practices of physicians;

• the ability to monitor patients adequately during and after treatment; and

Catalyst’s inability to enroll a sufficient number of patients for its clinical trials will result in significant delays and could require Catalyst to abandon one or more clinical trials altogether. Enrollment delays in clinical trials conducted by Catalyst may also result in increased development costs for its product candidates, which would cause the value of Catalyst to decline and limit its ability to obtain additional financing.

Geopolitical events and global economic conditions, public health crises such as COVID-19, and the conflict between Russia and Ukraine may impact Catalyst’s third-party supply of the raw materials and components needed for its product candidates, which increases the risk that Catalyst will not have sufficient quantities of such product candidates or products or such quantities at an acceptable cost, which delay, prevent or impair its development efforts.

If supplies of the raw materials for its product candidates are significantly delayed, or if the third parties that Catalyst engages to supply any materials or to manufacture any products for its preclinical tests and clinical trials should cease to continue to do so for any reason, including due to the effects of global economic conditions, including inflation and rising interest rates, public health crises such as the COVID-19 pandemic, and the conflict between Russia and Ukraine, Catalyst likely would experience delays in advancing these tests and trials while Catalyst identifies and qualifies replacement suppliers or manufacturers and Catalyst may be unable to obtain replacement supplies on terms that are favorable to Catalyst. In addition, if Catalyst is not able to obtain adequate supplies of its product candidates or the substances used to manufacture them, it will be more difficult for Catalyst to develop its product candidates and compete effectively.

Catalyst’s current and anticipated dependence upon third-party suppliers may adversely affect its ability to develop product candidates and could delay its clinical trials and development programs, and otherwise harm its operations and financial condition and increase its costs and expenses.

Risks Related to the Discovery, Development and Commercialization of Catalyst’s Product Candidates

Catalyst may expend its limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because Catalyst has limited financial and management resources, Catalyst must focus on development programs and product candidates that Catalyst identifies for specific indications. As such, Catalyst is currently primarily focused on the development of Hydronidone. As a result, Catalyst may forego or delay pursuit of opportunities with other product candidates or for other indications for these product candidates that later prove to have greater commercial potential. Catalyst’s resource allocation decisions may cause Catalyst to fail to capitalize on viable commercial products or profitable market opportunities. Catalyst’s spending on current and future development programs and product candidates for specific indications may not yield any commercially viable products. If Catalyst does not accurately evaluate the commercial potential or target market for a particular product candidate, Catalyst may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for Catalyst to retain sole development and commercialization rights to such product candidate.

Catalyst may not be successful in its efforts to build a pipeline of additional product candidates.

Catalyst may not be able to continue to identify and develop new product candidates in addition to its current pipeline. Even if Catalyst is successful in continuing to build its pipeline, the potential product candidates that Catalyst identifies may not be suitable for clinical development. For example, product candidates may be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be successfully developed, much less receive marketing approval and achieve market acceptance. If Catalyst does not successfully develop and commercialize product candidates based upon its approach, Catalyst will not be able to obtain product revenue in future periods, which likely would result in significant harm to its financial position and adversely affect its stock price. Clinical drug development involves a lengthy and expensive process with an uncertain outcome.

Results from preclinical or early-stage clinical trials, including the results of BC’s preclinical testing and early clinical trials of Hydronidone, may not be confirmed in later trials or be predictive of the success of later clinical trials, including the results of Hydronidone’s later clinical trials.

The outcome of preclinical studies and early clinical trials may not be predictive of the success of late-stage clinical trials. Trials of Catalyst’s product candidates in larger numbers of patients may not have similar efficacy results and could result in adverse effects that were not observed in the earlier trials with smaller numbers of patients.

Catalyst will be required to demonstrate substantial evidence through well-controlled clinical trials that Catalyst’s Hydronidone is safe and effective before Catalyst can seek marketing approvals for Hydronidone’s commercial sale. Demonstrations of efficacy or an acceptable safety profile in BC’s prior preclinical studies does not mean that future clinical trials will yield the same results. For instance, Catalyst does not know whether Hydronidone will perform in future clinical trials as Hydronidone has performed in preclinical studies and early clinical trials conducted by BC, and, despite Hydronidone’s phase 1 trial in the United States demonstrating a favorable safety profile, tolerability and PK and BC’s phase 2 clinical trial in the PRC demonstrating promising efficacy results in the reversal of HBV-associated fibrosis, to date, there is no effective clinical therapy for liver fibrosis, and no specific therapeutic drugs have been approved worldwide. Product candidates, including Hydronidone, may fail to demonstrate in later-stage clinical trials sufficient safety and efficacy to the satisfaction of the FDA and other comparable foreign regulatory authorities despite having progressed through preclinical studies and earlier stage clinical trials. Regulatory authorities may also limit the scope of later-stage trials until Catalyst has demonstrated satisfactory safety or efficacy results in earlier-stage trials. In particular, in late 2023, we plan to initiate a Phase 2a PoC clinical trial to evaluate the safety, tolerability, PK, and initial efficacy of Hydronidone in patients with advanced liver fibrosis associated with noncirrhotic NASH. The FDA has reviewed the planned Phase 2a trial of Hydronidone and provided clear guidance on the design and trial assessment as well as requirements for the IND filing. If Catalyst observes positive trends in the Phase 2a trial of Hydronidone, it expects to initiate a larger Phase 2 trial in Hydronidone. Although data from liver

fibrosis associated with chronic hepatitis B(“CHB”) patients in BC’s phase 2 clinical trial in the PRC demonstrated Hydronidone has the potential to improve liver fibrosis, the efficacy of the Hydronidone in prior preclinical studies in a NASH model does not mean that future clinical trials will yield the same results. There is no guarantee that the FDA and other comparable foreign regulatory authorities will consider the data obtained in the Phase 2 trial sufficient to allow Catalyst to expand the development of Hydronidone in a larger Phase 2 or confirmatory Phase 3 clinical trial. Even if Catalyst is able to initiate Catalyst’s planned clinical trials on schedule, there is no guarantee that Catalyst will be able to complete such trials on the timelines Catalyst anticipates or that such trials will produce positive results. Any limitation on Catalyst’s ability to conduct clinical trials could delay or prevent regulatory approval or limit the size of the patient population to which Catalyst may market Catalyst’s product candidates, if approved.

Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage NASH clinical trials after achieving positive results in earlier development, and Catalyst may face similar setbacks. The likelihood of obtaining regulatory approval can only be determined from data obtained in clinical trials and the totality of evidence on the efficacy and safety of a product. Many companies that believed their product candidates performed satisfactorily in preclinical studies and early clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if Catalyst believes that the results of clinical trials for its product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of its product candidates without conducting additional studies.

In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. Any phase 2, phase 3 or other clinical trials that Catalyst may conduct may not demonstrate the efficacy and safety necessary to obtain regulatory approval to market its product candidates.

Preliminary, “top-line” or interim data from Catalyst’s clinical trials that it announces or publishes from time to time may change as more patient data become available and are subject to audit and verification procedures.

From time to time, Catalyst may publicly disclose preliminary or top-line data from its clinical trials, which are based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data. Catalyst also makes assumptions, estimations, calculations and conclusions as part of its analyses of these data without the opportunity to fully and carefully evaluate complete data. As a result, the preliminary or top-line results that Catalyst reports may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated or subsequently made subject to audit and verification procedures.

Any preliminary or top-line data should be viewed with caution until the final data are available. From time to time, Catalyst may also disclose interim data from Catalyst’s preclinical studies and clinical trials. Interim data are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available or as patients from Catalyst’s clinical trials continue other treatments. Further, others, including regulatory agencies, may not accept or agree with Catalyst’s assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate and Catalyst’s company in general. In addition, the information Catalyst chooses to publicly disclose regarding a particular preclinical study or clinical trial is based on what is typically extensive information, and you or others may not agree with what Catalyst determines is material or otherwise appropriate information to include in Catalyst’s disclosure. If the preliminary, top-line or interim data that Catalyst reports differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, Catalyst’s ability to obtain approval for, and commercialize, Catalyst’s product candidates may be harmed, which could harm Catalyst’s business, operating results, prospects or financial condition.

A variety of risks associated with marketing Catalyst’s product candidates internationally may materially adversely affect Catalyst’s business.

Catalyst may also plan to eventually seek regulatory approval of Catalyst’s Hydronidone outside of the United States and, accordingly, Catalyst expects that it will be subject to additional risks related to operating in foreign countries if Catalyst obtains the necessary approvals, including differing regulatory requirements in foreign countries. Risks associated with international operations may materially adversely affect Catalyst’s business, financial condition and results of operations.

Catalyst’s product candidates, including Hydronidone, may cause significant adverse events, toxicities or other undesirable side effects that may result in a safety profile that could prevent regulatory approval, marketing approval or market acceptance, or limit their commercial potential.

If Catalyst’s product candidates, including Hydronidone, are associated with undesirable side effects or have unexpected characteristics in preclinical studies or clinical trials when used alone or in combination with other approved products or INDs, Catalyst may need to interrupt, delay or abandon their development or limit development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may prevent Catalyst from achieving or maintaining market acceptance of the affected product candidate and may adversely affect Catalyst’s business, financial condition and prospects significantly.

In general, the anticipated clinical trials of Hydronidone will include patients with advanced liver fibrosis who are at risk of further progression to cirrhosis and deterioration, but are not critically ill. A certain percentage of patients with HBV-induced liver fibrosis treated with Hydronidone have experienced adverse events, including gastrointestinal diseases, ear and labyrinth diseases, systemic diseases, metabolic and nutritional diseases, skin and subcutaneous tissue diseases, heart organ diseases, and hepatobiliary system diseases. However, the risk/benefit of Hydronidone in NASH may differ from that shown in HBV liver fibrosis patients and there is always a risk that the severity and frequency of the adverse events may worsen. See the section titled “Business – Hydronidone Overview.”

Adverse events or deaths in clinical trials involving Catalyst’s product candidates, even if not ultimately attributable to Catalyst’s product or product candidates, could result in increased government regulation, unfavorable public perception and publicity, potential regulatory delays in the testing or licensing of Catalyst’s product candidates, stricter labeling requirements for those product candidates that are licensed and a decrease in demand for any such product candidates.

Additionally, if one or more of Catalyst’s product candidates receives marketing approval and Catalyst or others later identify undesirable side effects or adverse events caused by such products, a number of potentially significant negative consequences could result. For example, regulatory authorities may suspend, limit or withdraw approvals of such product or seek an injunction against its manufacture or distribution, require additional warnings on the label, including “boxed” warnings, or issue safety alerts, require press releases or other communications containing warnings or other safety information about the product, require Catalyst to change the way the product is administered or conduct additional clinical trials or post-approval studies, require Catalyst to create a risk evaluation and mitigation strategy (“REMS”) which could include a medication guide outlining the risks of such side effects for distribution to patients, impose fines, injunctions or criminal penalties. Catalyst could also be sued and held liable for harm caused to patients, and Catalyst’s reputation may suffer. Any of these events could prevent Catalyst from achieving or maintaining market acceptance of the particular product candidate, if approved, and could seriously harm Catalyst’s business.

Breakthrough Therapy designation by the FDA for any product candidate may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that the product candidate will receive marketing approval.

Gyre Therapeutics, Inc. GYRE US Equity

GYRE · 10-K · period ended 2022-12-31

Item 1. BUSINESS.

Item 1A.RISK FACTORS

Gyre Therapeutics, Inc. GYRE US Equity☆

GYRE · 10-K · period ended 2022-12-31

Item 1. BUSINESS.

Item 1A.RISK FACTORS

Gyre Therapeutics, Inc. GYRE US Equity