Carisma Therapeutics Inc. - Annual Report: 2014 (Form 10-K)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2014

OR

For the transition period from                      to                     

Commission File No. 001-36296

Eleven Biotherapeutics, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (781) 461-1000

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

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    x  No

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

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

As of June 30, 2014, the last day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $36.6 million, based on the closing price of the registrant’s common stock on June 30, 2014.

Number of outstanding shares of Common Stock as March 1, 2015: 18,108,367

Table of Contents

ELEVEN BIOTHERAPEUTICS, INC.

TABLE OF CONTENTS

i

Table of Contents

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Annual Report on Form 10-K, including statements regarding our strategy, future operations, future product research or development, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “goals,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Annual Report on Form 10-K include, among other things, statements about:

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and our stockholders should not place undue reliance on our forward-looking statements. Actual results or events

Table of Contents

could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Annual Report on Form 10-K, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

You should read this Annual Report on Form 10-K and the documents that we have filed as exhibits to this Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Annual Report on Form 10-K are made as of the date of this Annual Report on Form 10-K, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Table of Contents

PART I

Item 1. Business.

Overview

We are a clinical-stage biopharmaceutical company with a proprietary protein engineering platform, called AMP-Rx, that we apply to the discovery and development of protein therapeutics to treat diseases of the eye. Our therapeutic approach is based on the role of cytokines in diseases of the eye, our understanding of the structural biology of cytokines and our ability to rationally design and engineer proteins to modulate the effects of cytokines. Cytokines are cell signaling molecules found in the body that can have important inflammatory effects. Our most advanced product candidate is EBI-005, which we designed, engineered and generated using our AMP-Rx platform and are developing as a topical treatment for dry eye disease and allergic conjunctivitis. In 2013, we completed a Phase 1b/2a clinical trial of EBI-005 in patients with moderate to severe dry eye disease. In early 2014, we initiated a pivotal Phase 3 clinical program evaluating EBI-005 for the treatment of moderate to severe dry eye disease. We also completed a Phase 2 clinical trial to evaluate the use of EBI-005 in patients with allergic conjunctivitis in 2014. We expect to commence our first Phase 3 clinical trial of EBI-005 for the treatment of moderate to severe allergic conjunctivitis in the second half of 2015. We hold worldwide commercialization rights to EBI-005.

We believe cytokines play a major role in the pathology underlying many eye diseases and that protein therapeutics are an effective means of modulating the effects of cytokines in diseases of the eye. We have used our AMP-Rx platform to rationally design, engineer and generate a pipeline of innovative protein therapeutic candidates that target cytokines we believe are central to diseases of the eye. We are conducting research and development programs directed at both diseases of the front of the eye, such as dry eye disease and allergic conjunctivitis, and diseases of the back of the eye, such as diabetic macular edema, or DME, and uveitis. Our EBI-005 program is based on the role that elevated levels of the inflammatory cytokine interleukin-1, or IL-1, play in the initiation and maintenance of the inflammation and pain associated with dry eye disease and the redness and itching associated with allergic conjunctivitis. We also are conducting additional discovery efforts for the treatment of diseases of the back of the eye based on the role that other cytokines play in these diseases.

Dry eye disease affects the ocular surface and is characterized by symptoms of dryness, pain, discomfort and irritation. If dry eye disease is left untreated or becomes severe, patients may suffer chronic ocular pain and distortion of vision that can significantly reduce their quality of life. Dry eye disease is one of the leading causes of patient visits to eye care professionals in the United States. According to Market Scope, LLC, or Market Scope, a publisher of research and analysis on the ophthalmic market, approximately 68 million people in the United States, European Union, Japan and other developed markets have dry eye disease, including approximately 26 million people who suffer from the moderate to severe form of dry eye disease. According to Market Scope, approximately 19 million people in the United States have dry eye disease, including approximately seven million people who suffer from the moderate to severe form of dry eye disease.

The current standard of care for moderate to severe dry eye disease includes artificial tears and topical anti-inflammatory and immune-modulating drugs. The anti-inflammatory and immune-modulating drug market for the treatment of moderate to severe dry eye disease consists primarily of Restasis, which is approved for use in the United States, and off-label use of corticosteroids. Restasis is a topically applied, ophthalmic formulation of the immune-modulating drug cyclosporine. Restasis is not approved for the treatment of the symptoms of dry eye disease, but only for increasing tear production in patients whose tear production is presumed to be suppressed due to ocular inflammation associated with dry eye disease. In clinical trials, approximately 17% of patients reported ocular burning following the use of Restasis. We believe that there remains a significant unmet medical need for new treatments for patients suffering from moderate to severe dry eye disease.

We designed our Phase 1b/2a clinical trial of EBI-005 principally to assess safety in dry eye disease patients and secondarily, to measure efficacy in order to inform the design of our Phase 3 clinical trials. In our Phase 1b/2a trial, EBI-005 was generally well tolerated. While we did not power our Phase 1b/2a trial to measure efficacy

1

Table of Contents

with statistical significance, and the differences from baseline that we observed in the EBI-005 treatment groups were not statistically significant when compared to differences from baseline in patients who received vehicle control, we observed the following in this trial:

Our pivotal Phase 3 clinical program will consist of two Phase 3 clinical trials evaluating the safety and efficacy of EBI-005 for the treatment of moderate to severe dry eye disease and a separate clinical trial evaluating the safety of treatment with EBI-005 for one year. We began randomizing and treating patients in our first Phase 3 trial in January 2014. We expect to have top-line data from our first Phase 3 trial available in the second quarter of 2015. We also initiated our separate safety trial in late 2014. We currently intend to initiate our second Phase 3 trial after reviewing top-line data from our first Phase 3 trial. If the results of both of our Phase 3 trials and our separate safety trial are favorable, we plan to submit a Biologics License Application, or BLA, to the U.S. Food and Drug Administration, or FDA, seeking approval of EBI-005 for the treatment of dry eye disease in the United States by the end of 2016.

In addition to our clinical development of EBI-005 in dry eye disease, in October 2014, we announced top-line data from our Phase 2 clinical trial of EBI-005 in patients with allergic conjunctivitis who have not responded adequately to antihistamines and mast cell stabilizers, drugs that inhibit the release of histamine by cells of the immune system. Allergic conjunctivitis is an inflammatory disease of the conjunctiva, the membrane covering the inside of the eyelids and white part of the eye, primarily from a reaction to allergy-causing substances such as pollen or pet dander.

Our most advanced preclinical product candidate is EBI-031 for the treatment of DME, a serious disease of the central portion of the retina known as the macula. Our other preclinical product candidate in development is EBI-028 for the treatment of uveitis, which is an inflammatory disease of the middle layer of the eye known as the uvea.

Background

Until recently, ocular therapies generally have been developed based on a limited understanding of the biology underlying the initiation and maintenance of the disease state. As a result, many of the therapies for diseases of the eye were not the result of rational drug design, but instead were ophthalmic formulations of pharmaceuticals, that were originally developed and approved for non-ocular diseases, such as steroids and antihistamines. We believe this limited understanding of the biology of eye diseases impeded the discovery and development of innovative ophthalmic therapeutics.

Over the past 15 years, researchers have been developing a greater understanding of the key proteins and pathways involved in ocular disease. For instance, the understanding of the protein pathways involved in the retinal disease wet age-related macular degeneration, or wet AMD, has greatly expanded. Wet AMD is characterized by abnormal new blood vessel growth in the back of the eye. By studying the biological processes associated with this abnormal growth, researchers identified the key role that a protein called vascular endothelial growth factor, or VEGF, plays in the initiation and maintenance of wet AMD. This understanding then led to the successful development of VEGF-blockers, such as Lucentis and Eylea, as new treatments for wet AMD that have dramatically improved outcomes for many patients. The developers of these VEGF-blockers have created a

2

Table of Contents

multi-billion dollar ophthalmic drug market where none existed 10 years ago. We believe that we can apply similar advances in the understanding of other protein pathways involved in eye diseases to the discovery and development of new treatments for these diseases.

Our Approach

We apply a rational, biology-based approach to the discovery and development of novel protein therapeutics for patients suffering from eye diseases. Our therapeutic approach is based on the role of cytokines in diseases of the eye, our understanding of the structural biology of cytokines and our ability to rationally design and engineer proteins to modulate the effects of cytokines.

AMP-Rx is our proprietary platform that we use to design, engineer and generate novel protein therapies that modulate key molecular targets we believe are responsible for the initiation or maintenance of an ocular disease. We begin by analyzing the target and identifying the protein-based approaches we may use to modulate the target. We then generate protein candidates and model protein/target interactions to inform an iterative protein optimization technique. We use this process to modify protein drugs to meet design specifications for improved biological and drug-like properties. We believe that key advantages of the AMP-Rx platform are:

Our Strategy

Our goal is to become a leading biopharmaceutical company focused on developing and commercializing novel protein therapeutics to treat diseases of the eye. The key elements of our strategy in support of this goal are to:

3

Table of Contents

4

Table of Contents

Our Product Development Programs

We apply our proprietary AMP-Rx platform to the discovery and development of protein therapeutics to treat diseases of the eye. Our therapeutic approach is based on the role of cytokines in diseases of the eye, our understanding of the structural biology of cytokines and our ability to rationally design and engineer proteins to modulate the effects of cytokines. We have generated a product pipeline of innovative protein therapeutic candidates that address ocular diseases that are not well served by current therapies.

The following table summarizes key information about our product development programs.

Our Product Candidates

Ocular Surface Diseases

Ocular surface diseases are disorders of the surface of the cornea, the transparent layer that forms the front of the eye, and the conjunctiva, the membrane covering the inside of the eyelids and white part of the eye. These diseases include dry eye disease and allergic conjunctivitis. Patients with ocular surface diseases may suffer from difficulty with routine visual activities, loss of vision, discomfort, infections, erosion of the cornea, ulcerations and scarring of the cornea. We believe that the optimal approach to treatment of diseases of the ocular surface is a potent active ingredient formulated with a comfortable solution, or vehicle, for topical delivery.

Dry Eye Disease

Dry eye disease is a potentially debilitating disease of the eye that may, in its most severe forms, have sight-threatening corneal complications. Dry eye disease often is classified as mild, moderate or severe based on clinical symptom severity. Dry eye disease is one of the leading causes of patient visits to eye care professionals in the United States. According to Market Scope, approximately 68 million people in the United States, European Union, Japan and other developed markets have dry eye disease, including approximately 26 million people who suffer from the moderate to severe form of dry eye disease. According to Market Scope, approximately 19 million people in the United States have dry eye disease, including approximately seven million people who suffer from the moderate to severe form of dry eye disease.

5

Table of Contents

Current Treatments. The current standard of care for moderate to severe dry eye disease includes artificial tears and topical anti-inflammatory and immune-modulating drugs. Artificial tears act as a wetting agent. They are available as over-the-counter treatments and are usually considered the first line of therapy for patients with mild disease. Artificial tears are effective supplements to other therapies in the treatment of moderate to severe dry eye disease, but they generally are not sufficient as a monotherapy in moderate to severe patients. The anti-inflammatory and immune-modulating drug market for the treatment of moderate to severe dry eye disease consists primarily of Restasis, which is approved for use in the United States, and off-label use of corticosteroids. There are no drugs approved in the European Union for the treatment of dry eye disease.

Corticosteroids applied topically, or directly to the surface of the eye, have been shown to be effective in the treatment of moderate to severe dry eye disease. However, topically applied corticosteroids have been associated with a higher risk of developing glaucoma and cataracts and an increased risk of ocular infection. These are serious side effects that significantly limit the use of corticosteroids.

Restasis is a topically applied, ophthalmic formulation of the immune-modulating drug cyclosporine. Restasis is not approved for the treatment of the symptoms of dry eye disease, but only for increasing tear production in patients whose tear production is presumed to be suppressed due to ocular inflammation associated with dry eye disease. Annual worldwide sales of Restasis have increased from approximately $444 million in 2008 to more than $1 billion in 2014. In clinical trials, Restasis increased tear production, a sign of dry eye disease, after six months of treatment in approximately 15% of treated patients as compared to approximately 5% of patients in the control groups. These increases in tear production generally were observed between three and six months after initiation of treatment. In these same clinical trials, approximately 17% of patients reported ocular burning following the use of Restasis. We believe that there remains a significant unmet medical need for new treatments for patients suffering from moderate to severe dry eye disease.

Biology. At the onset of dry eye disease, the tear film that is necessary for maintaining the health of the surface of the eye and for providing clear vision breaks down. The precise causes of the breakdown are not well understood but may include hormonal changes, infection or inflammation of the eye, the use of drugs with drying effects such as anti-depressants, contact lens use, smoke and very dry air. Without adequate wetting, the surface of the eye becomes stressed. The symptoms of dry eye disease include discomfort, pain, burning, itching and visual disturbance.

We believe that stress on the ocular surface as a result of the loss of an adequate tear film leads to the signs and symptoms of dry eye disease. As a result of this stress on the ocular surface, various cells and tissues of the eye produce inflammatory mediators, such as the cytokines interleukin-1alpha, or IL-1a, and interleukin-1beta, or IL-1ß. These cytokines, which we refer to together as IL-1, bind to the IL-1 receptor found on many different cell types in the cornea and conjunctiva. This binding and the resulting receptor signaling initiate and maintain an inflammatory response in the tissues of the eye. The resulting inflammation then leads to the further local production of inflammatory cytokines. This cascade of inflammation results in a state of chronic inflammation and ocular surface damage. This damage is indicative of dry eye disease and can be measured by the staining of the ocular surface with the dye fluorescein, a measure known as corneal fluorescein staining, or CFS.

IL-1a and IL-1ß also can bind to the IL-1 receptor on nerve cells. This binding and the resulting receptor signaling stimulates nerve cells, triggers nociception, or feelings of pain, and can result over time in chronic hyperalgesia, or increased sensitivity to pain. Nociception and hyperalgesia lead to patient reported symptoms of discomfort, ocular pain, which patients may report as soreness, stinging or burning, and difficulty with routine visual activities, such as using a computer, driving a car or watching television. These subjective symptoms of dry eye disease can be evaluated through a variety of patient-reported and physician-reported assessments. These usually take the form of questionnaires which provide data that can be scored to provide a quantitative measure of symptom severity.

As depicted in the graphic below, stress on the ocular surface leads to the excess production of IL-1. IL-1 initiates and maintains both inflammatory and neural responses in the tissues of the eye. The inflammatory

6

Table of Contents

response results in ocular surface damage, a sign of dry eye disease. The inflammatory response also results in continued production of IL-1 and chronic inflammation, which manifests as various symptoms of dry eye disease. The neural response results in feelings of and hypersensitivity to pain, which are persistent symptoms of dry eye disease.

The biological activities of IL-1 suggest that blocking IL-1 receptor signaling should have a dual function and reduce both a sign of dry eye disease, specifically ocular surface inflammation and injury, and a symptom of dry eye disease, specifically ocular pain and discomfort. In the case of dry eye disease, IL-1a and IL-1ß, acting independently or in concert, both drive IL-1 receptor signaling. As a result, a therapy that blocks only IL-1a or IL-1ß may not have the desired effect of completely blocking IL-1 receptor signaling and alleviating the signs and symptoms of dry eye disease. We believe that a better approach is to block the IL-1 receptor itself so neither IL-1a nor IL-1ß can bind to the receptor and trigger receptor signaling.

EBI-005 – a Novel IL-1 Receptor Antagonist

Our most advanced product candidate is EBI-005, a recombinant protein which binds with the IL-1 receptor and blocks, or antagonizes, IL-1 receptor signaling. We have designed, engineered and generated EBI-005 using our AMP-Rx platform and are developing EBI-005 as a topical, eye-drop treatment for dry eye disease and allergic conjunctivitis. EBI-005 prevents the binding of both IL-1a and IL-1ß to the IL-1 receptor. When the IL-1 receptor is blocked by EBI-005, the IL-1 receptor is unable to transmit the biological signals that we believe are responsible for pain, discomfort, itching and inflammation in ocular surface diseases.

Design and Attributes of EBI-005

We designed EBI-005 based on our understanding of the molecular structure of the IL-1 receptor and two of the molecules, or ligands, that are known to bind effectively to this receptor, IL-1ß and IL-1 receptor antagonist, or IL-1Ra. We engineered EBI-005 to combine the portions of IL-1ß and IL-1Ra having desirable biophysical properties and IL-1 receptor binding characteristics. We engineered EBI-005 as a pure antagonist to the IL-1 receptor, which means that EBI-005 binds to the IL-1 receptor without triggering receptor signaling. We also designed EBI-005 to have the following product attributes that we believe improve its potential utility as a topical therapeutic:

7

Table of Contents

The design of EBI-005 as a combination of those portions of IL-1ß and IL-1Ra having desirable biophysical properties and IL-1 receptor binding characteristics is depicted in the graphic below.

EBI-005 Binds Tightly to and Blocks the IL-1 Receptor

We believe IL-1 plays a central role in dry eye disease and that EBI-005 has the potential to treat both the signs and symptoms of dry eye disease by binding tightly to and blocking the transmission of biological signals by the IL-1 receptor. EBI-005 blocks the inflammatory and neuropathic activities of IL-1 by binding to the IL-1 receptor during both the initiation and maintenance of the cycle of pain and inflammation in dry eye disease.

8

Table of Contents

Proof of Concept Clinical Trial with Anakinra, an IL-1 Blocker

In 2013, the peer-reviewed journal JAMA Ophthalmology published the results of an exploratory Phase 1/2 clinical trial in 75 patients conducted by one of our scientific co-founders, Dr. Reza Dana, at the Massachusetts Eye and Ear Infirmary using another IL-1 blocker, anakinra, to treat moderate to severe dry eye disease. Anakinra is approved for subcutaneous administration for the treatment of rheumatoid arthritis and is marketed under the brand name Kineret. For this proof-of-concept study, the investigators compounded, or reformulated, anakinra in eye drops at two different concentrations for topical administration. In this double masked, placebo controlled study, patients with dry eye disease received either anakinra or a placebo control consisting of the vehicle, which was a commercially available eye drop the investigators used to formulate anakinra for topical, ophthalmic application. The investigators in this trial required patients who were using anti-inflammatory therapies, including Restasis, to discontinue their use for 30 days prior to enrollment and throughout this trial. Patients were allowed to continue their use of artificial tears and therapies other than anti-inflammatory therapies. Thirty patients received anakinra at the lower dose of 25 mg/ml and 15 patients received anakinra at the higher dose of 50 mg/ml. Thirty patients received vehicle control. Patients were treated for 12 weeks with a follow up at 16 weeks.

In this trial, there was an improvement in CFS, a sign of dry eye disease, in patients treated with anakinra from baseline at six weeks and at 12 weeks. We believe that the magnitude of the CFS response was clinically relevant for the lower dose anakinra treatment group at six weeks and at 12 weeks. We believe that the magnitude of the CFS response was clinically relevant for the higher dose anakinra treatment group only at six weeks. However, none of these differences was statistically significant when compared to the difference from baseline observed in patients who received vehicle control. We determine statistical significance based on a widely used, conventional statistical method that establishes the p-value of clinical results. Typically, a p-value of 0.05 or less represents statistical significance. There also was an improvement in patient symptoms as measured by the OSDI score in patients treated with anakinra from baseline at six weeks and at 12 weeks. We believe that the magnitude of improvement in patient symptoms as measured by the OSDI score was clinically relevant for both the lower dose and higher dose anakinra treatment groups at six weeks and at 12 weeks, and the differences from baseline at six weeks and at 12 weeks were statistically significant for both the lower dose and higher dose anakinra treatment groups when compared to the differences from baseline observed in patients who received vehicle control.

We subsequently conducted an additional, retrospective analysis of the results of this trial. In this analysis, we observed in patients treated with anakinra that the improvement from baseline at six weeks and at 12 weeks in pain and discomfort, as measured by the painful or sore eyes question on the OSDI, was the largest contributor to the improvement in patient symptoms as measured by the OSDI score at six weeks and one of the largest contributors at 12 weeks. We then analyzed the data on pain and discomfort and observed a statistically significant improvement from baseline in pain and discomfort, as measured by the painful or sore eyes question on the OSDI, in the lower dose anakinra treatment group at six weeks (p=0.01) and at 12 weeks (p=0.04) and higher dose anakinra treatment group at six weeks (p=0.01) and at 12 weeks (p=0.04) compared to the improvement from baseline in the vehicle control group. We believe that the clinical experiences with anakinra are relevant to our development of EBI-005 because the therapeutic targets and mechanisms of action of anakinra and EBI-005 are similar. However, based on our studies of the biophysical characteristics of anakinra, we do not believe that it can be formulated for topical ophthalmic delivery in a convenient format on a commercial basis because at the concentration shown to be effective in the anakinra trial, anakinra is not stable under the conditions encountered during vialing in a standard blow-fill-seal vial configuration. We believe that the blow-fill-seal vial configuration is the most cost-effective process for delivering a preservative-free eye drop. We believe that a drug for dry eye disease should be preservative-free because chronic exposure to preservatives may irritate the ocular surface. In addition, based on our own biochemical studies, we do not believe that the particular formulation of anakinra used in the anakinra trial can be used for topical ophthalmic delivery in a convenient format on a commercial basis because at the concentration shown to be effective in the anakinra trial:

9

Table of Contents

Clinical Development of EBI-005

We have completed three clinical trials with EBI-005. In 2012, after submitting an IND to the FDA for the purpose of conducting clinical trials for the treatment of dry eye disease, we completed a Phase 1 clinical trial evaluating the safety and tolerability of EBI-005 in healthy volunteers. In 2013, we completed a Phase 1b/2a clinical trial evaluating the safety, tolerability and biological activity of EBI-005 in patients with moderate to severe dry eye disease. In 2014, we completed a Phase 2 clinical trial evaluating the safety, tolerability and biological activity of EBI-005 in patients with allergic conjunctivitis. We have initiated a pivotal Phase 3 clinical program consisting of two Phase 3 clinical trials evaluating the safety and efficacy of EBI-005 for the treatment of moderate to severe dry eye disease and a separate clinical trial evaluating the safety of treatment with EBI-005 for one year. We began randomizing and treating patients in our first Phase 3 trial in January 2014. We expect to have top-line data from our first Phase 3 trial available in the second quarter of 2015. We initiated our separate safety trial in late 2014.

We currently intend to initiate our second Phase 3 trial after reviewing top-line data from our first Phase 3 trial. If the results of both of our Phase 3 trials and our separate safety trial are favorable, we plan to submit a BLA with the FDA seeking approval of EBI-005 for the treatment of dry eye disease in the United States by the end of 2016.

We designed our Phase 1b/2a trial to evaluate the safety and tolerability of EBI-005 and to provide us with insights regarding dose, patient selection and efficacy endpoints for the design of our Phase 3 trials. When we evaluated the results of the anakinra trial, we concluded that we would need to conduct a clinical trial in approximately 650 patients in order to determine with statistical significance a difference in improvements in one sign and one symptom of dry eye disease between patients treated with EBI-005 at concentrations of 5 mg/ml and 20 mg/ml and a vehicle control.

We believed that a trial with approximately 650 patients as our first clinical trial of EBI-005 in patients with dry eye disease was impractical. Accordingly, we designed our Phase 1b/2a trial as a smaller trial to determine if treatment with EBI-005 would result in the magnitude of change from baseline on CFS scores, OSDI scores and OSDI scores specifically on the painful or sore eyes question that had been observed by Dr. Dana with anakinra treatment. CFS is a quantitative measure of the severity of dry eye disease and is a widely used and validated sign of dry eye disease. CFS is measured on a scale from zero, which means no staining and no sign of damage, to a maximum of between three and 15, depending on the particular scale used, which means extensive staining and damage. The OSDI is a commonly used 12-item questionnaire that is designed to determine how a patient experiences the feeling of dry eye disease, the impact that dry eye disease has on routine visual function and what environmental triggers exacerbate symptoms. The OSDI score is a composite of the scores on the individual questions and ranges from zero, which means the patient is experiencing no symptoms, to 100, which means the patient is experiencing severe symptoms. Individual questions in the OSDI, which have scores that range from zero to four, also can be evaluated as measures of specific symptoms.

We formulate the active pharmaceutical ingredient of EBI-005 with a preservative-free solution, or vehicle, for topical, ophthalmic delivery as an eye drop. In descriptions of our clinical trials in this Annual Report on Form 10-K, we refer to this formulation also as EBI-005. The vehicle is a proprietary mixture of excipients that are commonly used in eye drops. In each of our clinical trials the placebo control group receives vehicle, which is the same as the EBI-005 formulation used in the trial except that it contains none of the EBI-005 active pharmaceutical ingredient.

We tested EBI-005 at concentrations of 5 mg/ml and 20 mg/ml in our Phase 1b/2a trial. We analyzed efficacy data by first combining both EBI-005 dose groups, as specified in the statistical analysis plan, into a single

10

Table of Contents

combined EBI-005 treatment group and then by individual EBI-005 dose groups. We designed our Phase 1b/2a trial to evaluate differences in patient responses to EBI-005 on multiple efficacy endpoints without an expectation of achieving statistical significance compared to vehicle control. We believed that the results of our Phase 1b/2a trial would provide a foundation for making informed choices regarding dose of EBI-005, patient eligibility criteria and measures of clinical efficacy for our Phase 3 trials. As described below, we have incorporated our evaluations of the results of our Phase 1b/2a trial into the design of our pivotal Phase 3 clinical program. The pivotal Phase 3 clinical program described in this Annual Report on Form 10-K is based on our current protocols and is subject to change with respect to the planned second Phase 3 clinical trial.

Pivotal Phase 3 Clinical Program of EBI-005 for the Treatment of Dry Eye Disease

Our pivotal Phase 3 clinical program will consist of two Phase 3 clinical trials to evaluate the safety and efficacy of EBI-005 from baseline at 12 weeks at a concentration of 5 mg/ml for the treatment of moderate to severe dry eye disease and a separate clinical trial evaluating the safety of treatment with EBI-005 at the same concentration for one year. We plan to conduct each of our Phase 3 trials in approximately 650 patients. We began randomizing and treating patients in our first Phase 3 trial in January 2014. We are conducting our first Phase 3 trial at 45 centers in the United States. If the results of our first Phase 3 trial are favorable, we currently intend to initiate our second Phase 3 trial after reviewing top-line data from our first Phase 3 trial. We will conduct each of our Phase 3 trials in an outpatient setting in a natural environment. We will not use a controlled adverse environment chamber.

We have designed our pivotal Phase 3 clinical program based on the results we observed in our Phase 1b/2a clinical trial of EBI-005 for the treatment of dry eye disease. We met with the FDA’s Division of Transplant and Ophthalmology Products in July 2013 to discuss our planned pivotal Phase 3 clinical program. Based in part on the discussions at that meeting, we believe that if the results of both of our Phase 3 trials are favorable, they will be sufficient, together with our separate safety trial, to support a BLA submission to the FDA seeking approval of EBI-005 for the treatment of dry eye disease in the United States.

We are evaluating the development of EBI-005 in Europe in addition to the United States and have sought and received scientific advice from the European Medicine Agency’s, or EMA, Committee for Medicinal Products for Human Use, or CHMP, regarding European registration requirements for EBI-005 for the treatment of dry eye disease. The scientific advice received indicates that the requirements for European registration in dry eye disease will differ from the requirements for registration in the United States and our pivotal Phase 3 clinical program is not consistent with the advice of the CHMP. We plan to further discuss with the EMA a registration plan for EBI-005 in moderate to severe dry eye disease for the European Union.

Phase 3 Clinical Trial Endpoints

Based on our communications with the FDA, we believe that in order to support a BLA submission to the FDA seeking approval of EBI-005 in the United States, we must demonstrate in two Phase 3 clinical trials a statistically significant improvement in at least one sign and one symptom of dry eye disease in patients treated with EBI-005 compared to improvement on the same sign and symptom in patients receiving vehicle. We will specify a sign and a symptom as co-primary endpoints in our Phase 3 trials. In the first Phase 3 trial we have defined one co-primary endpoint as a change in CFS score, a sign of dry eye disease, from baseline at week 12 with EBI-005 treatment compared to change from baseline at week 12 with vehicle control. We have defined the other co-primary endpoint as improvement in pain and discomfort as measured by the painful or sore eyes question on the OSDI, a symptom of dry eye disease, from baseline at week 12 with EBI-005 treatment compared to change from baseline at week 12 with vehicle control.

We have included the change in the OSDI score from baseline at week 12 with EBI-005 treatment compared to change from baseline at week 12 with vehicle control as another measure of change in symptoms and as a

11

Table of Contents

secondary endpoint in our first Phase 3 trial. We also included as secondary endpoints in our first Phase 3 trial changes in CFS in specified regions of the cornea from baseline at week 12 with EBI-005 treatment compared to changes from baseline at week 12 with vehicle control. Other secondary endpoints in our first Phase 3 trial include the evaluation of the change in all primary and secondary endpoints from baseline at week nine. In addition to efficacy endpoints, other secondary endpoints in this Phase 3 trial include the evaluation of the safety, tolerability and immunogenicity, or the tendency to elicit an antibody response, of EBI-005 after 12 weeks of dosing.

If we demonstrate a statistically significant improvement from baseline in the EBI-005 treatment group relative to the improvement from baseline in the vehicle control group on a pre-specified secondary endpoint in the first of our Phase 3 trials, we may decide to substitute that secondary endpoint as a co-primary endpoint in our second Phase 3 trial prior to initiation of this second Phase 3 trial. If we demonstrate a statistically significant improvement from baseline in the EBI-005 treatment group relative to the improvement from baseline in the vehicle control group on the substituted co-primary endpoint in the second Phase 3 trial, we may combine the results of the evaluation of the pre-specified secondary endpoint in the first Phase 3 trial with the results of the substituted pre-specified co-primary endpoint in the second Phase 3 trial, in support of our application for marketing approval of EBI-005. Based on our meeting with the FDA in July 2013, we believe that, although it would be a review issue at the time of our application for marketing approval, the FDA may consider this an acceptable means of meeting the requirement that we duplicate in two Phase 3 trials a statistically significant improvement on a clinically relevant sign or symptom.

Phase 3 Clinical Trial Design

Each of our Phase 3 trials will be a double masked, randomized, placebo controlled study. Patients will be screened on the basis of eligibility criteria at a first visit. We expect that patients who qualify for enrollment will receive topical administration in each eye three times per day for one week of vehicle. At the conclusion of this one-week run-in period, we will reassess patients against additional eligibility criteria. Those patients who qualify under these additional criteria will be randomly assigned, or randomized, to either an EBI-005 treatment group or a vehicle control group. We refer to the time at which we randomize a patient as baseline.

Eligible patients will be at least 18 years of age, with moderate to severe dry eye disease. Eligibility criteria also will include the following:

During our Phase 1b/2a trial of EBI-005, we observed greater variability in clinical response in patients who had an OSDI score greater than or equal to 50 at randomization. We believe this increased variability in clinical response made it more difficult to detect differences between the combined EBI-005 treatment groups and the vehicle control group on the primary and secondary efficacy endpoints. In our Phase 3 trials, we will exclude patients with an OSDI score greater than or equal to 50 at randomization because we believe this criteria will reduce variability in clinical response and improve our ability to detect differences between the EBI-005 treatment group and the vehicle control group on the co-primary and secondary efficacy endpoints.

12

Table of Contents

Patients who are randomized will receive topical administration in each eye three times per day for 12 weeks of EBI-005 at 5 mg/ml or vehicle control beginning at randomization. The patients will undergo study evaluations at weeks one, three, six, nine and 12 following randomization. The last dose of EBI-005 will be completed 12 weeks after randomization. We will require patients to attend a final visit three weeks after their week 12 visit.

The timeline for our first Phase 3 trial of EBI-005 and number of patients, or subjects, to be randomized into the EBI-005 treatment and vehicle control groups are depicted in the graphic below.

The following aspects of the design of our Phase 3 trials are based on the results we observed in our Phase 1b/2a trial of EBI-005 for the treatment of dry eye disease:

Eligibility Criteria—OSDI Score. Our Phase 3 trials of EBI-005 will include patients with OSDI scores at screening greater than or equal to 23 and less than or equal to 75 and with OSDI scores at randomization greater than or equal to 19 and less than 50. In a retrospective analysis of the results of our Phase 1b/2a trial, in which we included patients with OSDI scores at screening greater than or equal to 23 and less than 90 and with OSDI scores at randomization greater than or equal to 19, we observed in patients with OSDI scores less than 50 at randomization less variability in clinical response than we observed in patients with OSDI scores greater than or equal to 50 at randomization. Therefore, we have designed our Phase 3 trials to exclude at randomization patients with an OSDI score greater than or equal to 50. We believe this will make it more likely that our Phase 3 trials will confirm the trend of greater improvement in clinical response from baseline in the combined EBI-005 treatment groups relative to the improvement from baseline in vehicle control group that we observed in our Phase 1b/2a trial. We also have designed our Phase 3 trials to exclude at screening patients with an OSDI score greater than 75, as compared to greater than or equal to 90 in our Phase 1b/2a trial. We believe we can increase the likelihood of recruiting patients who will have an OSDI score less than 50 at randomization by excluding patients with OSDI scores greater than 75 at screening.

Eligibility Criteria–CFS Score. We will include patients with CFS scores greater than or equal to six and less than 15 on the NEI scale at screening or greater than or equal to five and less than 15 on the NEI scale at randomization. These are the same criteria we used in our Phase 1b/2a trial, except that we did not exclude patients with a CFS score of 15 at randomization in our Phase 1b/2a trial. The determination of CFS score is made by microscopic examination of the cornea by the physician who has to assess the extent of staining in each of five regions of the ocular surface. We have developed an eye-piece for the microscope that projects a grid pattern onto the cornea that divides it into the five regions to be assessed. We believe this helps the physician and

13

Table of Contents

reduces some of the subjectivity inherent in the assessment. By reducing the subjectivity, we believe we generate a more reliable data set for statistical analysis.

Use of Rescue Artificial Tears. We will restrict the use of rescue artificial tears by patients in our Phase 3 trials. In our Phase 1b/2a trial, we measured artificial tear usage by patients as a pre-specified exploratory endpoint. Mean and median artificial tear usage were significantly higher in patients in the vehicle control group than those in the EBI-005 treatment groups. We believe that the use of artificial tears by patients in the vehicle control group could have had an impact on the sign and symptom assessments in our Phase 1b/2a trial. If such assessments improved because of the use of artificial tears, we believe these improvements would have occurred disproportionately in the vehicle control group because we observed that patients in the vehicle control group used more artificial tears and a higher percentage of patients in the vehicle control group used large amounts of artificial tears compared to the combined EBI-005 treatment groups. As a result, we believe that the differences in our Phase 1b/2a trial in the sign and symptom assessment scores between the vehicle control group and the combined EBI-005 treatment groups might have been greater if the use of artificial tears had been restricted.

Dose of EBI—005. Overall in our Phase 1b/2a trial, we did not observe any significant differences between administration of EBI-005 three times per day at a concentration of 5 mg/ml and at a concentration of 20 mg/ml. Based on our understanding of the mechanism of action and potency of EBI-005, we did not expect to observe any such differences. In our Phase 3 trials, we will be evaluating topical administration of EBI-005 three times per day at a concentration of 5 mg/ml.

Efficacy Endpoint—CFS Score. In a retrospective analysis of the results of our Phase 1b/2a trial, we observed a trend of greater improvement of CFS scores from baseline at week six in the combined EBI-005 treatment groups relative to the improvement from baseline in the vehicle control group when we excluded the seven patients who had major protocol deviations and included only patients who had baseline OSDI scores less than 50. We believe this trend is consistent with the results of the anakinra trial. In our first Phase 3 trial, we have pre-specified the change in CFS scores from baseline at week 12 as a co-primary efficacy endpoint.

Efficacy Endpoint—OSDI Pain. In a retrospective analysis of the results of our Phase 1b/2a trial, we observed a trend of greater improvement of the scores on the OSDI question regarding painful or sore eyes from baseline at week six in the combined EBI-005 treatment groups relative to the improvement from baseline in the vehicle control group when we excluded the seven patients who had major protocol deviations and included only patients who had baseline OSDI scores less than 50. We believe this trend is consistent with our understanding of the mechanism of action of EBI-005 and the trends we observed in our retrospective analysis of the results of the anakinra trial. In our first Phase 3 trial, we have pre-specified the change in scores from baseline on the OSDI question regarding painful or sore eyes from baseline at week 12 as a co-primary efficacy endpoint.

Number of Patients. Based on the results of our Phase 1b/2a trial, we believe that each of our Phase 3 trials will be adequately powered with approximately 650 patients to detect a difference between the EBI-005 treatment group and vehicle control on our proposed co-primary efficacy endpoints. We performed a sample size reassessment on a masked basis of all randomized patients after the first one-third of the randomized patients completed 12 weeks of treatment with EBI-005 in our first Phase 3 trial to determine whether we needed to increase the number of patients we randomized in this trial. We conducted this sample size reassessment to determine whether the observed variability of the clinical response was greater than the variability we expected based on the results of our Phase 1b/2a trial. We engaged a clinical research organization, or CRO, to conduct this sample size reassessment, and we did not receive any information other than whether we needed to randomize additional patients. Based on this reassessment, we enrolled approximately 650 patients for randomization in the trial as planned. We do not believe this masked sample size reassessment will compromise our final statistical analysis.

Duration of Trial. In the anakinra trial, the investigators observed greater improvements on mean change from baseline on both CFS score and OSDI score at 12 weeks in patients treated with lower dose anakinra compared to

14

Table of Contents

vehicle control than was observed at six weeks. We believe that the longer treatment period in our Phase 3 trials may improve our ability to detect differences between the EBI-005 treatment group and the vehicle control group on our co-primary efficacy endpoints.

Vehicle. We have modified the vehicle in our formulation of EBI-005 for our Phase 3 trials relative to the vehicle in our formulation of EBI-005 for our Phase 1b/2a trial primarily by removing carboxymethyl cellulose, or CMC, a common ingredient in artificial tears. CMC is not included in Restasis. We made this refinement to make our formulation of EBI-005 suitable for vialing in an industry standard single-use format, to increase stability of EBI-005 and to improve ease of manufacturing. Based on the results of our Phase 2 trial of EBI-005 with this new formulation in patients with allergic conjunctivitis, we believe our new formulation remains comfortable to patients. We believe that the removal of CMC will not meaningfully affect patient responses in our Phase 3 trial.

Natural Environment. We will conduct our Phase 3 trials in a natural environment and will not use a controlled adverse environment chamber. We also conducted our Phase 1b/2a trial in a natural environment. A controlled adverse environment chamber historically has been used in trials of product candidates for the treatment of dry eye disease. A controlled adverse environment chamber allows the clinical investigator to exacerbate the signs and symptoms of dry eye in a controlled manner by regulating humidity, temperature, airflow, lighting conditions and visual tasking. However, we believe that the controlled adverse environment chamber introduces differences in the presentation and manifestation of dry eye disease and in patients’ perceptions of their disease. We believe that the controlled adverse environment chamber does not reflect the environment in which patients experience their dry eye disease on a daily basis and in which patients and physicians ultimately will judge the benefits of any dry eye disease drug. As a result, we believe that a natural environment is a better setting for the evaluation of EBI-005.

In addition to the two Phase 3 trials required to support marketing approval of EBI-005 for the treatment of dry eye disease in the United States, we will be required to demonstrate the long-term safety of EBI-005 treatment in a safety trial. To meet this requirement, we are conducting a safety trial with no fewer than 100 patients who will be treated with EBI-005 for one year. The patients in this safety trial will be treated three times a day with EBI-005 at a concentration of 5 mg/ml. During this study, the safety and tolerability of longer term exposure to EBI-005 will be evaluated, along with immunogenicity and biological activity endpoints that may support the application for marketing approval of EBI-005. We initiated this study in late 2014.

We began randomizing and treating patients in our first Phase 3 trial in our pivotal Phase 3 clinical program in January 2014. We expect to have top-line data from our first Phase 3 trial available in the second quarter of 2015. If the results of our first Phase 3 trial are favorable, we plan to conduct a second Phase 3 trial that will be designed to evaluate co-primary endpoints that met the criteria of acceptability in our first Phase 3 trial as co-primary endpoints or as one co-primary endpoint and one secondary endpoint. We expect that our second Phase 3 trial will be designed similarly to the first trial. We currently intend to initiate our second Phase 3 trial after reviewing top-line data from our first Phase 3 trial. If the results of both Phase 3 trials in our pivotal Phase 3 clinical program and our separate safety trial are favorable, we plan to submit a BLA seeking approval in the United States of EBI-005 for the treatment of dry eye disease by the end of 2016.

Completed Phase 1b/2a Clinical Trial in Dry Eye Disease

In the second quarter of 2013, we completed a multicenter, double masked, randomized, placebo controlled Phase 1b/2a clinical trial evaluating the safety and biological activity of EBI-005 in patients with moderate to severe dry eye disease. We conducted this trial in 74 patients at eight centers in the United States. We conducted this trial in a natural environment. We did not use a controlled adverse environment chamber.

We screened patients against eligibility criteria at a first visit. Patients who qualified for enrollment received topical administration in each eye three times per day for one week of vehicle. At the conclusion of the one-week run-in period, we reassessed patients again against eligibility criteria. Those patients who qualified under these

15

Table of Contents

additional criteria were randomized to one of three treatment groups. We refer to the CFS score, OSDI score and other measures taken at randomization as baseline.

Eligible subjects were at least 18 years of age, with moderate to severe dry eye disease. Additional eligibility criteria included the following:

Patients who were randomized to a treatment group were treated in both eyes three times per day for six weeks beginning at randomization. Treatments for the three groups in this trial were as follows:

We assessed patients at screening, at randomization, at evaluation visits on weeks two, four and six following randomization, and at a follow up visit one week after the completion of treatment.

The timeline for our Phase 1b/2a trial of EBI-005 and number of patients randomized into the EBI-005 treatment and vehicle control groups are depicted in the graphic below.

The principal objective of our Phase 1b/2a trial was to evaluate the safety and tolerability of six weeks of dosing three times a day with EBI-005 as compared to vehicle control in patients with moderate to severe dry eye disease. The protocol also included other objectives and pre-specified primary and secondary efficacy endpoints to assist us in the evaluation of the biological and clinical response of patients to EBI-005.

16

Table of Contents

The primary safety endpoints included adverse event reporting, complete ophthalmic examination, testing for corneal health and assessment of clinical laboratory markers. The primary efficacy endpoint of our Phase 1b/2a trial was the absolute change of OSDI score, a symptom of dry eye disease, at week six from baseline. The secondary efficacy endpoints of this trial were changes at week six from baseline in the following sign and symptom scores:

Statistical Analysis and Significance

In accordance with the protocol and the statistical analysis plan, the primary analysis population was the intent-to-treat, or ITT, population, which is all patients enrolled in the trial. There were major protocol deviations with respect to seven of the 74 enrolled patients in the intent-to-treat population. Three of these deviations occurred in the EBI-005 treatment groups, and four occurred in the vehicle control group. These deviations included two patients, one in each of the EBI-005 treatment groups, who were inadvertently enrolled despite having met an exclusion criteria of no history of corneal surgery and five patients who missed at least one entire day’s dosing, four in the vehicle control group and one in one of the EBI-005 treatment groups. In accordance with the protocol and the statistical analysis plan, we also conducted analyses on the 67 enrolled patients in the efficacy evaluable, or EE, population, which excludes those patients with major protocol deviations.

We analyzed efficacy data by first combining both the 5 mg/ml and 20 mg/ml EBI-005 dose groups, as specified in the statistical analysis plan, and by individual dose groups. Overall, we did not see a meaningful difference in response between the two EBI-005 dose groups on any efficacy measure when we analyzed the data for each separate drug treatment group in either the intent-to-treat or efficacy evaluable population.

In our Phase 1b/2a trial, the median baseline OSDI score was 50 for all patients at randomization, meaning that 50% of the intent-to-treat population had baseline OSDI scores of less than 50. During our Phase 1b/2a trial of EBI-005, we observed greater variability in clinical response in patients who had an OSDI score greater than or equal to 50. We believe that increased variability in clinical response made it more difficult to detect differences between the combined EBI-005 treatment groups and the vehicle control group on the primary and secondary efficacy endpoints. Therefore, we performed additional retrospective analyses that were not pre-specified primary or secondary endpoints in our Phase 1b/2a trial. In these analyses, we assessed whether patients with OSDI scores of less than 50 at baseline responded differently to EBI-005 treatment than patients with OSDI scores greater than or equal to 50 at baseline. The results of these analyses are described below. Although a retrospective analysis performed after trial results are unmasked can result in the introduction of bias, we believe that the various retrospective analyses that we performed will assist us in the assessment of the population of patients with the most robust separation between the treatment and vehicle control groups for both signs and symptoms to inform the design of our Phase 3 trials.

We designed this Phase 1b/2a trial to measure trends of efficacy, and we did not power the trial to measure with statistical significance the differences in any efficacy endpoints. Therefore, the improvements we observed with respect to pre-specified primary, secondary and exploratory endpoints and retrospective analyses in the intent-to-treat and efficacy evaluable populations that are described below were not statistically significant when compared to vehicle, except as specifically noted.

17

Table of Contents

Primary and Secondary Efficacy Endpoints—Intent-to-Treat Population

We observed in the combined EBI-005 treatment groups in the intent-to-treat population an improvement from baseline in both CFS, a sign of dry eye disease, and OSDI, a symptom of dry eye disease, after six weeks of treatment with EBI-005. We believe that the magnitudes of these responses were clinically relevant.

The table below sets forth for the combined EBI-005 treatment groups and the vehicle control group, in each case assessing the intent-to-treat population, the mean score at baseline, mean change from baseline at week six, and the percentage change from baseline at week six on the following primary and secondary efficacy endpoints:

We observed improvements in the combined EBI-005 treatment groups in the intent-to-treat population from baseline through week six on each of the secondary efficacy endpoints of modified SANDE questionnaire score, subject-rated and investigator-rated GSA and subject-rated individual ocular symptom assessments of the severity of eyelid itching, the sensation of having a foreign body in the eye and ocular burning or pain. However, the differences between the improvements we observed in the combined EBI-005 treatment groups from baseline at week six and the improvements we observed in the vehicle control group from baseline at week six were not statistically significant for any of these measures. We do not plan to use any of these measures as primary or secondary endpoints in our Phase 3 trials.

Analyses of Efficacy Endpoints—Efficacy Evaluable Population

As noted above, there were major protocol deviations with respect to seven of the 74 enrolled patients in the intent-to-treat population. As a result, we believe the efficacy evaluable population, which excludes those patients with major protocol deviations, is a more appropriate population on which to conduct further analyses. The results of our additional retrospective analyses are presented below only with respect to the efficacy evaluable population. The results of pre-specified analyses of the corresponding primary and secondary efficacy endpoints with respect to the efficacy evaluable population also are presented below.

We observed in patients with OSDI scores less than 50 at randomization less variability in clinical response than we observed in patients with OSDI scores greater than or equal to 50 at randomization. We believe that increased variability in clinical response in the total efficacy evaluable population made it more difficult to detect differences between the EBI-005 treatment groups and vehicle control. We refer to the efficacy evaluable population with OSDI scores of less than 50 at randomization as the EE50 population.

Retrospective Analysis—OSDI Score. In the total efficacy evaluable population and in patients in the EE50 population, we observed an improvement of OSDI scores from baseline at week six in the combined EBI-005 treatment groups. We believe the magnitude of the response was clinically relevant. We also observed that the trend in the improvement in OSDI scores from baseline at week six favoring the combined EBI-005 treatment groups compared to the improvement in OSDI scores from baseline at week six in vehicle control was greater in the EE50 population than in the total efficacy evaluable population.

18

Table of Contents

The table below sets forth with respect to each of the combined EBI-005 treatment groups and the vehicle control group in the total efficacy evaluable population and in the EE50 population:

The graphs below set forth with respect to each of the combined EBI-005 treatment groups and the vehicle control group in the total efficacy evaluable population and in the EE50 population, the mean change in OSDI scores from baseline at each evaluation visit following randomization during the treatment period.

Retrospective Analysis—Painful or Sore Eyes Question on OSDI. In the total efficacy evaluable population and in patients in the EE50 population, we observed an improvement on the OSDI question regarding painful or sore eyes at week six from baseline in the combined EBI-005 treatment groups. We also observed that the trend in the improvement in the score on the OSDI question regarding painful or sore eyes from baseline at week six favoring the combined EBI-005 treatment groups compared to the improvement in the score on the OSDI question regarding painful or sore eyes from baseline at week six in the vehicle control group was greater in the EE50 population than in the total efficacy evaluable population.

19

Table of Contents

The table below sets forth with respect to each of the combined EBI-005 treatment groups and the vehicle control group in the total efficacy evaluable population and in the EE50 population:

The graphs below set forth with respect to each of the combined EBI-005 treatment groups and the vehicle control group in the total efficacy evaluable population and in the EE50 population, the mean change in scores on the OSDI question regarding painful or sore eyes from baseline at each evaluation visit following randomization during the treatment period.

On most of the other individual OSDI questions, we observed trends in changes in scores at week six from baseline that favored patients treated with EBI-005 compared to patients treated with vehicle control in an analysis of the efficacy evaluable population. On eight of the other OSDI questions, we observed trends in changes in scores at week six from baseline that favored patients treated with EBI-005 compared to vehicle control in an analysis of the efficacy evaluable population. On the other three OSDI questions, we observed trends in changes in scores at week six from baseline that favored vehicle control compared to patients treated

20

Table of Contents

with EBI-005 in an analysis of the efficacy evaluable population. However, none of these trends were statistically significant.

Retrospective Analysis—CFS. In the total efficacy evaluable population and in patients in the EE50 population, we observed an improvement in CFS at week six from baseline in the combined EBI-005 treatment groups. We also observed in the EE50 population a strong trend in the improvement in the CFS score from baseline at week six favoring the combined EBI-005 treatment groups compared to improvement in the CFS score from baseline at week six in the vehicle control group. We did not observe this trend in the total efficacy evaluable population.

The table below sets forth with respect to each of the combined EBI-005 treatment groups and the vehicle control group in the total efficacy evaluable population and in the EE50 population:

The graphs below set forth with respect to each of the combined EBI-005 treatment groups and the vehicle control group in the total efficacy evaluable population and in the EE50 population, the mean change in CFS scores from baseline at each evaluation visit following randomization during the treatment period.

21

Table of Contents

Pre-Specified Exploratory Endpoint—Artificial Tear Use

We distributed artificial tears to patients in this trial with one dose per vial. Patients were permitted to use up to four vials of these artificial tears daily. Patients were instructed not to use any other artificial tears during this trial. At the end of the trial, we counted the number of vials used by each patient. We excluded from our assessment of artificial tear use in the combined EBI-005 treatment groups one patient for whom there were no records of use of artificial tears. In addition, we performed a statistical outlier assessment of artificial tear use and excluded from our assessment of the combined EBI-005 treatment groups one patient whose use of artificial tears was many times greater than any other patient and whose inclusion could distort any statistical analysis. All of the results presented on the use of artificial tears excluded these two patients from the combined EBI-005 treatment groups.

The use of artificial tears was similar at baseline for patients in the combined EBI-005 treatment groups and vehicle control groups. However, over the course of the six-week treatment period of this trial, we observed the following differences, which were statistically significant only with respect to the efficacy evaluable population:

The table below sets forth with respect to each of the combined EBI-005 treatment groups and the vehicle control group in the total efficacy evaluable population and in the EE50 population:

The graphs below set forth with respect to each of the combined EBI-005 treatment groups and the vehicle control group in the total efficacy evaluable population and in the EE50 population:

22

Table of Contents

Safety, Pharmacokinetics and Immunogenicity

Both doses of EBI-005 were generally well tolerated in our Phase 1b/2a trial. No patients discontinued their participation in this trial due to adverse events. We did not observe any significant imbalances between the combined EBI-005 treatment groups and the vehicle control group in the incidence of ocular adverse events or systemic adverse events. There were no serious adverse events reported during this trial, and no patients discontinued the trial due to adverse events or for any other reason. The reporting of ocular and non-ocular adverse events was similar between the treatment and vehicle control groups. The number of ocular adverse events reported during this trial and the number of patients in our Phase 1b/2a trial with one or more ocular

23

Table of Contents

adverse events as coded using MedDRA Version 12.1, a standard method of reporting adverse events, are set forth in the table below.

In addition to the ocular adverse events noted above, two patients reported application site pain during the one-week run-in period of this trial when all patients received only vehicle and one patient in the vehicle control group reported application site pain during the treatment period of this trial. Application site pain is coded under general disorders and administrative site conditions, and not eye disorders, under MedDRA Version 12.1.

There was no measurable EBI-005 in the systemic circulation following topical administration. We observed low titer, anti-EBI-005 antibodies in three of 44 treated patients. The presence of these antibodies was not associated with any clinically relevant observations.

We have used an assay that generates a signal in the presence of IL-1ß and EBI-005, but cannot distinguish between them, to assess the amount of EBI-005 remaining on the surface of the eye. Using this assay, we observed in tears of patients treated with EBI-005 a 20-fold increase in signal compared to signal prior to dosing with EBI-005. We believe this increase is due to the high concentration of EBI-005 on the surface of the eye. We have correlated the levels of this signal with the time since the last dose of EBI-005 and believe this correlation indicates EBI-005 is present on the eye for almost 10 hours after dosing.

Completed Phase 1 Clinical Trial in Healthy Volunteers

In 2012, we completed a double masked, placebo controlled, single dose Phase 1 clinical trial evaluating the safety and tolerability of EBI-005 in healthy volunteers. We conducted our Phase 1 trial in 16 healthy volunteers at a single center in the United States. We conducted this trial in a natural environment. We did not use a controlled adverse environment chamber.

The principal objective of our Phase 1 trial was to evaluate the safety and tolerability of topical ocular administration of EBI-005 in healthy volunteers. Other objectives of this trial were to evaluate the pharmacokinetics and immunogenicity of EBI-005.

Subjects were randomized to receive EBI-005 or vehicle on three occasions, every six hours, on day one. Subjects randomized to the EBI-005 treatment groups received EBI-005 in the right eye and vehicle in the left eye. Subjects randomized to the vehicle control groups received vehicle in each eye. Subjects were randomized in two groups as follows:

We assessed the subjects for safety and tolerability for four days following the one day of dosing and at a final follow up visit seven days following dosing.

24

Table of Contents

EBI-005 was generally well tolerated in this Phase 1 trial. There were no serious adverse events reported during this trial, and no subjects discontinued their participation in this trial due to adverse events. The reporting of mild ocular and non-ocular adverse events was similar between the treatment and vehicle control groups. There were no detectable systemic levels of EBI-005 and no specific anti-EBI-005 antibody formation in any of the subjects exposed to EBI-005.

Expand the Use of EBI-005 for Additional Ocular Indications

We are evaluating other ocular surface diseases for which we believe EBI-005 treatment may be beneficial. In February 2014, we began randomizing and treating subjects in our Phase 2 clinical trial of EBI-005 for the treatment of allergic conjunctivitis in patients who have not responded adequately to antihistamines and mast cell stabilizers, which are the current standard of care. We reported top-line results from the trial in October 2014 and the results are described below.

Allergic conjunctivitis

Allergic conjunctivitis is an inflammatory disease of the conjunctiva, the membrane covering the inside of the eyelids and sclera, the white part of the eye, primarily from a reaction to allergy-causing substances, or allergens such as pollen or pet dander. As is the case in other forms of allergy, a patient with allergic conjunctivitis experiences an early phase allergic response and a late phase allergic response. These responses are initiated by the binding of the allergen to a class of antibodies called IgE antibodies. The allergen-IgE antibody complex then binds to the Fc receptor on specialized cells of the immune system, including mast cells.

The early phase allergic response is primarily driven by the immediate release by mast cells of preformed histamine, a potent inflammatory molecule, and other mediators in a process called degranulation. The late phase allergic response is driven by other inflammatory mediators such as cytokines and chemokines and by mast cells and other specialized cells of the immune system, such as eosinophils, macrophages and T-cells. Both the early and late phase responses may result in ocular itching, tearing, conjunctival redness, conjunctival chemosis, or swelling of the conjunctivia, follicular/papillary response, or the development of bumps on the conjunctiva, mucous discharge and associated nasal symptoms. The severity of both the early phase and late phase responses vary among patients. In more severe forms of allergic conjunctivitis, the inflammation associated with the late phase response can result in the breakdown of the outermost layer, or epithelial layer, of the eye and, in some cases, fibrosis. We believe that IL-1 is an important mediator of the late phase allergic response.

25

Table of Contents

The figure below depicts the steps in the development of early phase and late phase allergic responses.

According to a study on the management of seasonal allergic conjunctivitis published in 2012 in the peer reviewed journal Acta Ophthalmologica, allergic conjunctivitis affects 15% to 40% of the U.S. population. Based on our market research, we believe that approximately 11 million patients seek medical treatment for allergic conjunctivitis annually.

Allergic conjunctivitis ranges in clinical severity from relatively mild, common forms to more severe forms that can cause impaired vision and even, in the most severe cases, blindness. Of the approximately 11 million patients we believe seek treatment for allergic conjunctivitis in the United States, we estimate, based on our market research, that approximately 4 million have moderate allergic conjunctivitis and approximately 1.8 million have severe allergic conjunctivitis. The mild to moderate manifestations of allergic conjunctivitis tend to fall into the seasonal, or SAC, and perennial, or PAC, allergic conjunctivitis classes. The more severe forms of allergic conjunctivitis include patients with SAC and PAC, but also include patients with vernal keratoconjunctivitis, or VKC, and atopic keratoconjunctivitis, or AKC.

VKC involves severe inflammation of the conjunctiva and cornea. VKC appears most often in young males and can have significant effects on children, including photophobia, or abnormal sensitivity to light, and pain and foreign body sensation in patients with inflammation of the cornea. Although VKC often resolves spontaneously following puberty, visual impairment can be severe if the cornea is extensively involved. According to a study on VKC published in 2004 in the peer reviewed journal Eye-Nature, approximately 6% of VKC patients show reduced visual acuity. VKC is rare in the United States and is classified by the FDA as a distinct disease, which is a necessary precondition for a product to qualify for orphan drug designation.

AKC, while more common than VKC, is also rare in the United States. AKC involves severe, chronic external ocular inflammation associated with asthma and eczema that may first appear in teenagers and continue for decades. It is often associated with severe photophobia and extreme discomfort and pain. Patients with AKC often have difficulty opening their eyelids in the morning as a result of a combination of ocular discharges and discomfort. AKC also commonly impairs the vision of patients due to a combination of corneal surface disease and frequent scarring. In severe cases of AKC, ulceration of the cornea can result in blindness.

26

Table of Contents

We believe that prolonged and more severe cases of allergic conjunctivitis, including VKC and AKC, are characterized by an inflammatory process that is mediated by IL-1. IL-1 stimulates the maturation and recruitment of antigen presenting cells, or dendritic cells, that perpetuate or exacerbate the allergic response. IL-1 also mediates the turning on and off of genes that code for chemokines that activate and direct pathogenic white blood cells to the ocular surface. According to a study of AKC patients published in 2008 in the peer-reviewed journal Clinical & Experimental Immunology, IL-1 is elevated in the tears of patients with AKC. According to a preclinical study published in 1999 in the peer-reviewed journal Investigative Ophthalmology and Visual Science, blocking IL-1 reduced ocular itching in a mouse model of multiple direct conjunctival allergen challenges.

Treatment of Allergic Conjunctivitis

For many patients with chronic or more severe forms of allergic conjunctivitis, antihistamines and mast cell stabilizers are not sufficient to treat their signs and symptoms. These refractive patients often are treated with topical corticosteroids, which have been associated with a higher risk of developing glaucoma and cataracts and an increased risk of ocular infection. We believe there remains a significant unmet medical need for new treatments for patients who are not satisfactorily treated with current therapies, including those suffering from VKC and AKC and patients with SAC and PAC.

Phase 2 Clinical Trial of EBI-005 for the Treatment of Allergic Conjunctivitis

We conducted our Phase 2 clinical trial of EBI-005 for the treatment of allergic conjunctivitis in modified versions of two controlled exposure models commonly used to assess anti-allergy medications. The objectives of this study were to assess the safety, tolerability and biological activity of EBI-005 in subjects with moderate to severe allergic conjunctivitis. In addition, we evaluated the two models to assess which would be suitable to test therapies for treating the late phase allergic response.

In these models, subjects were evaluated following exposure to ragweed or grass allergens. The modified direct conjunctival allergen challenge model, or CAPT, is an allergen challenge model that achieves a very high transient dose exposure to allergen by placing it directly into the space between the eyelid and the surface of the eye of the study subject. The modified allergy environmental exposure chamber model, or EEC, is a clinical model that exposes patients to allergen in the circulated air of a sealed room. The two models were modified to increase the duration of the allergen exposure to evaluate the late phase allergic response. We believed that repeated exposure of allergen in the CAPT and EEC models would mimic the exacerbation of disease typically observed in those patients with prolonged and more severe cases of allergic conjunctivitis.

We conducted our Phase 2 trial in 159 subjects at a single center in Canada. We enrolled 123 subjects in the EEC arm and 36 subjects in the CAPT arm. We powered the study to have an adequate number of subjects in the EEC arm to determine if there was a statistically significant difference between EBI-005 and vehicle-control on the primary endpoint of ocular itching. We enrolled ragweed and grass-allergic subjects whose allergy was confirmed with a positive skin prick test to ragweed or grass within one year prior to enrollment in this study. Inclusion and exclusion criteria required that subjects have a history of chronic ocular allergy for at least two years. All subjects must have used at least two different anti-allergy medications, and half of the subjects were known to have resistance to treatment with antihistamines and mast cell stabilizers or to have required treatment with topical steroids. We also included subjects with AKC, a more severe form of ocular allergy.

All subjects who medically qualified for the study underwent an initial allergen challenge in an environmental exposure chamber and an assessment to determine eligibility for the study at day one visit one, or V1. Eligible subjects were then assigned to either the EEC or CAPT arm. Eligible subjects underwent additional allergen challenges and assessments on the next two consecutive days, at visit two, or V2, and visit three, or V3. Subjects were then randomized within each arm to receive either EBI-005 at 5 mg/ml or vehicle. After these initial challenges, subjects were treated with EBI-005 or vehicle-control in each eye three times daily for 14 days at

27

Table of Contents

home. The subjects returned to the clinic one day after V3 to complete a required study assessment at visit four, or V4. The subjects then returned to the clinic 13 days after V4 and underwent daily allergen challenges and assessments on each of three consecutive days at visit five, or V5, visit six, or V6, and visit seven, or V7. Subjects continued treatment with EBI-005 or vehicle-control in each eye three times daily during these visits. Subjects returned one day following the last allergen exposure on V7 to complete a required study assessment on visit 8, or V8. The last study visit occurred at day 45 on visit 9, or V9, which was 25 days after the last allergen challenge or 42 days after initiation of treatment.

The design of our Phase 2 trial of EBI-005 is depicted in the graphic below.

The primary safety endpoints were adverse events over time, changes in ocular assessments, and assessment of drug specific antibodies (immunogenicity). We refer to the assessments taken at V3 as baseline. The primary efficacy endpoint of the trial was assessment in the EEC arm at V7 of the area-under-the-curve from zero to five hours, or AUC_0-5hr, of ocular itching in the EBI-005 treatment group compared to vehicle control.

The secondary endpoints in the trial comparing patients treated with EBI-005 to patients treated with vehicle-control in the EEC arm were the following:

28

Table of Contents

The secondary endpoints in the trial comparing patients treated with EBI-005 to patients treated with vehicle-control in the CAPT arm were the following:

Exploratory endpoints in the trial comparing patients treated with EBI-005 to patients treated with vehicle-control in both the EEC and CAPT arms were the following:

Additional exploratory endpoints in the trial comparing patients treated with EBI-005 to patients treated with vehicle-control in the EEC arm were the following:

For all primary, secondary, and exploratory endpoints for the CAPT arm, the mean change from baseline, or V3, and from V1 at V5, V6, and V7 was calculated using AUC_0-5hr. For all primary, secondary, and exploratory endpoints for the EEC arm, the mean change from baseline, or V3, and from V1 at V5, V6, and V7 was calculated using AUC_0-5hr, AUC_0-10hr, and AUC_5-10hr.

We met with the FDA’s Division of Transplant and Ophthalmology Products in February 2015 to discuss the results of this trial and our plans for a pivotal Phase 3 clinical program. We believe that measures of area under the curve are appropriate for detecting the response of subjects to potential therapies for treating the late phase allergic response. These measures have not been validated for use in pivotal trials using a CAPT model. Based in part on the discussions at our meeting with the FDA, we believe these measures, among others, would be appropriate in pivotal trials designed as a natural environmental study. We intend to use a natural environmental study design for further clinical development of EBI-005 for the treatment of allergic conjunctivitis.

Primary and Secondary Efficacy Endpoints — EEC Arm

There was no statistically significant difference between treatment with EBI-005 and vehicle control on the primary efficacy endpoint of the study, AUC_0-5hr of ocular itching in the EEC arm at V7. There was no statistically significant difference between treatment with EBI-005 and vehicle control on the secondary and exploratory endpoints in the EEC arm other than improvement in lid swelling for patients treated with EBI-005 compared to patients treated with vehicle control at V6 (p=0.011) and V7 (p=0.037).

Secondary and Exploratory Efficacy Endpoints — CAPT Arm

In the CAPT arm, patients treated with EBI-005 showed statistically significant improvement based on the pre-specified secondary and exploratory endpoints of change from baseline in ocular itching, tearing, and nasal symptoms compared to patients treated with vehicle control as measured by the AUC_0-5hr at V6 and V7. We believe the magnitude of these responses were clinically relevant. There was no statistically significant difference between treatment with EBI-005 and vehicle control on any other secondary or exploratory endpoints.

29

Table of Contents

The graph below sets forth the results of the pre-specified secondary endpoints of mean change from baseline, or V3, in AUC_0-5hr of ocular itching at V5, V6 and V7. The differences between the EBI-005 treatment group and the vehicle control group were statistically significant at V6 (p=0.033) and V7 (p=0.046).

The graph below sets forth the results of the pre-specified exploratory endpoint of mean change from baseline, or V3, of the AUC_0-5hr of ocular tearing. The differences between the EBI-005 treatment group and the vehicle control group were statistically significant at V6 (p=0.027) and V7 (p=0.044).

30

Table of Contents

The graph below sets forth the pre-specified exploratory endpoint of mean change from baseline, or V3, of the AUC_0-5hr of nasal symptoms. The differences between the EBI-005 treatment group and the vehicle control group were statistically significant at V6 (p=0.004) and V7 (p=0.011).

The table below presents for the pre-specified endpoints of ocular itching, tearing and nasal symptoms the mean AUC_0-5hr at baseline, or V3, V5, V6 and V7 of patients treated with EBI-005 and patients treated with vehicle control and the mean change from baseline, or V3, of the AUC_0-5hr of patients treated with EBI-005 compared to the patients treated with vehicle control at V5, V6 and V7. Improvement in patient symptoms is represented by a negative value. The more negative the number the greater the improvement.

V3 = Baseline, NA = Not Applicable

Safety and Immunogenicity

EBI-005 was generally well tolerated in our Phase 2 trial in both the EEC and CAPT arms. No patients discontinued their participation in this trial due to treatment-related adverse events. We did not observe any significant imbalances between the EBI-005 treatment group and the vehicle control group in the incidence of ocular adverse events or systemic adverse events. There were no treatment-related serious adverse events reported during this trial. One patient completed treatment but discontinued the trial due to an adverse event that

31

Table of Contents

was not treatment-related. The reporting of non-ocular adverse events was similar between the treatment and vehicle control groups. Two ocular adverse events were reported in two subjects receiving EBI-005. One of these subjects experienced an increase in intraocular pressure. This subject had a history of glaucoma. There were no clinical sequelae as a result of the ocular adverse events reported and all events resolved.

The number of ocular adverse events reported during this trial and the number of patients in our Phase 2 trial with one or more ocular adverse events as coded using MedDRA Version 16.1, a standard method of reporting adverse events, are set forth in the table below.

We did not observe any anti-EBI-005 antibodies in any treated patients.

Further Clinical Development of EBI-005 for the Treatment of Allergic Conjunctivitis

Based on the results of our Phase 2 trial, we believe that EBI-005 demonstrated biological activity in improving the symptoms of late phase allergic responses in patients with moderate to severe allergic conjunctivitis. We met with the FDA’s Division of Transplant and Ophthalmology Products in February 2015 to discuss these results and our plans for a pivotal Phase 3 clinical program, which we expect will include two Phase 3 clinical trials. Based in part on the discussions at that meeting and the scientific advice we received from the European Medicine Agency’s, or EMA, Committee for Medicinal Products for Human Use, or CHMP, we now believe that the CAPT model alone is not an appropriate model for the conduct of our pivotal clinical trials. We intend to use a natural environmental study design for further clinical development of EBI-005 for the treatment of allergic conjunctivitis. We expect to initiate our first Phase 3 clinical trial of EBI-005 for the treatment of moderate to severe allergic conjunctivitis in the second half of 2015.

The EMA may require that any pivotal clinical trials evaluate EBI-005 against standard-of-care antihistamines. We also may study the response of VKC populations to treatment with EBI-005 separately to determine whether to proceed with further development and whether an orphan drug designation might be available for EBI-005 for such use.

Our Other Product Candidates

In addition to EBI-005, we have two proprietary product candidates in early preclinical development, EBI-031, an optimized version of an anti-IL-6 antibody we referred to as EBI-029, and EBI-028. We plan to further evaluate these product candidates for potential use in humans as follows:

We are undertaking the necessary CMC development work and nonclinical safety studies of EBI-031 to support the submission of an IND to the FDA. If the results of these efforts and our additional preclinical studies of EBI-031 are favorable, we intend to submit an IND to the FDA by the end of 2015.

If results of our preclinical studies of EBI-028 are favorable, we will consider further development of this product candidate either directly by us or in collaboration with one or more strategic collaborators. We are continuing to apply our AMP-Rx platform to further enhance our current product candidates and generate new product candidates.

32

Table of Contents

EBI-031 – a Novel Inhibitor of the Cytokine IL-6

DME is characterized by an abnormal accumulation of fluid, in the macula, the portion of the retina that provides the clearest and most detailed vision, due to leakage from blood vessels in the retina. According to the American Diabetes Association, DME is one of the most common causes of vision loss in the United States. In studies published in the peer reviewed journal Ophthalmology, IL-6 levels in the eye positively correlated with the severity of DME. According to a presentation at The Association for Research in Vision and Ophthalmology 2012 Annual Meeting, IL-6 levels in the eye positively correlated with resistance to anti-VEGF therapies, which are among the current standard of care for the treatment of DME.

Our most advanced preclinical product candidate is EBI-031, an optimized version of EBI-029. We designed and engineered EBI-031 and EBI-029 using our AMP-Rx platform to block two forms of IL-6: free IL-6 and IL-6 bound to soluble IL-6 receptor, or IL-6R. We believe EBI-031 has the identical binding site on IL-6 and same mechanism of action as EBI-029. We believe the ability of EBI-031 to block these two forms of IL-6 will result in more effective inhibition of IL-6 activity compared to other antibodies that block only one of these two forms of IL-6 or the IL-6 receptor.

The graphs below illustrate the blocking of IL-6 signaling in an in vitro cell-based assay by increasing concentrations of the fragment of EBI-029 that blocked IL-6 and of a reference anti-IL-6-receptor antibody, or anti-IL-6R, that also blocked IL-6. In contrast, the anti-IL-6R antibody blocked signaling of free IL-6 (left panel) but did not block signaling of IL-6 bound to soluble IL-6R (right panel). We believe the ability of EBI-031 to block signaling of free IL-6 and IL-6 bound to soluble IL-6R will be comparable to the ability demonstrated by EBI-029.

We designed EBI-031 to block IL-6 signaling at much lower concentrations than EBI-029, potentially increasing the potency of EBI-031 compared to EBI-029 and potentially extending the time between required administrations. In addition, EBI-031 inhibits IL-6 signaling at lower concentrations than the IL-6 receptor blocking antibody tocilizumab, an anti-IL-6 receptor antibody approved for systemic administration as a treatment for rheumatoid arthritis. Tocilizumab is also in Phase 2 clinical development for the treatment of uveitis by systemic administration.

33

Table of Contents

The graph below illustrates the blocking of IL-6 signaling in an in vitro cell-based assay by increasing concentrations of EBI-031, EBI-029 and tocilizumab. EBI-031 blocked IL-6 signaling at lower concentrations than either EBI-029 or tocilizumab.

In order to test the effects of an anti-IL-6 antibody in an animal model, we used a rat model of choroidal neovascularization, or CNV. CNV is abnormal new blood vessel formation and growth in the layer of tissue beneath the retina called the choroid. This CNV model uses a laser beam to damage part of the eye near the retina, resulting in an inflammatory and vascular response that we believe is useful for studying the retinal inflammation that occurs in association with DME. CNV is measured by the size of an area of increased blood vessel growth, or an angiogenic area, at 22 days after laser, or day 22. An active treatment in the CNV model reduces the size of the angiogenic area.

We are unable to test EBI-031 directly in this rat model because EBI-031 only blocks human and non-human primate IL-6. In the rat model of CNV, we used a commercially available goat anti-IL-6 antibody that blocks rat IL-6 as a surrogate for EBI-031. This study compared the goat anti-IL-6 antibody to a goat anti-VEGF antibody that blocks rat VEGF. In this study, we observed a significant reduction in the angiogenic area at day 22 in animals treated with the goat anti-IL-6 antibody compared to animals that received no treatment. The reduction in the angiogenic area at day 22 in rats treated with the goat anti-IL-6 antibody was comparable to the reduction in angiogenic area observed in rats treated with the goat anti-VEGF antibody.

The figure below presents the reduction in angiogenic area observed at day 22 in rats treated with vehicle, goat anti-VEGF antibody and goat anti-IL-6 antibody. The difference in angiogenic area between rats treated with goat anti-VEGF antibody and vehicle was statistically significant (p=0.0003). The difference in angiogenic area between rats treated with the goat anti-IL-6 antibody and vehicle also was statistically significant (p=0.0005). We believe that this model suggests IL-6 inhibition may reduce the inflammation associated with DME.

34

Table of Contents

We believe that a significant shortcoming of current treatments of DME is the need for frequent injections of the therapeutic agent, typically anti-VEGF therapy, into the eye. We compared the half-life of EBI-031 to aflibercept, marketed under the trademark Eylea™, and tocilizumab in a standard rabbit model of pharmacokinetics of intravitreal agents. Aflibercept is an anti-VEGF agent approved for the treatment of DME. Anti-VEGF therapies are the standard of care for the treatment of DME.

The table below shows that EBI-031 remained in the vitreous, the gel-filled center of the eye, nearly twice as long as aflibercept and twice as long as tocilizumab. We believe that the longer half-life, or T_1/2, of EBI-031 in the vitreous compared to aflibercept may lead to less frequent injections of EBI-031 than current treatment regimens with aflibercept.

We have also engineered EBI-031 to be cleared more rapidly from systemic circulation than most antibodies approved for systemic administration in humans. We believe that more rapid clearance from the systemic circulation of an antibody that transits from the eye lowers systemic exposure, which could reduce the risk of side-effects.

EBI-028 – a Novel Inhibitor of the Cytokine IL-17

Uveitis is a heterogeneous group of ocular conditions that are characterized by inflammation of the middle layer of the eye known as the uvea. Based on prevalence data published in the peer reviewed journal American Journal of Ophthalmology and 2010 United States census data, we estimate that approximately 215,000 to 315,000 individuals in the United States suffer from some form of uveitis. According to the peer reviewed journal British Journal of Ophthalmology, uveitis also accounts for approximately 10% to 15% of cases of blindness in the United States. In a study published in the peer reviewed journal Basic and Clinical Immunology, patients with uveitis had elevated serum levels of IL-17. In addition, in a published study in the peer reviewed Journal of Translational Medicine, patients with dry AMD and geographic atrophy, a serious disease of the retina, had increased serum concentrations of IL-17 compared to healthy individuals.

The two most common forms of the inflammatory cytokine IL-17 are IL-17A and IL-17F. We believe that blocking both of these two forms of IL-17 may be important to inhibit the harmful effects of IL-17 in certain diseases of the eye such as uveitis and dry AMD.

We designed and engineered EBI-028 using our AMP-Rx platform to block IL-17A and IL-17F. We are unable to test EBI-028 in animal models because EBI-028 only blocks human IL-17. In an in vivo study in a mouse model of uveitis of the retina and choroid, we used a commercially available anti-IL-17 antibody that blocks mouse IL-17. In this study, we observed a significant reduction in inflammation in the eyes of animals treated with this anti-IL-17 antibody compared to animals that received placebo.

35

Table of Contents

The graphs below illustrate the blocking of IL-17A and IL-17F signaling in an in vitro cell-based assay by increasing concentrations of EBI-028 and of a reference IL-17 receptor fusion protein, comprised of the natural, human IL-17 receptor fused to a carrier protein, or H17RA-Fc. EBI-028 blocked signaling of IL-17A (left panel) and also IL-17F (right panel). In contrast, H17RA-Fc blocked signaling of IL-17A (left panel) but did not effectively block signaling of IL-17F (right panel). We believe the ability of EBI-028 to block both IL-17A and IL-17F could lead to improved biological effect.

Intellectual Property

Our success depends in part on our ability to obtain and maintain proprietary protection for our candidate products, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. We seek to protect our proprietary position by, among other things, filing U.S. and certain foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business, where patent protection is available. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position.

As of March 1, 2015, we owned or exclusively in-licensed a total of 20 families of patent applications. As of March 1, 2015, our patent portfolio includes the following patents and applications that we own or, where noted below, license:

36

Table of Contents

The term of individual patents depends upon the legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country. In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the United States Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration date of a U.S. patent as partial compensation for the length of time the drug is under regulatory review while the patent is in force. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended.

Similar provisions are available in the European Union and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our product candidates, including EBI-005, receive approval by the FDA or foreign regulatory authorities, we expect to apply for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials for each drug and other factors. The expiration dates referred to above are without regard to potential patent term extension or other market exclusivity that may be available to us.

We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.

License and Collaboration Agreements

We are a party to a number of license agreements under which we license patents, patent applications and other intellectual property from third parties. We enter into these agreements to augment our proprietary intellectual property portfolio. The licensed intellectual property covers some of the compounds that we are researching and developing and some of the scientific processes that we use. These licenses impose various diligence and financial payment obligations on us. We expect to continue to enter into these types of license agreements in the future. The only existing license that we consider to be material to our current product portfolio is our agreement with Schepens, which is described below.

37

Table of Contents

The Schepens Eye Research Institute, Inc.

In July 2010, we entered into a license agreement with Schepens, under which we hold an exclusive worldwide license under specified patents and technology owned or controlled by Schepens to research, develop, make, have made, use, sell, offer for sale and import products for the treatment of inflammation of the eye and adjoining tissues, or anti-IL-1 products, including EBI-005. Schepens has retained rights to practice the patents and technology licensed to us under the agreement for internal research and educational purposes.

Financial Terms. In connection with the agreement, we paid Schepens an upfront licensing fee, are obligated to make a milestone payment to Schepens as a result of the initiation of our first Phase 3 clinical trial of EBI-005 and are obligated to make future milestone payments to Schepens with respect to the first covered anti-IL-1 product to achieve each milestone, which we expect will be EBI-005, of up to an aggregate of $1,600,000 if we achieve specified clinical and regulatory milestones and an additional $1,000,000 if we achieve a specified commercial milestone. We also are obligated to make additional future payments to Schepens of up to an aggregate of $1,600,000 if we achieve specified clinical and regulatory milestones with respect to a second covered anti-IL-1 product. We are also obligated to make additional payments to Schepens of up to an aggregate of $145,000 upon the occurrence of certain other events which we believe are unlikely to occur.

We are obligated to pay Schepens a tiered royalty ranging from low single digit to mid-single digit percentages of net sales made by us, our affiliates or our sublicensees. These royalties may be reduced in specified circumstances. Our obligation to pay royalties will expire on a product-by-product and country-by-country basis upon the expiration of the last to expire valid claim of specified patents that cover the composition, manufacture or use of each covered product in each country.

In addition, we are obligated to pay Schepens a mid-single digit percentage of any non-royalty payments that we receive from any sublicensee of our rights under the agreement.

Diligence Obligations. We are required to use commercially reasonable efforts to research, develop and commercialize at least one covered product for the diagnosis, prophylaxis or treatment of a disease or condition in humans or animals.

Term and Termination. The agreement, unless earlier terminated by us or Schepens, will remain in effect until we no longer have a royalty obligation to Schepens. The agreement provides that either party may terminate the agreement in the event of the other party’s insolvency, bankruptcy or comparable proceedings, or if the other party materially breaches the agreement and does not cure such breach during a specified cure period.

ThromboGenics, N.V.

In May 2013, we entered into a collaboration and license agreement with ThromboGenics. Under the agreement, we and ThromboGenics are collaborating to identify protein or peptide therapeutics that directly modulate any of a specified set of targets in a novel pathway in retinal disease. We call the therapeutics that are identified, and whose modulation of one of the targets is confirmed, in the course of the collaboration, collaboration products.

During the term of the agreement, neither we nor ThromboGenics, nor our respective affiliates other than any entities which become affiliates as a result of an acquisition of us or ThromboGenics, are permitted to research, develop, manufacture or commercialize any protein or peptide therapeutic that directly modulates one of the specified targets, except as otherwise provided in the agreement.

Research and Development Obligations. The initial research term is for a specified number of months from the date we entered into the agreement, but may be extended on mutual agreement. The research is conducted in accordance with a mutually agreed plan and budget. We are responsible for specified non-clinical activities during the research term. ThromboGenics is responsible for all development, manufacturing and commercialization activities with respect to the collaboration products. ThromboGenics is obligated to use

38

Table of Contents

commercially reasonable efforts to research, develop and obtain all necessary regulatory approvals for the collaboration products and, upon receipt of the applicable marketing approval, to commercialize the collaboration products.

Intellectual Property. We and ThromboGenics jointly own any know-how made by or on behalf of either of us in the course of the research and any patent rights claiming such know-how. We call these patent rights and know-how collaboration intellectual property. We have granted ThromboGenics an exclusive, sublicenseable, royalty-bearing license under our rights in these patent rights and know-how, as well as under any other patent rights and know-how that we control during the research term that are necessary for ThromboGenics to perform its obligations to research, develop, manufacture and commercialize collaboration products.

Financial Terms. In connection with the agreement, ThromboGenics paid us a technology licensing fee of $1,750,000 and is obligated to pay us to perform our activities under the agreement at a set rate per full-time equivalent person working on the collaboration. ThromboGenics also is obligated to make future payments to us of up to an aggregate of $10,000,000 if ThromboGenics achieves specified preclinical and clinical milestones with respect to collaboration products and up to an aggregate of $15,000,000 if ThromboGenics achieves specified regulatory milestones with respect to collaboration products. ThromboGenics is obligated to pay us a low single digit royalty on sales of collaboration products by ThromboGenics, its affiliates or sublicensees. These royalties may be reduced in specified circumstances. ThromboGenics’ obligation to pay us royalties will expire on a collaboration product-by-collaboration product and country-by-country basis on the latest of ten years after the first commercial sale of such compound in such country, the expiration of the patent rights we licensed to ThromboGenics that cover such compound in such country, and the expiration of any data or other regulatory exclusivity for such compound in such country, after which the licenses granted to ThromboGenics will become perpetual and fully paid-up.

Term and Termination. The agreement expires when all of ThromboGenics’ payment obligations expire. The agreement provides that either party may terminate the agreement in the event of the other party’s insolvency, bankruptcy or comparable proceedings, or if the other party materially breaches the agreement and does not cure such breach during a specified cure period. We may terminate the agreement if ThromboGenics or any of its affiliates or licensees challenges the patent rights that we licensed to ThromboGenics. The agreement may be terminated by ThromboGenics for convenience by giving us a specified period of notice following the end of the research term. If ThromboGenics terminates the agreement for our breach or bankruptcy, ThromboGenics’ diligence obligations will terminate, the licenses we granted to ThromboGenics will remain in effect on a perpetual basis, and all milestone and royalty obligations of ThromboGenics will be reduced by a specified percentage.

Manufacturing

We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of EBI-005 or any other of our product candidates. We currently rely, and expect to continue to rely, on third parties for the manufacture of EBI-005 and our other product candidates. We have personnel with the experience to manage the third-party contract manufacturers producing EBI-005 and other products that we may develop in the future. The process for manufacturing EBI-005 has two main stages: drug substance manufacturing and drug product manufacturing, which results in our finished drug product. We currently engage a single third-party manufacturer to provide clinical supplies of EBI-005 and another single third-party manufacturer to provide fill-finish services for clinical supplies of EBI-005. We obtain these supplies and services on a purchase order basis. The drug substance manufacturing process utilizes a well-established expression system for recombinant protein therapeutics and includes downstream purification steps using readily available materials. The drug product manufacturing process utilizes our proprietary formulation, is conducted with materials that have been utilized in other approved ophthalmic products, and is configured in a blow fill seal, single-use vial that has also been used for other topical ocular therapeutic products. The manufacturing process and drug product formulation are proprietary to us and were transferred to third-party vendors for the execution of manufacturing.

39

Table of Contents

Commercialization

In light of our stage of development, we have not yet established a commercial organization or distribution capabilities. We generally expect to retain commercial rights in the United States for our product candidates for which we may receive marketing approvals and which we believe we can commercialize through a focused, specialty sales force. We expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with one or more third parties to commercialize EBI-005 and any other products that we develop in markets outside the United States.

We hold worldwide commercialization rights to EBI-005. We believe that specialists in the United States who treat most of the moderate to severe dry eye disease patients are sufficiently concentrated that if EBI-005 receives marketing approval in the United States we could effectively promote EBI-005 to these specialists with a specialty sales and marketing group. Therefore, we may decide to build our own focused, specialty sales force in order to commercialize EBI-005 in the United States. We intend to enter into strategic collaborations for the development and commercialization of EBI-005 outside of the United States.

We also plan to build key capabilities, such as marketing, market access, sales management and medical affairs, to implement marketing and medical strategies for any products that we market through our own sales organization and to oversee and support our sales force. The responsibilities of the marketing organization would include developing educational initiatives with respect to approved products and establishing relationships with thought leaders in relevant fields of medicine.

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technologies, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.

Our potential competitors include large pharmaceutical and biotechnology companies, and specialty pharmaceutical and generic drug companies. Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

The key competitive factors affecting the success of each of our product candidates, if approved for marketing, are likely to be its efficacy, safety, method of administration, convenience, price, the level of generic competition and the availability of coverage and adequate reimbursement from government and other third-party payors.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors’ establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third party payors seeking to encourage the use of generic products. Generic products are currently being used for the indications that we may pursue, and

40

Table of Contents

additional products are expected to become available on a generic basis over the coming years. If our product candidates achieve marketing approval, we expect that they will be priced at a significant premium over competitive generic products.

Allergan, Inc., or Allergan, currently markets Restasis in the United States. If we receive marketing approval in the United States for EBI-005 for the treatment of moderate to severe dry eye disease, EBI-005 will compete with Restasis. In June 2013, the FDA issued draft bioequivalence guidance recommending that a biochemical analysis outside the body, or in vitro, alone may be sufficient for generic competitors to establish bioequivalence between their products and Restasis. In August 2013, Allergan submitted comments in response to the FDA’s draft guidance urging the agency to require comparative clinical studies to demonstrate that a proposed generic product is bioequivalent to Restasis. Subsequently, Allergan submitted a citizen petition in which Allergan called for in vivo comparative clinical endpoint studies, rather than in vitro studies, to govern FDA review and approval of generic versions of Restasis. On November 20, 2014, the FDA denied the citizen petition. It is unclear when the FDA will issue final bioequivalence guidance or when, if at all, the FDA will approve generic versions of Restasis. If generic versions of Restasis are approved for marketing by the FDA, they would likely be offered at a lower price than EBI-005. As a result, healthcare professionals and third-party payors may choose to rely on such products rather than EBI-005.

There are a number of products in preclinical research and clinical development by third parties for the treatment of dry eye disease. We expect that product candidates currently in clinical development, or that could enter clinical development in the near future, may represent significant competition if approved. These product candidates may provide efficacy, safety, convenience and other benefits that are not provided by currently marketed therapies. Based on publicly available information, we have identified, among others, the following product candidates in clinical development for the treatment of dry eye disease:

41

Table of Contents

In December 2013, the results of the first Phase 3 clinical trial of twice daily lifitegrast in patients with dry eye disease were published in JAMA Ophthalmology. In this trial, referred to by Shire as the OPUS-1 trial, there was an improvement of 3% in the pre-specified co-primary endpoint of CFS of the lower quadrant, or inferior CFS, a sign of dry eye disease, in patients treated with lifitegrast from baseline at 84 days, which was statistically significant when compared to the differences from baseline at 84 days in patients who received vehicle control. Improvements on other signs of dry eye disease were observed as early as 14 days after treatment began. In addition, patients treated with lifitegrast showed a statistically significant improvement in ocular discomfort and eye dryness, symptoms of dry eye disease, as reported by patients on a visual analogue scale from baseline at 84 days when compared to the differences from baseline at 84 days in patients who received vehicle control. In December 2013, Shire announced top-line results of the second Phase 3 trial of twice daily lifitegrast in patients with dry eye disease. In this trial, referred to by Shire as the OPUS-2 trial, patients treated with lifitegrast showed a statistically significant improvement on the pre-specified co-primary symptom endpoint of eye dryness, as reported by patients on a visual analogue scale, from baseline at 84 days when compared to the differences from baseline at 84 days in patients who received vehicle control. Shire reported that lifitegrast did not meet the pre-specified co-primary endpoint of inferior CFS in the OPUS-2 trial. In both the OPUS-1 and OPUS-2 trials, Shire reported that one of the most commonly reported treatment-emergent adverse events in patients treated with lifitegrast was dysgeusia, or altered sense of taste, which was reported in approximately 13% of patients in the OPUS-1 trial and approximately 16% of patients in the OPUS-2 trial.

Because there are a variety of means to block the activity and signaling of IL-1, our patents and other proprietary protections for EBI-005 will not prevent development or commercialization of product candidates that are different from EBI-005.

Government Regulation

Government authorities in the United States, at the federal, state, and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

Review and Licensure of Biologics in the United States

In the United States, the FDA regulates biological products, or biologics, under the Public Health Service Act, or PHSA, and the Federal Food, Drug, and Cosmetic Act, or FDCA, and regulations and guidances implementing these laws. The failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls,

42

Table of Contents

product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice, or DOJ, or other governmental entities.

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

Preclinical Studies and an IND

Preclinical studies include laboratory evaluation of the purity and stability of the biologic product, as well as in vitro and animal studies to assess the safety and activity of the product for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. 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, are submitted to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive toxicology and carcinogenicity, may continue after the IND is submitted.

Human Clinical Studies in Support of a BLA

Clinical trials involve the administration of the investigational biologic 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, inclusion and exclusion criteria, and 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. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials 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.

43

Table of Contents

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 the FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the National Institute of Health for public dissemination on their ClinicalTrials.gov website. These requirements are subject to specific timelines and apply to most controlled clinical trials of FDA-regulated products.

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

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. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the biologic; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. 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 biologic has been associated with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted in a BLA.

Submission of a BLA 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 a BLA requesting licensure of the biologic product for one or more indications. Under federal law, the submission of most BLAs is additionally subject to an application user fee, currently at least $2.3 million, and the sponsor of an approved BLA is also subject to annual product and establishment user fees, currently at least $110,370 per product and $569,200 per establishment. These fees are typically increased annually.

The FDA conducts a preliminary review of a BLA within 60 days of its receipt and informs the sponsor by the 74^th 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 a BLA 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

44

Table of Contents

begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of BLAs. 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.

The FDA may also refer an application for a biologic product 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.

Compliance with cGMP Requirements

Before approving a BLA, 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 full compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The PHSA emphasizes the importance of manufacturing control for products like biologics whose attributes cannot be precisely defined.

Manufacturers and others involved in the manufacture and distribution of biologic products must also register their establishments with the FDA and certain state agencies. Both domestic and foreign manufacturing establishments must register and provide additional information to the FDA upon their initial participation in the manufacturing process. Any product manufactured by or imported from a facility that has not registered, whether foreign or domestic, is deemed misbranded under the FDCA. Establishments may be subject to periodic unannounced inspections by government authorities to ensure compliance with cGMPs and other laws. Inspections must follow a “risk-based schedule” that may result in certain establishments being inspected more frequently. Manufacturers may also have to provide, on request, electronic or physical records regarding their establishments. Delaying, denying, limiting, or refusing inspection by the FDA may lead to a biologic being deemed to be adulterated.

FDA’s Decision on a BLA

Under the PHSA, the FDA may approve a BLA if it determines that the product is safe, pure and potent and the facility where the product will be manufactured meets standards designed to ensure that it continues to be safe, pure and potent.

On the basis of the FDA’s evaluation of the BLA 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 biologic product with detailed prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the BLA, 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 new biologic product, it may limit the approved indications for use of the product. It may also require that contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may call for post-approval studies, including Phase 4 clinical trials, to further assess the product’s safety after approval. The agency may also require testing and surveillance programs to monitor the product after

45

Table of Contents

commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, to help ensure that the benefits of the biologic outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patent registries. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many 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.

Post-Approval Requirements

Biologics 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.

A biologic product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on lots of some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety, purity, potency, and effectiveness of biological products.

In addition, manufacturers and other entities involved in the manufacture and distribution of approved biologics 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.

The FDA may withdraw the license for a biologic 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 of unanticipated severity or frequency, or with the manufacturing processes, 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:

46

Table of Contents

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Products 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 liability.

Biosimilars and Exclusivity

The 2010 Patient Protection and Affordable Care Act, which was signed into law on March 23, 2010, included a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCIA. That Act established a regulatory scheme authorizing the FDA to approve biosimilars and interchangeable biosimilars. To date, no biosimilar or interchangeable biosimilar has been licensed under the BPCIA, although biosimilars have been approved in Europe. The FDA has issued several draft guidance documents outlining an approach to review and approval of biosimilars.

Under the Act, a manufacturer may submit an application for licensure of a biologic product that is “biosimilar to” or “interchangeable with” a previously approved biological product or “reference product.” In order for the FDA to approve a biosimilar product, it must find that there are no clinically meaningful differences between the reference product and proposed biosimilar product in terms of safety, purity, and potency. For the FDA to approve a biosimilar product as interchangeable with a reference product, the agency must find that the biosimilar product can be expected to produce the same clinical results as the reference product, and (for products administered multiple times) that the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.

Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date of approval of the reference product. The FDA may not approve a biosimilar product until 12 years from the date on which the reference product was approved. Even if a product is considered to be a reference product eligible for exclusivity, another company could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of their product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.

Orphan Designation and Exclusivity

Under the Orphan Drug Act, the FDA may designate a biologic product as an “orphan drug” if it is intended to treat a rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a biologic product available in the United States for treatment of the disease or condition will be recovered from sales of the product). A company must request orphan product designation before submitting a BLA. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product with orphan status receives the first FDA approval for the disease or condition for which it has such designation, the product will be entitled to orphan product exclusivity. Orphan product exclusivity means that the FDA may not approve any other applications for the same product for the same indication for seven years, except in certain limited circumstances. Competitors may receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for the same product but for a different indication. If a product designated as an orphan product ultimately receives marketing approval for an indication broader than what was designated in its orphan product application, it may not be entitled to exclusivity.

47

Table of Contents

Pediatric Studies and Exclusivity

Under the Pediatric Research Equity Act of 2003, a BLA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With enactment of the Food and Drug Administration Safety and Innovation Act, or FDASIA, in 2012, sponsors must also submit pediatric study plans prior to the date of review of any application for marketing approval of the product. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.

The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.

Pediatric exclusivity is a type of non-patent exclusivity in the United States and, if granted, provides for an additional six months of marketing protection beyond the term of any existing regulatory exclusivity, including the non-patent and orphan product exclusivity. This six-month exclusivity may be granted if a BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot accept or approve a biosimilar application.

Patent Term Restoration and Extension

A patent claiming a new biologic product may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration period granted is typically one-half the time between the effective date of an IND and the submission date of a BLA, plus the time between the submission date of a BLA and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an approved product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple products for which approval is sought can only be extended in connection with one of the approvals. The United States Patent and Trademark Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA.

Review and Approval of Biologics in the European Union

In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of products. Whether or not it obtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required

48

Table of Contents

to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

Pursuant to the European Clinical Trials Directive, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, an applicant must obtain approval from the competent national authority of a European Union member state in which the clinical trial is to be conducted. Furthermore, the applicant may only start a clinical trial after a competent ethics committee has issued a favorable opinion. Clinical trial application must be accompanied by an investigational medicinal product dossier with supporting information prescribed by the European Clinical Trials Directive and corresponding national laws of the member states and further detailed in applicable guidance documents.

To obtain marketing approval of a product under European Union regulatory systems, an applicant must submit a marketing authorization application, or MAA, either under a centralized or decentralized procedure.

The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all European Union member states. The centralized procedure is compulsory for specific products, including for medicines produced by certain biotechnological processes, products designated as orphan medicinal products, advanced therapy products and products with a new active substance indicated for the treatment of certain diseases. For products with a new active substance indicated for the treatment of other diseases and products that are highly innovative or for which a centralized process is in the interest of patients, the centralized procedure may be optional.

Under the centralized procedure, the CHMP established at the EMA is responsible for conducting the initial assessment of a product. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization. Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. In this circumstance, the EMA ensures that the opinion of the CHMP is given within 150 days.

The decentralized procedure is available to applicants who wish to market a product in various European Union member states where such product has not received marketing approval in any European Union member states before. The decentralized procedure provides for approval by one or more other, or concerned, member states of an assessment of an application performed by one member state designated by the applicant, known as the reference member state. Under this procedure, an applicant submits an application based on identical dossiers and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states. The reference member state prepares a draft assessment report and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member state’s assessment report and related materials, each concerned member state must decide whether to approve the assessment report and related materials.

If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed points are subject to a dispute resolution mechanism and may eventually be referred to the European Commission, whose decision is binding on all member states.

Data and Market Exclusivity in the European Union

In the European Union, new chemical entities qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic, or

49

Table of Contents

abbreviated, application for eight years, after which generic marketing authorization can be submitted, and the innovator’s data may be referenced, but not approved for two years. The overall ten-year period will be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entity and the sponsor is able to gain the prescribed period of data exclusivity, another company nevertheless could also market another version of the product if such company can complete a full MAA with a complete database of pharmaceutical test, preclinical tests and clinical trials and obtain marketing approval of its product.

Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Sales of any products will depend, in part, on the availability of coverage and adequate reimbursement from third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.

In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on investment in product development.

The containment of healthcare costs has become a priority of federal and state and foreign governments, and the prices of pharmaceuticals have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit. The federal government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription products. Adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals.

As a result, the marketability of any of our product candidates that receive regulatory approval for commercial sale may suffer if the government or other third-party payors fail to provide coverage and adequate reimbursement. In addition, an increasing emphasis on managed care in the United States has increased and will likely continue to increase the pressure on product pricing. Coverage policies, third-party reimbursement rates and product pricing regulation may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products that receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

In the European Union and other foreign countries, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a reimbursement price has been agreed upon. Some countries may require the completion of additional studies that compare the cost-

50

Table of Contents

effectiveness of a particular biologic candidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the product on the market. Other member states allow companies to fix their own prices for products, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become 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 competitive pressure that may reduce pricing within a country. Any country that has price controls or reimbursement limitations may not allow for favorable reimbursement and pricing arrangements.

Impact of Healthcare Reform on Coverage, Reimbursement, and Pricing

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and/or affect our ability to profitably sell any product candidates for which we obtain marketing approval.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, established the Medicare Part D program and provided authority for limiting the number of drugs that will be covered in any therapeutic class thereunder. The MMA, including, without limitation, its cost reduction initiatives, could limit the coverage of and reduce the reimbursement rate that we receive for any of our approved products. Furthermore, private payors often follow Medicare coverage policies and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

PPACA, among other things, imposes a significant annual fee on companies that manufacture or import branded prescription drug products. It also contains substantial new provisions intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for the healthcare industry, impose new taxes and fees on pharmaceutical manufacturers, and impose additional health policy reforms, any or all of which may affect our business. A significant number of provisions are not yet, or have only recently become, effective, but PPACA is likely to continue the downward pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

Other legislative changes have also been proposed and adopted since PPACA was enacted. For example, the Budget Control Act of 2011 resulted in aggregate reductions in Medicare payments to providers of up to 2% per fiscal year, starting in 2013, and the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding.

We expect that PPACA, as well as other healthcare reform measures that have been and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products.

51

Table of Contents

Healthcare Law and Regulation

Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of products that are granted marketing approval. Arrangements with third-party payors and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictions under applicable federal and state healthcare laws and regulations, include the following:

Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Business Segment and Geographical Information

Operating segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business in one operating segment. The Company operates in one geographic segment.

52

Table of Contents

Employees

At December 31, 2014, we had 21 full-time employees, including a total of 13 with M.D. or Ph.D. degrees. Of these full-time employees, 14 employees are engaged in research and development activities and seven employees are engaged in finance, legal, human resources, facilities and general management. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relations with our employees to be good.

Our Corporate Information

We were incorporated under the laws of the State of Delaware in 2008. We were formerly known as Denovo Therapeutics, Inc. and Newco LS14, Inc. before changing our name to Eleven Biotherapeutics, Inc. Our principal executive offices are located at 215 First Street, Suite 400, Cambridge, Massachusetts 02142, and our telephone number is (617) 871-9911.

Available Information

We maintain an internet website at www.elevenbio.com and make available free of charge through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We make these reports available through our website as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the SEC. You can find, copy and inspect information we file at the SEC’s public reference room, which is located at 100 F Street, N.E., Room 1580, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the SEC’s public reference room. You can review our electronically filed reports and other information that we file with the SEC on the SEC’s web site at http://www.sec.gov. We also make available, free of charge on our website, the reports filed with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons. The information on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be a part of this Annual Report on Form 10-K. Our website address is included in this Annual Report on Form 10-K as an inactive technical reference only.

Risks Related to Our Financial Position and Need For Additional Capital

We have incurred significant losses since our inception. We expect to incur losses over the next several years and may never achieve or maintain profitability.

Since inception, we have incurred significant operating losses. Our net loss was $34.2 million for the year ended December 31, 2014, $18.0 million for the year ended December 31, 2013 and $19.7 million for the year ended December 31, 2012. As of December 31, 2014, we had an accumulated deficit of $91.8 million. To date, we have financed our operations primarily through private placements of our common stock and preferred stock and convertible bridge notes, venture debt borrowings and our initial public offering, or IPO, and, to a lesser extent, from a collaboration. All of our revenue to date has been collaboration revenue, which we first began to generate in 2013. We have devoted substantially all of our financial resources and efforts to research and development, including preclinical studies and, beginning in 2012, clinical trials. We are still in the early stages of development of our product candidates, and we have not completed development of any drugs. We expect to continue to incur significant expenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year.

53

Table of Contents

We anticipate that our expenses will increase substantially as compared to prior periods in connection with conducting our pivotal Phase 3 clinical program, consisting of two Phase 3 clinical trials evaluating the safety and efficacy of EBI-005, our most advanced product candidate, for the treatment of moderate to severe dry eye disease and a separate clinical trial evaluating the safety of treatment with EBI-005 for one year, and, if successful, seeking marketing approval for EBI-005 for this indication in the United States. We began randomizing and treating patients in our first Phase 3 trial in January 2014.

We received scientific advice from the European Medicine Agency’s, or EMA, Committee for Medicinal Products for Human Use, or CHMP, that indicates that the requirements for European registration in dry eye disease will differ from the requirements for registration in the United States and our pivotal Phase 3 clinical program is not consistent with the advice of the CHMP. We plan to further discuss with the EMA a registration plan for EBI-005 in moderate to severe dry eye disease for the European Union. We may be required to conduct additional clinical trials to support an application for marketing approval of EBI-005 in the European Union. We anticipate that our expenses will increase substantially if we pursue, alone or in collaboration with third parties, the development of and seek marketing approval for EBI-005 for the treatment of moderate to severe dry eye disease in the European Union.

Our expenses will also increase if and as we:

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Our expenses will increase substantially if:

54

Table of Contents

Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate significant revenue unless and until we obtain marketing approval for, and commercialize, EBI-005, which we do not expect will occur before 2017, if ever. This will require us to be successful in a range of challenging activities, including:

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part of their investment.

We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We expect to devote substantial financial resources to our ongoing and planned activities, particularly completing our pivotal Phase 3 clinical program evaluating EBI-005 for the treatment of moderate to severe dry eye disease and, if successful, seeking marketing approval for EBI-005. We expect to devote additional financial resources to the clinical development of EBI-005 as we initiate and conduct additional clinical trials of EBI-005 for the treatment of dry eye disease in the European Union and for the treatment of allergic conjunctivitis or other diseases and to functions associated with operating as a public company. We also expect to devote additional financial resources to conducting research and development, if we determine to proceed into clinical development, initiating clinical trials of, and seeking regulatory approval for, our other product candidates. In addition, if we obtain regulatory approval for any of our product candidates, we would need to devote substantial financial resources to commercialization efforts, including product manufacturing, marketing, sales and distribution. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

Our future capital requirements will depend on many factors, including:

55

Table of Contents

As of December 31, 2014, we had cash and cash equivalents of $54.1 million. We believe that our cash and cash equivalents as of December 31, 2014 will enable us to fund our operating expenses, debt service obligations and capital expenditure requirements into 2016, without giving effect to any potential milestone payments we may receive under our existing collaboration and license agreement with ThromboGenics. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. We are planning to spend significant funds to complete our Phase 3 clinical program evaluating EBI-005 and to submit a Biologics License Application, or BLA, to the FDA seeking approval of EBI-005 for the treatment of dry eye disease in the United States by the end of 2016. We also are planning to spend significant funds on other development programs, including possible additional clinical trials of EBI-005 for the treatment of allergic conjunctivitis. At this time we cannot reasonably estimate the remaining costs necessary to prepare and submit the BLA seeking approval of EBI-005 and commercialize EBI-005 for the treatment of dry eye disease, including commercial manufacturing of EBI-005, or the nature, timing or costs of the efforts necessary to complete the development of EBI-005 for the treatment of allergic conjunctivitis or another disease or to complete the development of any other product candidate we may develop.

Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. Our commercial revenues, if any, will be derived from sales of EBI-005 or any other products that we successfully develop, none of which we expect to be commercially available for several years, if at all. In addition, if approved, EBI-005 or any other product candidate that we develop or any product that we in-license may not achieve commercial success. Accordingly, we will need to obtain substantial additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans.

56

Table of Contents

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, collaborations, strategic alliances, licensing arrangements and marketing and distribution arrangements. We do not have any committed external source of funds other than funding under our existing collaboration and license agreement with ThromboGenics in the form of research funding. Under this collaboration, we also may receive potential milestone payments upon the achievement of specified development, regulatory and other milestones and royalties with respect to future sales of collaboration products by ThromboGenics. ThromboGenics may terminate our existing collaboration for convenience on short notice. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights as holders of our common stock. For example, in December 2014, we issued and sold in a private placement an aggregate of 1,743,680 shares of our common stock, plus warrants to purchase a total of 871,840 additional shares of common stock, which resulted in dilution to our existing stockholders.

Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Our pledge of specified assets as collateral to secure our obligations under our existing loan and security agreement with our venture debt lender, Silicon Valley Bank, may limit our ability to obtain additional debt financing.

If we raise additional funds through government or other third-party funding, collaborations, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

Our limited operating history may make it difficult for our stockholders to evaluate the success of our business to date and to assess our future viability.

We are an early-stage company. We were incorporated and commenced active operations in early 2008, and our operations to date have been limited to organizing and staffing our company, acquiring rights to intellectual property, business planning, raising capital, developing our technology, identifying potential product candidates, undertaking preclinical studies and, beginning in 2012, conducting clinical trials of EBI-005. All of our product candidates, other than EBI-005, are still in preclinical development. We have not yet demonstrated our ability to successfully complete a pivotal Phase 3 clinical trial, obtain marketing approvals, manufacture at commercial scale, or arrange for a third party to do so on our behalf, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history.

In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

We expect our financial condition and operating results to continue to fluctuate significantly from quarter-to-quarter and year-to-year due to a variety of factors, many of which are beyond our control. Accordingly, our stockholders should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

57

Table of Contents

Risks Related to the Discovery and Development of Our Product Candidates

We depend heavily on the success of EBI-005, our most advanced product candidate, which we are developing for the treatment of moderate to severe dry eye disease. If we are unable to successfully complete our pivotal Phase 3 clinical program and obtain marketing approvals for EBI-005, or experience significant delays in doing so, or if after obtaining marketing approvals, we fail to commercialize EBI-005, our business will be materially harmed.

We have invested a significant portion of our efforts and financial resources in the development of EBI-005 for the treatment of patients with moderate to severe dry eye disease and for other disease indications. There remains a significant risk that we will fail to successfully develop EBI-005. In 2013, we completed a Phase 1b/2a clinical trial to evaluate the safety, tolerability and biological activity of EBI-005 in patients with moderate to severe dry eye disease. In 2014, we completed a Phase 2 clinical trial to evaluate the safety, tolerability and biological activity of EBI-005 in patients with allergic conjunctivitis. Our pivotal Phase 3 clinical program in dry eye disease will consist of two Phase 3 clinical trials evaluating EBI-005 for the treatment of moderate to severe dry eye disease and a separate clinical trial evaluating the safety of treatment with EBI-005 for one year. We began randomizing and treating patients in our first Phase 3 trial in January 2014. We do not expect to have initial, top-line data from our first Phase 3 trial available until the second quarter of 2015. The timing of the availability of such top-line data and the completion of our pivotal Phase 3 clinical program is dependent, in part, on our ability to locate and enroll a sufficient number of eligible patients in our pivotal Phase 3 clinical program on a timely basis. Even if the results of both of our Phase 3 clinical trials evaluating EBI-005 for the treatment of moderate to severe dry eye disease and our separate safety trial are favorable, we do not plan to submit a BLA to the FDA seeking approval of EBI-005 for the treatment of dry eye disease in the United States by the end of 2016. We cannot accurately predict when or if EBI-005 will prove effective or safe in humans or whether it will receive marketing approval. Our ability to generate product revenues, which we do not expect will occur before 2017, if ever, will depend heavily on our obtaining marketing approval for and commercializing EBI-005.

The success of EBI-005 will depend on several factors, including the following:

58

Table of Contents

Successful development of EBI-005 for additional indications, such as allergic conjunctivitis, or for use in broader patient populations and our ability, if it is approved, to broaden the label for EBI-005 will depend on similar factors. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize EBI-005, which would materially harm our business.

If clinical trials of EBI-005 or any other product candidate that we develop fail to demonstrate safety and efficacy to the satisfaction of the FDA, the EMA or other regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be delayed or unable to complete, the development and commercialization of EBI-005 or any other product candidate.

Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, including EBI-005, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.

We will be required to demonstrate the safety of treatment with EBI-005 for one year in a separate safety trial in order to support marketing approval of EBI-005 for the treatment of dry eye disease in the United States. To meet this requirement, we initiated a safety trial with no fewer than 100 patients who will be treated with EBI-005 for one year. We cannot predict the results of this safety trial because we have no clinical data on the safety of EBI-005 when administered for a period longer than six weeks and only limited clinical safety data on the effects of EBI-005 when formulated with the vehicle being used in our pivotal Phase 3 clinical program.

In general, the FDA requires two adequate and well controlled clinical trials demonstrating effectiveness on two primary endpoints for marketing approval of a dry eye disease drug. One of these co-primary endpoints must be a sign of dry eye disease and the other must be a symptom of dry eye disease. We are not aware of any investigational dry eye disease drug in development that has met these criteria. Regulatory authorities outside the United States, in particular in the European Union, have not issued public guidance on the requirements for approval of a dry eye drug. We have received scientific advice from the CHMP regarding European registration requirements for EBI-005 for the treatment of moderate to severe dry eye disease. The scientific advice indicates that the requirements for registration in the European Union will differ from the requirements for registration in the United States and our pivotal Phase 3 clinical program is not consistent with the advice of the CHMP. Our pivotal Phase 3 clinical program also may not be sufficient to support an application for marketing approval in other jurisdictions outside the United States.

Our Phase 1b/2a trial evaluated EBI-005 for the treatment of moderate to severe dry eye disease. In our Phase 1b/2a trial, neither of the doses of EBI-005 tested achieved statistically significant superiority compared to vehicle control based on any primary or secondary efficacy endpoints, including those we intend to use for our Phase 3 clinical trials.

Retrospective subgroup analyses that we performed on the results of our Phase 1b/2a clinical trial may not be predictive of the results of our pivotal Phase 3 clinical program. We have based many elements of the design of the protocol for our Phase 3 clinical trials on retrospective subgroup analyses, including our expected use of improvement in pain and discomfort as measured by the painful or sore eyes question of the ocular surface disease index, or OSDI, as the co-primary endpoint measuring a patient symptom. In our Phase 1b/2a trial, we used total OSDI scores as a secondary efficacy endpoint. Although we believe that the retrospective analyses

59

Table of Contents

support our protocol design for our Phase 3 clinical trials and our proposed mechanism of action, retrospective analyses performed after unmasking trial results can result in the introduction of bias, may not be predictive of future study results and are given less weight by regulatory authorities than pre-specified analyses.

We may fail to achieve success in our pivotal Phase 3 clinical program evaluating EBI-005 for the treatment of moderate to severe dry eye disease for a variety of potential reasons.

If, in our first Phase 3 clinical trial, we do not demonstrate a statistically significant improvement from baseline in the EBI-005 treatment group on a pre-specified co-primary endpoint, but we do demonstrate a statistically significant improvement from baseline in the EBI-005 treatment group on one of our secondary endpoints, we may decide to substitute that secondary endpoint for the co-primary endpoint in our second Phase 3 clinical trial prior to initiation of our second Phase 3 clinical trial. Whether this substitution and combination of results would be an acceptable means of meeting the FDA’s requirement that we duplicate in two adequate and well controlled clinical trials a statistically significant improvement on a clinically relevant sign and symptom would be a review issue at the time of our application for marketing approval. If the FDA does not find this to be an acceptable means of meeting the requirements for marketing approval, we will not receive marketing approval for EBI-005, and we will have to conduct another Phase 3 clinical trial if we wish to seek marketing approval for EBI-005 in the future.

The protocols for our pivotal Phase 3 clinical program and other supporting information are subject to review by the FDA and regulatory authorities outside the United States. The FDA or other regulatory authorities may request additional information, require us to conduct additional non-clinical trials or require us to modify our pivotal Phase 3 clinical program, including its endpoints or patient enrollment criteria, to receive clearance to initiate such program or to continue such program once initiated.

60

Table of Contents

In November 2013, we submitted to the FDA the protocol for our first pivotal Phase 3 clinical trial of EBI-005 and data supporting our change to a larger-scale manufacturing process for the production of EBI-005 to be used in this Phase 3 clinical trial. We submitted the protocol for our separate safety study to the FDA and intend to submit the protocol for our second pivotal Phase 3 clinical trial to the FDA prior to initiation of that trial. The FDA is not obligated to comment on our submissions within any specified time period or at all or to affirmatively clear or approve any clinical trial, and we are not obligated to wait for clearance or approval of the FDA to commence any clinical trial. We initiated our first pivotal Phase 3 clinical trial in the United States in January 2014 without waiting for comments from the FDA. On March 24, 2014, we received a letter from the FDA requesting additional information regarding the characterization of EBI-005 produced using our larger-scale manufacturing process based on the FDA’s product quality review of our November 2013 submission. We have responded to the FDA with the information the FDA requested. If the FDA is not satisfied with our responses, the FDA may delay our continuation of our first Phase 3 clinical trial or our initiation of our second Phase 3 clinical trial. If our Phase 3 program is placed on clinical hold by the FDA, we may be significantly delayed and incur significantly greater expense in our proposed development program. For example, our Phase 1b/2a trial of EBI-005 was placed on clinical hold between September 6, 2012 and October 29, 2012 until we provided particular manufacturing stability information regarding the drug product lots intended to be used in our clinical studies.

We submitted to the EMA a draft protocol for our Phase 3 clinical program of EBI-005 for the treatment of moderate to severe dry eye disease and sought and received scientific advice from the CHMP regarding European registration requirements for EBI-005. The scientific advice received indicates that the requirements for European registration in dry eye disease will differ from the requirements for registration in the United States and our pivotal Phase 3 clinical program is not consistent with the advice of the CHMP. We plan to further discuss with the EMA a registration plan for EBI-005 in moderate to severe dry eye disease for the European Union. The EMA may require us to conduct other clinical trials, in addition to those included in our Phase 3 clinical program, in order to support an application for marketing approval of EBI-005.

We also are required to submit our plans for clinical trials to each national regulatory authority in the European Union having jurisdiction over a country in which we wish to conduct these clinical trials. These national regulatory authorities are not obligated to follow the scientific advice of the EMA and may impose additional requirements on our conduct of clinical trials of EBI-005 in order to initiate clinical trials and support our application for marketing approval of EBI-005. If we are required by the EMA or a national regulatory authority in the European Union to conduct other clinical trials, in addition to those included in our Phase 3 clinical program, our expenses will increase substantially, and we may experience delays in completing the development and commercialization of EBI-005 in the European Union.

We have not received guidance from other regulatory authorities outside the United States regarding the design of our pivotal Phase 3 clinical program. We may not receive clearance from the EMA or other national regulatory authorities in the European Union or other regulatory authorities outside the European Union to initiate our pivotal Phase 3 clinical trials on a timely basis, if at all. Our Phase 2 trial of EBI-005 for the treatment of allergic conjunctivitis was conducted in Canada. We have not submitted an investigational new drug application, or IND, to the FDA for the purpose of conducting clinical trials of EBI-005 for the treatment of allergic conjunctivitis. We must submit an IND to the FDA before commencing clinical trials of EBI-005 for the treatment of allergic conjunctivitis in the United States. Submission of the IND may not result in the FDA allowing clinical trials to commence.

In our Phase 2 clinical trial of EBI-005 in patients with allergic conjunctivitis, we designed the Phase 2 study to evaluate the safety and efficacy of EBI-005 compared to vehicle-control in two models of allergen challenge adapted to evaluate the late phase response of allergy. The two models were a modified environmental exposure chamber model, or EEC, and a modified direct conjunctival allergen challenge model, or CAPT. Neither the modified CAPT nor the modified EEC has been used as the basis for approval by the FDA of any other treatment for allergic conjunctivitis. We met with the FDA’s Division of Transplant and Ophthalmology Products in February 2015 to discuss these results and our plans for a pivotal Phase 3 clinical program. Based in part on the

61

Table of Contents

discussions at that meeting and the scientific advice we received from the European Medicine Agency’s, or EMA, Committee for Medicinal Products for Human Use, or CHMP, we now believe that the CAPT model alone is not an appropriate model for the conduct of our pivotal clinical trials. We intend to use a natural environmental study design for further clinical development of EBI-005 for the treatment of allergic conjunctivitis. We have no clinical efficacy data on EBI-005 in a natural environmental study.

We believe that our pivotal Phase 3 clinical program in allergic conjunctivitis will consist of two Phase 3 clinical trials evaluating EBI-005 for the treatment of moderate to severe allergic conjunctivitis and a separate clinical trial evaluating the safety of treatment with EBI-005. If we cannot use the results of our separate safety study of EBI-005 in our Phase 3 clinical program in dry eye disease to satisfy the requirement for a separate safety study of EBI-005 in allergic conjunctivitis, we could experience a delay in completing our Phase 3 clinical program in allergic conjunctivitis and we would incur additional costs to complete this Phase 3 clinical program.

If we experience any of a number of possible unforeseen events in connection with our clinical trials, potential marketing approval or commercialization of our product candidates could be delayed or prevented.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize EBI-005 or any other product candidates that we may develop, including:

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

62

Table of Contents

Our product development costs will also increase if we experience delays in testing or marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for EBI-005 or our other product candidates that we may develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as EBI-005, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.

Patient enrollment is affected by other factors including:

Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays, could require us to abandon one or more clinical trials altogether and could delay or prevent our receipt of necessary regulatory approvals. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.

If serious adverse or unacceptable side effects are identified during the development of EBI-005 or any other product candidates that we may develop, we may need to abandon or limit our development of EBI-005 or such other product candidates.

If EBI-005 or any of our other product candidates are associated with serious adverse events or undesirable side effects in clinical trials or have characteristics that are unexpected, we may need to abandon their development or limit development to more narrow uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Although EBI-005 was generally well tolerated in our Phase 1b/2a dry eye trial and Phase 2 allergic

63

Table of Contents

conjunctivitis trial, we have no clinical safety data on exposure to EBI-005 for longer than six weeks. We have limited clinical safety data on patient exposure to EBI-005 formulated with the vehicle we are using in our Phase 3 dry eye clinical trials. Many compounds that initially showed promise in clinical or early stage testing for treating ophthalmic disease have later been found to cause side effects that prevented further development of the compound.

We may not be successful in our efforts to use our AMP-Rx platform to build a pipeline of product candidates.

A key element of our strategy is to use our proprietary AMP-Rx platform to rationally design, engineer and generate a pipeline of novel protein therapies and progress these therapies through clinical development for the treatment of a variety of ophthalmic diseases. Our research and development efforts to date have resulted in a pipeline of additional product candidates directed at the treatment of ophthalmic diseases. Other than EBI-005, our product candidates all are in early preclinical research and have not been tested in humans. These and any other potential product candidates that we identify may not be suitable for continued preclinical or clinical development, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If we do not successfully develop and commercialize our product candidates that we develop based upon our technological approach, we will not be able to obtain product revenues in future periods.

We may expend our 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 we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we 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 us to retain sole development and commercialization rights to such product candidate.

Risks Related to the Commercialization of Our Product Candidates

Even if EBI-005 or any other product candidate that we develop receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success and the market opportunity for EBI-005 may be smaller than we estimate.

If EBI-005 or any other product candidate that we develop receives marketing approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. Current treatments that are used for moderate to severe dry eye disease include low cost artificial tears, Restasis and low cost, off-label use of corticosteroids. These treatments are well established in the medical community, and doctors may continue to rely on these treatments rather than EBI-005, if and when it is approved for marketing by the FDA. In addition, it is possible that the FDA may approve generic versions of Restasis in the foreseeable future. If generic versions of Restasis are approved for marketing by the FDA, they would likely be offered at a substantially lower price than EBI-005. As a result, healthcare professionals and third-party payors may choose to rely on such products rather than EBI-005. If EBI-005 does not achieve an adequate level of acceptance, we may not generate significant product revenues and we may not become profitable.

64

Table of Contents

The degree of market acceptance of EBI-005 or any other product candidate that we may develop, if approved for commercial sale, will depend on a number of factors, including:

Our assessment of the potential market opportunity for EBI-005 is based on industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. If the actual market for EBI-005 is smaller than we expect, our product revenue may be limited and it may be more difficult for us to achieve or maintain profitability.

If we are unable to establish sales, marketing and distribution capabilities, we may not be successful in commercializing EBI-005 or any other product candidates that we may develop if and when they are approved.

We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of therapeutic products. To achieve commercial success for any product for which we have obtained marketing approval, we will need to establish sales, marketing and distribution capabilities, either ourselves or through collaborations or other arrangements with third parties.

In the future, we plan to build a focused sales and marketing infrastructure to market or co-promote EBI-005 and possibly other product candidates that we develop in the United States, if and when they are approved. There are risks involved with establishing our own sales, marketing and distribution capabilities. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of EBI-005 or any other product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize EBI-005 or any other product candidates on our own include:

65

Table of Contents

We expect to enter into arrangements with third parties to perform sales, marketing and distribution services in markets outside the United States. We may also enter into arrangements with third parties to perform these services in the United States if we do not establish our own sales, marketing and distribution capabilities in the United States or if we determine that such third-party arrangements are otherwise beneficial. Our product revenues and our profitability, if any, under any such third-party sales, marketing or distribution arrangements are likely to be lower than if we were to market, sell and distribute EBI-005 or any other product candidates that we may develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute EBI-005 or any other product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market EBI-005 or our other product candidates effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing EBI-005 or any other product candidates that we may develop.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

The development and commercialization of new drug products is highly competitive. We face competition with respect to EBI-005 and our other current product candidates, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we are developing our product candidates. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

The current standard of care for dry eye disease includes artificial tears and topical anti-inflammatory and immune-modulating drugs. The anti-inflammatory and immune-modulating drug market for the treatment of moderate to severe dry eye disease consists primarily of Restasis, which is approved for use in the United States, and off-label use of corticosteriods. Some patients with moderate to severe dry eye disease are effectively treated by the current standard of care therapies, some of which are available in generic form or offered at relatively low prices. There are also a number of products and therapies in preclinical research and clinical development by third parties to treat dry eye disease. Some of these competitive products and therapies are based on scientific approaches that are the same as or similar to our approach, and others are based on entirely different approaches. These companies include pharmaceutical companies, biotechnology companies, and specialty pharmaceutical and generic drug companies of various sizes, such as Shire Plc (lifitegrast), Mimetogen Pharmaceuticals Inc. (MIM-D3), Allergan, Inc. (AGN-195263 and Restasis-X, a new formulation of Restasis), Kala Pharmaceuticals, Inc. (loteprednol mucous prenetrating particle (KPI-121)), Ocular Technologies SARL (OTX-101), Ocular Therapeutics, Inc. (OTX-DP), Herantis Pharma Plc (Cis-urocanic acid (Cis-UCA)), Winston Laboratories, Inc. (Civamide nasal spray), Xigen SA (XG-104) and Parion Sciences, Inc. (P-321).

In 2013, the peer-reviewed journal JAMA Ophthalmology published the results of an exploratory clinical trial in 75 patients conducted by one of our scientific co-founders, Dr. Reza Dana, at the Massachusetts Eye and Ear Infirmary using anakinra to treat patients with moderate to severe dry eye disease. Interleukin-1, or IL-1, is the therapeutic target of both anakinra and EBI-005, and the mechanisms of action of anakinra and EBI-005 are very similar. For this proof-of-concept study, the investigators compounded, or reformulated, anakinra in eye drops at two different concentrations for topical administration. The investigators reported positive results from this trial. We believe that the investigators continue to treat dry eye patients using reformulated anakinra. We would face competition with respect to EBI-005 if reformulated anakinra was available commercially through compounding pharmacies or if a third party successfully completed pivotal clinical trials of, and received marketing approval for, reformulated anakinra for the treatment of dry eye disease.

66

Table of Contents

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than EBI-005 or other product candidates that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

In addition, our ability to compete may be affected in many cases by insurers or other third-party payors, particularly Medicare, seeking to encourage the use of generic products. Generic products are currently being used for the indications that we are pursuing, and additional products are expected to become available on a generic basis over the coming years. For example, in June 2013, the FDA’s Office of Generic Drugs released guidance for the development of generic versions of Restasis. If EBI-005 or any other product candidate that we may develop achieves marketing approval, we expect that it will be priced at a significant premium over competitive generic products.

Many of the companies against which we are competing or against which we may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Even if we are able to commercialize EBI-005 or any other product candidate that we may develop, the products may become subject to unfavorable pricing regulations, third-party coverage or reimbursement practices or healthcare reform initiatives, which could harm our business.

Our ability to commercialize EBI-005 or any other product candidates that we may develop successfully will depend, in part, on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government healthcare programs, private health insurers, managed care plans and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Coverage and reimbursement may not be available for EBI-005 or any other product that we commercialize and, even if they are available, the level of reimbursement may not be satisfactory.

Inadequate reimbursement may adversely affect the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for our products may be difficult. We may be required to conduct expensive pharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement relative to other therapies. If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize EBI-005 or any other product candidate for which we obtain marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also

67

Table of Contents

not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for any approved products that we develop would compromise our ability to generate revenues and become profitable.

The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

There can be no assurance that our product candidates or any products that we may in-license, if they are approved for sale in the United States or in other countries, will be considered medically reasonable and necessary for a specific indication, that they will be considered cost-effective by third-party payors, that coverage and an adequate level of reimbursement will be available, or that third-party payors’ reimbursement policies will not adversely affect our ability to sell our product candidates profitably.

Our strategy of obtaining rights to product candidates and approved products for the treatment of a range of ophthalmic diseases through in-licenses and acquisitions may not be successful.

We may expand our product pipeline through opportunistically in-licensing or acquiring the rights to other products, product candidates or technologies for the treatment of ophthalmic diseases. The future growth of our business may depend in part on our ability to in-license or acquire the rights to approved products, additional product candidates or technologies. However, we may be unable to in-license or acquire the rights to any such products, product candidates or technologies from third parties. The in-licensing and acquisition of pharmaceutical products is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire products, product candidates or technologies that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities.

In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to in-license or acquire the rights to the relevant product, product candidate or technology on terms that would allow us to make an appropriate return on our investment. Furthermore, we may be unable to identify suitable products, product candidates or technologies within our area of focus. If we are unable to successfully obtain rights to suitable products, product candidates or technologies, our ability to pursue this element of our strategy could be impaired.

68

Table of Contents

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we develop.

We face an inherent risk of product liability exposure related to the use of EBI-005 and any other product candidates that we develop in human clinical trials and will face an even greater risk if we commercially sell any products that we develop. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

We currently hold $5.0 million in product liability insurance coverage in the aggregate, with a per incident limit of $5.0 million, which may not be adequate to cover all liabilities that we may incur. We will need to increase our insurance coverage as we expand our clinical trials. We will need to further increase our insurance coverage if we commence commercialization of EBI-005 or any other product candidate that receives marketing approval. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Risks Related to Our Dependence on Third Parties

We have entered into one collaboration and in the future may enter into collaborations with other third parties for the development or commercialization of our product candidates, including EBI-005. If our collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

In May 2013, we entered into a collaboration and license agreement with ThromboGenics. Under the agreement, we and ThromboGenics are collaborating to identify protein or peptide therapeutics that directly modulate any of a specified set of targets in a novel pathway in retinal disease. This collaboration generally prohibits us, our affiliates and any entities which become affiliates of ours as a result of an acquisition of us by a third party, from researching, developing, manufacturing or commercializing any protein or peptide therapeutic that directly modulates one of the specified targets, except as otherwise provided in the agreement. This restriction may have the effect of preventing us from undertaking development and other efforts that may appear to be attractive to us.

We expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with third parties to commercialize EBI-005 in markets outside the United States. We also may enter into arrangements with third parties to perform these services in the United States if we do not establish our own sales, marketing and distribution capabilities in the United States or if we determine that such third-party arrangements are otherwise beneficial. We also may seek third-party collaborators for development and commercialization of other product candidates. Our likely collaborators for any sales, marketing, distribution, development, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. We are not currently party to any such arrangement. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities and efforts to successfully perform the functions assigned to them in these arrangements.

69

Table of Contents

Our existing collaboration with ThromboGenics and any future collaborations that we enter into, may pose a number of risks, including the following:

Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner, or at all. If our existing collaboration and license agreement with ThromboGenics, and any future collaborations that we enter into, do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of our product candidates could be delayed and we may need additional resources to develop our product candidates. All of the risks relating to product development, regulatory approval and commercialization described in this Annual Report on Form 10-K also apply to the activities of our collaborators.

70

Table of Contents

Additionally, subject to its contractual obligations to us, if a collaborator of ours were to be involved in a business combination, it might deemphasize or terminate the development or commercialization of any product candidate licensed to it by us. If one of our collaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and our perception in the business and financial communities could be harmed.

If we are not able to establish additional collaborations, we may have to alter our development and commercialization plans and our business could be adversely affected.

For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of therapeutic products. We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our product platform.

We rely, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.

We have relied on third parties, such as CROs, to conduct our clinical trials of EBI-005 and do not plan to independently conduct clinical trials of EBI-005 or our other product candidates. We expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct our clinical trials. These agreements might terminate for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternative arrangements, that would delay our product development activities.

Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as good clinical practices for conducting, recording and reporting the results of clinical trials to assure that data and reported results are

71

Table of Contents

credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.

Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.

We contract with third parties for the manufacture of EBI-005 for clinical trials and expect to continue to do so in connection with the commercialization of EBI-005 and for clinical trials and commercialization of any other product candidates that we may develop. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts

We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of EBI-005 or any other of our product candidates. We rely, and expect to continue to rely, on third parties to manufacture clinical and commercial supplies of EBI-005, preclinical and clinical supplies of our other product candidates that we may develop and commercial supplies of products if and when any of our product candidates receives marketing approval. Our current and anticipated future dependence upon others for the manufacture of EBI-005 and any other product candidate or product that we develop may adversely affect our future profit margins and our ability to commercialize any products that receive marketing approval on a timely and competitive basis. In addition, any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval.

We currently rely exclusively on one third-party manufacturer to supply us with EBI-005 drug substance on a purchase order basis. We also rely on another third-party manufacturer to conduct fill-finish services on a purchase order basis. We do not currently have any contractual commitments for commercial supply of bulk drug substance for EBI-005 or for fill-finish services. We also do not currently have arrangements in place for redundant supply or a second source for bulk drug substance for EBI-005 or for fill-finish services. The prices at which we are able to obtain supplies of EBI-005 drug substance and fill-finish services may vary substantially over time and adversely affect our financial results.

If our third-party manufacturer for EBI-005 drug substance fails to fulfill our purchase orders or should become unavailable to us for any reason, we believe that there are a limited number of potential replacement manufacturers, and we likely would incur added costs and delays in identifying or qualifying such replacements. We could also incur additional costs and delays in identifying or qualifying a replacement manufacturer for fill-finish services if our existing third-party manufacturer should become unavailable for any reason. We may be unable to establish any agreements with such replacement manufacturers or to do so on acceptable terms. Even if we could transfer manufacturing to a different third party, the shift would likely be expensive and time consuming, particularly since the new facility would need to comply with the necessary regulatory requirements and we would need FDA approval before using or selling any products manufactured at that facility.

The FDA maintains strict requirements governing the manufacturing process for biologics. When a manufacturer seeks to modify or make even seemingly minor changes to that process, the FDA may require the applicant to conduct a comparability study that evaluates the potential differences in the product resulting from the change in the manufacturing process. The agency has issued several guidances on this point. In connection with our application for a license to market EBI-005 or other product candidates in the United States, we may be required to conduct a comparability study if the product we intend to market is supplied by a manufacturer different from

72

Table of Contents

the one who supplied the product evaluated in our clinical studies. Delays in designing and completing this study to the satisfaction of the FDA could delay or preclude our development and commercialization plans and thereby limit our revenues and growth.

Reliance on third-party manufacturers entails additional risks, including:

Third-party manufacturers may not be able to comply with cGMP regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain patent protection for our technology and products, or if our licensors are unable to obtain and maintain patent protection for the technology or products that we license from them, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be impaired.

Our success depends in large part on our and our licensors’ ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and products. We and our licensors have sought to protect our proprietary position by filing patent applications in the United States and abroad related to our novel technologies and product candidates. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. If such licensors fail to maintain such patents, or lose rights to those patents, the rights we have licensed may be reduced or eliminated.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our and our licensors’ patent rights are highly uncertain. Our and our licensors’ pending and future patent applications may not result in patents being issued which protect our technology or products or which effectively prevent others from commercializing competitive technologies and products. In addition, the laws of foreign countries may not protect our rights to the same extent

73

Table of Contents

as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our owned or licensed patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. In particular, during prosecution of any patent application, the issuance of any patents based on the application may depend upon our ability to generate additional preclinical or clinical data that support the patentability of our proposed claims. We may not be able to generate sufficient additional data on a timely basis, or at all. Moreover, changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The United States Patent Office recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

Moreover, we may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

Even if our owned and licensed patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner.

We are the exclusive licensee of patent applications owned by The Schepens Eye Research Institute, Inc., or Schepens, that cover methods of treating diseases of the eye using an inhibitor of the inflammatory cytokine IL-1. Even if these applications issue as patents, method-of-treatment patents are more difficult to enforce than composition-of-matter patents because of the risk of off-label sale or use of a drug for the subject method. In addition, European patent law generally makes the enforcement of patents that cover methods of treatment of the human body difficult. In the United States, the FDA does not prohibit physicians from prescribing an approved product for uses that are not described in the product’s labeling. Although use of a product directed by off-label prescriptions may infringe our method-of-treatment patents, the practice is common across medical specialties, particularly in the United States, and such infringement is difficult to detect, prevent or prosecute. For example,

74

Table of Contents

anakinra is an IL-1 inhibitor that is approved for marketing in the United States and other countries for the treatment of rheumatoid arthritis and is formulated for subcutaneous administration. Anakinra can be re-formulated, or compounded, for topical ophthalmic application. Off-label sales of anakinra or other products comprising an IL-1 inhibitor could limit our ability to generate revenue from the sale of EBI-005.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our issued patents or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference or derivation proceedings before the U.S. Patent and Trademark Office. The risks of being involved in such litigation and proceedings may increase as our product candidates near commercialization and as we gain the greater visibility associated with being a public company. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. We may not be aware of all such intellectual property rights potentially relating to our product candidates and their uses. Thus, we do not know with certainty that EBI-005 or any other product candidate, or our commercialization thereof, does not and will not infringe or otherwise violate any third party’s intellectual property.

If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we

75

Table of Contents

are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, we could lose rights that are important to our business.

We are party to a number of license agreements and a collaboration agreement that impose, and, for a variety of purposes, we will likely enter into additional licensing and funding arrangements with third parties that may impose, diligence, development and commercialization timelines and milestone payment, royalty, insurance and other obligations on us. Under certain of our existing licensing agreements, we are obligated to pay royalties or make specified milestone payments on net product sales of product candidates or related technologies to the extent they are covered by the agreement. We also are obligated under certain of our existing license agreements to pay maintenance and other fees. We also have diligence and development obligations under certain of those agreements that we are required to satisfy. If we fail to comply with our obligations under current or future license and collaboration agreements, our counterparties may have the right to terminate these agreements, in which event we might not be able to develop, manufacture or market any product that is covered by these agreements or may face other penalties under the agreements. Such an occurrence could diminish the value of the product candidate being developed under any such agreement. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology.

We may be subject to claims by third parties asserting that our employees or we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these employees or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.

In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact develops intellectual property that we regard as our own. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.

Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be

76

Table of Contents

negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise our ability to compete in the marketplace.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

Risks Related to Regulatory and Marketing Approval of Our Product Candidates and Other Legal Compliance Matters

If we are not able to obtain required regulatory approvals, we will not be able to commercialize EBI-005 or any other product candidate that we may develop, and our ability to generate revenue will be materially impaired. The marketing approval process is expensive, time-consuming and uncertain. As a result, we cannot predict when or if we, or any collaborators we may have in the future, will obtain marketing approval to commercialize EBI-005 or any other product candidate.

To date, we have not obtained approval from the FDA or any foreign regulatory authority to market or sell any of our product candidates, including EBI-005. The failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. The activities associated with the development and commercialization of our product candidates, including EBI-005, including design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by the EMA and similar regulatory authorities outside the United States. We have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on third-party CROs to assist us in this process.

The process of obtaining marketing approvals, both in the United States and abroad, is expensive and may take many years, especially if additional clinical trials are required, if approval is obtained at all. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety, purity and potency. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. The FDA or other regulatory authorities may determine that EBI-005 or any other product candidate that we may develop is

77

Table of Contents

not safe, effective or pure, is only moderately effective or has undesirable or unintended side effects, toxicities or other characteristics that preclude our obtaining marketing approval or prevent or limit commercial use. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

The regulatory process can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Moreover, changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate.

There are no drugs approved in the European Union and no drugs, other than Restasis, approved in the United States for the treatment of a sign or symptom of moderate to severe dry eye disease. The EMA has not issued any public guidance on the clinical trials that would be sufficient to support an application for marketing approval of a drug to treat dry eye disease. The lack of a defined regulatory pathway in the European Union, the different requirements of the EMA compared with the FDA and the lack of successful development of therapies to treat dry eye disease in both the United States and the European Union may lengthen the regulatory review process, require us to conduct additional studies or clinical trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these product candidates or lead to significant post-approval limitations or restrictions. If we experience delays in obtaining regulatory approvals, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired.

We may not be able to obtain orphan drug exclusivity for one or more of our product candidates, and even if we do, that exclusivity may not prevent the FDA or the EMA from approving other competing products.

Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug or biologic intended to treat a rare disease or condition. A similar regulatory scheme governs approval of orphan products by the EMA in the European Union. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the EMA or the FDA from approving another marketing application for the same product for the same therapeutic indication for that time period. The applicable period is seven years in the United States and ten years in the European Union. The exclusivity period in the European Union can be reduced to six years if a product no longer meets the criteria for orphan drug designation, in particular if the product is sufficiently profitable so that market exclusivity is no longer justified.

In order for the FDA to grant orphan drug exclusivity to one of our products, the agency must find that the product is indicated for the treatment of a condition or disease with a patient population of fewer than 200,000 individuals annually in the United States. The FDA may conclude that the condition or disease for which we seek orphan drug exclusivity does not meet this standard. Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different products can be approved for the same condition. In addition, even after an orphan drug is approved, the FDA can subsequently approve the same product for the same condition if the FDA concludes that the later product is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug exclusivity may also be lost if the FDA or EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of the patients with the rare disease or condition.

78

Table of Contents

Our therapeutic product candidates for which we intend to seek approval as biological products may face competition sooner than expected.

With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, abbreviated pathways for approval of biosimilar and interchangeable biological products were created. The BPCIA establishes legal authority for the FDA to review and approve biosimilar biologics for marketing, as well as biosimilars that have been designated as “interchangeable” with a previously approved biologic, or reference product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the reference product was approved under a full BLA. This period of non-patent exclusivity runs concurrently with, but is independent of, periods of patent protection for the reference product.

We believe that any of our product candidates approved as a biological product under a full BLA should qualify for a 12-year period of exclusivity. However:

The BPCIA is complex and is only beginning to be interpreted and implemented by the FDA. As a result, the ultimate impact, implementation and meaning of the BPCIA is subject to uncertainty. While it is uncertain when any such processes may be fully adopted by the FDA, any such processes could compromise the future commercial prospects for our biological products. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear and will depend on a number of marketplace and regulatory factors that are still developing at both the federal and state levels of government.

Failure to obtain marketing approval in foreign jurisdictions would prevent our product candidates from being marketed abroad, and any approval we are granted for our product candidates in the United States would not assure approval of product candidates in foreign jurisdictions.

In order to market and sell EBI-005 and any other product candidate that we may develop in the European Union and many other jurisdictions, we or our third-party collaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be sold in that country. We or these third parties may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market.

Even if we, or any collaborators we may have in the future, obtain marketing approvals for EBI-005 or our other product candidates, the terms of those approvals, ongoing regulations and post-marketing restrictions may limit how we, or they, manufacture and market our products, which could materially impair our ability to generate revenue.

Once marketing approval has been granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation. We, and any collaborators we may have in the future, must therefore comply with requirements concerning advertising and promotion for any of our products for which we or they

79

Table of Contents

obtain marketing approval. Promotional communications with respect to prescription products are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, if EBI-005 or any other product candidate that we may develop receives marketing approval, the accompanying label may limit the approved use of our product, which could limit sales of the product.

In addition, manufacturers of approved products and those manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to cGMPs, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We, our contract manufacturers, our future collaborators and their contract manufacturers will also be subject to other regulatory requirements, including submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements regarding the distribution of samples to physicians, recordkeeping, and potentially costly post-marketing studies or other clinical trials and surveillance to monitor the safety or efficacy of the product such as the requirement to implement a risk evaluation and mitigation strategy.

Accordingly, assuming we receive marketing approval for one or more of our product candidates, we and our contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If we are not able to comply with post-approval regulatory requirements, we could have the marketing approvals for our products withdrawn by regulatory authorities and our ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Thus, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.

Any product candidate for which we obtain marketing approval will be subject to a strict enforcement of post-marketing requirements and we could be subject to substantial penalties, including withdrawal of our product from the market, if we fail to comply with all regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.

Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include, but are not limited to, restrictions governing promotion of an approved product, submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, and requirements regarding the distribution of samples to physicians and recordkeeping.

The FDA and other federal and state agencies, including the Department of Justice, closely regulate compliance with all requirements governing prescription drug products, including requirements pertaining to marketing and promotion of drugs in accordance with the provisions of the approved labeling and manufacturing of products in accordance with cGMP requirements. Violations of such requirements may lead to investigations alleging violations of the FDCA and other statutes, including the False Claims Act and other federal and state health care fraud and abuse laws as well as state consumer protection laws. Our failure to comply with all regulatory requirements, and later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, may yield various results, including:

80

Table of Contents

Non-compliance by us or any future collaborator with regulatory requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with regulatory requirements regarding the protection of personal information can also lead to significant penalties and sanctions.

Our relationships with customers and third-party payors may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security, and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any product candidates, including EBI-005, for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute any products for which we obtain marketing approval. In addition, we may be subject to transparency laws and patient privacy regulation by U.S. federal and state governments and by governments in foreign jurisdictions in which we conduct our business. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability to operate include:

81

Table of Contents

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, it may be subject to criminal, civil or administrative sanctions, including exclusions from participation in government funded healthcare programs.

Recently enacted and future legislation may affect our ability to commercialize and the prices we obtain for any products that are approved in the United States or foreign jurisdictions.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could affect our ability to profitably sell or commercialize any product candidate, including EBI-005, for which we obtain marketing approval or that we may in-license. The pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by legislative initiatives. Current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved product.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of this legislation could limit coverage of and reduce the price that we receive for any approved products. While the MMA applies only to product benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA or other healthcare reform measures may result in a similar reduction in payments from private payors.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively PPACA. Among the provisions of PPACA of importance to our business, including, without limitation, our ability to commercialize and the prices we may obtain for any of our product candidates and that are approved for sale, are the following:

82

Table of Contents

In addition, other legislative changes have been proposed and adopted since PPACA was enacted. These changes include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which went into effect in April 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several types of providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding.

The pricing of prescription pharmaceuticals is also subject to governmental control outside the United States. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our ability to generate revenues and become profitable could be impaired.

Laws and regulations governing any international operations we may have in the future may preclude us from developing, manufacturing and selling certain products outside of the United States and require us to develop and implement costly compliance programs.

If we expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, 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 certain 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.

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our development costs.

83

Table of Contents

The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The Securities and Exchange Commission, or SEC, also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.

If we or our third-party manufacturers fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur significant costs.

We and our third-party manufacturers are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. From time to time and in the future, our operations may involve the use of hazardous and flammable materials, including chemicals and biological materials, and produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Further, with respect to the operations of our third-party contract manufacturers, it is possible that if they fail to operate in compliance with applicable environmental, health and safety laws and regulations or properly dispose of wastes associated with our products, we could be held liable for any resulting damages, suffer reputational harm or experience a disruption in the manufacture and supply of our product candidates or products.

Our employees may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.

We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable non-U.S. regulatory authorities, provide accurate information to the FDA or comparable non-U.S. regulatory authorities, comply with manufacturing standards we have established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable non-U.S. regulatory authorities, report financial information or data accurately or disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from afailure to be in compliance with such laws, standards or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.

84

Table of Contents

Risks Related to Employee Matters and Managing Growth

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on the research and development, clinical and business development expertise of Abbie Celniker, Ph.D., our President and Chief Executive Officer, Gregory D. Perry, our Chief Financial and Business Officer, Eric Furfine, Ph.D., our Chief Scientific Officer, and Karen L. Tubridy, our Chief Development Officer, as well as the other principal members of our management, scientific and clinical team. Although we have entered into employment agreements with our executive officers, each of them may terminate their employment with us at any time. We do not maintain “key person” insurance for any of our executives or other employees.

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize products. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited.

We expect to expand our development and regulatory capabilities and potentially implement sales, marketing and distribution capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business effectively.

Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our operations, and could result in a material disruption of our clinical and commercialization activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any

85

Table of Contents

disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our product research, development and commercialization efforts could be delayed.

Risks Related to Our Common Stock

Our executive officers, directors and principal stockholders, if they choose to act together, have the ability to control all matters submitted to stockholders for approval.

As of March 1, 2015, our executive officers and directors, combined with our stockholders who own more than 5% of our outstanding common stock, in the aggregate, beneficially owned shares representing approximately 78.4% of our capital stock. As a result, if these stockholders were to choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.

This concentration of voting power may:

Provisions in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our certificate of incorporation and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

86

Table of Contents

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

An active trading market for our common stock may not be sustained.

Our shares of common stock began trading on The NASDAQ Global Market on February 6, 2014. Given the limited trading history of our common stock, there is a risk that an active trading market for our shares will not be sustained, which could put downward pressure on the market price of our common stock and thereby affect the ability of our stockholders to sell their shares.

The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for our stockholders.

Our stock price is likely to be volatile. The stock market in general and the market for smaller biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, our stockholders may not be able to sell their common stock at or above the price at which they purchased their shares. The market price for our common stock may be influenced by many factors, including:

87

Table of Contents

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against that company. We also may face securities class action litigation if we cannot obtain regulatory approvals for or if we otherwise fail to commercialize EBI-005. Such litigation, if instituted against us, could cause us to incur substantial costs to defend such claims and divert management’s attention and resources.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, 2014, we had federal net operating loss, or NOL, carryforwards of $84.9 million, state NOL carryforwards of $83.6 million and aggregate federal and state research and development tax credit carryforwards of $1.3 million available to reduce future taxable income. These federal and state NOL carryforwards and federal and state tax credit carryforwards expire at various dates that expire beginning in 2029 through 2034, if not utilized. Utilization of these NOL and tax credit carryforwards may be subject to a substantial limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, and comparable provisions of state, local and foreign tax laws due to changes in ownership of our company that have occurred previously or that could occur in the future. Under Section 382 of the Code and comparable provisions of state, local and foreign tax laws, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change by value in its equity ownership over a three year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes, such as research and development tax credits, to reduce its post-change income may be limited. We have not completed a study to determine whether our IPO, our most recent private placements of our common stock and warrants to purchase shares of our common stock and other transactions that have occurred over the past three years may have triggered an ownership change limitation. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we generate taxable income, our ability to use our pre-change NOL and tax credits carryforwards to reduce U.S. federal and state taxable income may be subject to limitations, which could result in increased future tax liability to us.

A significant portion of our total outstanding shares are eligible to be sold into the market, which could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of March 1, 2015, we had outstanding 18,108,367 shares of common stock. Of these shares, 10,181,217 shares are restricted securities under Rule 144 under the Securities Act. Any of our remaining shares that are not restricted securities under Rule 144 under the Securities Act, including 2,615,520 shares that may be immediately sold pursuant to the registration statement on Form S-1 that we filed on December 19, 2014, or Resale S-1, and shares sold in our IPO, may be resold in the public market without restriction unless purchased by our affiliates.

Moreover, holders of an aggregate of 8,527,827 shares of our common stock have rights, subject to specified conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. On April 9, 2014, we filed a registration statement registering all shares of common stock that we may issue under our equity compensation plans. As of March 1, 2015, we had outstanding options to purchase an aggregate of approximately 1,939,026 shares of our common stock, of which options to purchase approximately 632,350 shares were vested. These shares can be freely sold in the public market upon issuance, subject to volume, notice and manner of sale limitations applicable to affiliates.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an

88

Table of Contents

emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

We have taken advantage of reduced reporting burdens in this Annual Report on Form 10-K. In particular, in this Annual Report on Form 10-K, we have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We expect to continue, in our public reporting, to take advantage of some or all of the reporting exemptions available to emerging growth companies. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

In addition, the JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to delay such adoption of new or revised accounting standards, and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies that are not emerging growth companies.

We incur increased costs as a result of operating as a public company, and our management now is required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors.

We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

For as long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth

89

Table of Contents

companies as described in the preceding risk factor. We may remain an emerging growth company until the end of the 2019 fiscal year, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have annual gross revenues of $1 billion or more in any fiscal year, we would cease to be an emerging growth company as of December 31 of the applicable year. We also would cease to be an emerging growth company if we issue more than $1 billion of non-convertible debt over a three-year period.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we are required to furnish a report by our management on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we are engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404. If we identify one or more material weaknesses in our internal control over financial reporting, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be our stockholders’ sole source of gain.

We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of our loan and security agreement with Silicon Valley Bank and any future debt agreements that we may enter into, may preclude us from paying dividends without the lenders’ consent or at all. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain.

Not applicable.

Our sole facility currently consists of approximately 11,022 square feet of office and laboratory space in Cambridge, Massachusetts that we occupy under a lease that expires on January 31, 2016.

We are not currently subject to any material legal proceedings.

Not applicable.

90

Table of Contents

PART II

Our common stock trades on the NASDAQ Global Market under the symbol “EBIO”. Trading of our common stock commenced on February 6, 2014, following the completion of our initial public offering, or IPO. Prior to that time, there was no established public trading market for our common stock. The following table sets forth for the period indicated the high and low sale prices per share for our common stock as reported on the NASDAQ Global Market for the period indicated:

As of March 1, 2015, we had approximately 37 holders of record of our common stock. This number does not include beneficial owners whose shares were held in street name.

We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings to fund the development and growth of our business. We do not expect to pay any cash dividends in the foreseeable future. In addition, the terms of our loan and security agreement with Silicon Valley Bank, and any future debt agreements that we may enter into, may preclude us from paying dividends without the lenders’ consent or at all.

Recent Sales of Unregistered Securities

Set forth below is information regarding shares of our common stock, shares of our preferred stock, warrants to purchase shares of our common stock and convertible promissory notes issued, and stock options granted, by us since January 1, 2014 that were not registered under the Securities Act. Also included is the consideration, if any, received by us for such shares, warrants and options and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed.

(a) Issuances of Securities and Warrants

In December 2014, we issued and sold in a private placement an aggregate of 1,743,680 shares of our common stock to 10 investors at a price per share of $11.47, as well as warrants to purchase approximately 871,840 shares of our common stock at an exercise price of $15.00 per share, for aggregate gross proceeds to the Company of approximately $20 million. Citigroup Global Markets Inc., Cowen and Company, LLC and Leerink Partners LLC acted as placement agents in connection with this private placement.

No underwriters were involved in the foregoing issuances of securities. The securities described in this section (a) of Item 5 were issued to investors in reliance upon the exemption from the registration requirements of the Securities Act, as set forth in Section 4(a)(2) under the Securities Act relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required. The recipients in each of these transactions represented to us in connection with their purchase that they were accredited investors and were acquiring the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor under Rule 501 of Regulation D.

91

Table of Contents

(b) Stock Option Grants

Between January 1, 2014 and April 9, 2014, we did not grant options to purchase shares of common stock pursuant to our 2009 Stock Incentive Plan. Between January 1, 2014 and April 9, 2014 we issued an aggregate of 7,874 shares of common stock upon the exercise of options for aggregate consideration of $500 and options to purchase 4,724 shares had been forfeited.

The stock options and the common stock issuable upon the exercise of such options as described in this section (b) of Item 5 were issued pursuant to written compensatory plans or arrangements with the Registrant’s employees, directors and consultants, in reliance on the exemption provided by Rule 701 promulgated under the Securities Act. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information.

(c) Issuance of Warrants

In connection with our Second Loan Modification Agreement with Silicon Valley Bank, or SVB, we issued to SVB and Life Science Loans, LLC warrants to purchase a total of 27,500 shares of our common stock at a per share exercise price of $11.04 (the “Warrants”). On such date as the second tranche is drawn down under the loan facility, the Warrants will become exercisable for the purchase of an additional 27,500 shares of our common stock at a per share exercise price equal to the average of the closing prices of our common stock on the 15 trading days prior to such date. The issuance of the Warrants was made in reliance on the exemption from the registration requirements of the Securities Act, as set forth in Section 4(a)(2) under the Securities Act relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required. All acquirers of the Warrants represented to us that they were accredited investors and were acquiring the Warrants for their own account for investment purposes only and not with a view to, or for sale in connection with, any distribution thereof and that they could bear the risks of the investment and could hold the Warrants for an indefinite period of time, and appropriate legends were affixed to the instruments representing such Warrants. Such recipients either received adequate information about us or had, through their relationships with us, access to such information.

All of the foregoing securities described in sections (a), (b) and (c) of Item 5 are deemed restricted securities for purposes of the Securities Act. All certificates representing the issued shares of capital stock described in this Item 5 included appropriate legends setting forth that the securities had not been registered and the applicable restrictions on transfer.

Use of Proceeds

In February 2014, we completed our IPO pursuant to a registration statement on Form S-1 (File No. 333-193131), which the SEC declared effective on February 5, 2014. In the IPO, we issued and sold 5,750,000 shares of common stock (inclusive of 750,000 shares of common stock sold by the Company pursuant to the full exercise of an overallotment option granted to the underwriters in connection with the offering) at a public offering price of $10.00 per share, for aggregate offering proceeds of $57.5 million. The managing underwriters for the IPO were Citigroup Global Markets Inc., Cowen and Company, LLC and Leerink Partners LLC. The IPO commenced on February 6, 2014 and did not terminate until the sale of all of the shares offered.

The aggregate proceeds received by the Company from the IPO were $50.2 million, net of underwriting discounts and commissions and estimated offering expenses payable by the Company. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning 10.0% or more of any class of our equity securities or to any other affiliates.

92

Table of Contents

As of December 31, 2014, we have used approximately $29.9 million of the net proceeds from the initial public offering as follows:

There has been no material change in the use of proceeds from our IPO as described in our final prospectus filed with the SEC pursuant to Rule 424(b)(4) on February 6, 2014.

Purchase of Equity Securities

We did not purchase any of our registered equity securities during the period covered by this Annual Report on Form 10-K.

You should read the following selected financial data together with our financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Annual Report on Form 10-K. We have derived the statement of operations data for the years ended December 31, 2014, 2013 and 2012 and the balance sheet data as of December 31, 2014 and 2013 from our audited financial statements included in this Annual Report on Form 10-K. We derived the statements of operations data for the years ended December 31, 2011 and the balance sheet data as of December 31, 2012 and 2011 from our audited consolidated financial statements that are not included elsewhere in this Annual Report on Form 10-K. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.

93

Table of Contents

See Note 2 within the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of the method used to calculate basic and diluted net loss per share applicable to common stockholders.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes to those financial statements appearing in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in Part I, Item IA, “Risk Factors” of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company with a proprietary protein engineering platform, called AMP-Rx, that we apply to the discovery and development of protein therapeutics to treat diseases of the eye. Our therapeutic approach is based on the role of cytokines in diseases of the eye, our understanding of the structural biology of cytokines and our ability to rationally design and engineer proteins to modulate the effects of cytokines. Cytokines are cell signaling molecules found in the body that can have important inflammatory effects. Our most advanced product candidate is EBI-005, which we designed, engineered and generated using our AMP-Rx platform and are developing as a topical treatment for dry eye disease and allergic conjunctivitis. In 2013, we completed a Phase 1b/2a clinical trial of EBI-005 in patients with moderate to severe dry eye disease. In early 2014, we initiated a pivotal Phase 3 clinical program evaluating EBI-005 for the treatment of moderate to severe dry eye disease. We also initiated and completed a Phase 2 clinical trial to evaluate the use of EBI-005 in patients with allergic conjunctivitis in 2014. We hold worldwide commercialization rights to EBI-005.

We were incorporated and commenced active operations in early 2008, and our operations to date have been limited to organizing and staffing our company, acquiring rights to intellectual property, business planning, raising capital, developing our technology, identifying potential product candidates, undertaking preclinical studies and, beginning in 2012, conducting clinical trials. To date, we have financed our operations primarily through private placements of our common stock, preferred stock and convertible bridge notes, venture debt borrowings, the initial public offering of our common stock, or IPO, and, to a lesser extent, from a collaboration. All of our revenue to date has been collaboration revenue, which we first began to generate in 2013. We recognized collaboration revenue of $2.2 million and $1.3 million for the years ended December 31, 2014 and 2013, respectively. Since inception, we have incurred significant operating losses. As of December 31, 2014, we had an accumulated deficit of $91.8 million. Our net loss was $34.2 million for the year ended December 31, 2014, $18.0 million for the year ended December 31, 2013 and $19.7 million for the year ended December 31, 2012. In February 2014, we closed our IPO. We received aggregate net proceeds from the IPO of approximately $50.2 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

94

Table of Contents

We anticipate that our expenses will increase substantially as compared to prior periods in connection with conducting our pivotal Phase 3 clinical program, consisting of two Phase 3 clinical trials evaluating the safety and efficacy of EBI-005, our most advanced product candidate, for the treatment of moderate to severe dry eye disease and a separate clinical trial evaluating the safety of treatment with EBI-005 for one year, and, if successful, seeking marketing approval for EBI-005 for this indication in the United States.

We also expect our expenses to increase as we conduct additional clinical trials of EBI-005 for the treatment of allergic conjunctivitis or other additional indications or for use in other patient populations, as we seek marketing approval of EBI-005 for the treatment of allergic conjunctivitis or other indications or for use in other patient populations, and as we continue research and development and initiate additional clinical trials of, and seek marketing approval for, our other product candidates. In addition, if we obtain marketing approval for EBI-005 or any other product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, since the closing of our IPO, we have incurred additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

Financial Operations Overview

Revenue

To date, we have not generated any revenues from the sale of products. All of our revenue to date has been derived from a collaboration. We do not expect to generate significant product revenue unless and until we obtain marketing approval for, and commercialize, EBI-005, which we do not expect will occur before 2017, if ever.

We have generated collaboration revenue exclusively from our collaboration and license agreement with ThromboGenics N.V., or Thrombogenics, which we entered into in May 2013. Under the agreement, we and ThromboGenics are collaborating to identify protein or peptide therapeutics that directly modulate any of a specified set of targets in a novel pathway in retinal disease. We call the therapeutics that are identified, and whose modulation of one of the targets is confirmed, in the course of the research collaboration, collaboration products. The initial research term extends for 30 months from the date we entered into the agreement, but may be extended on mutual agreement. The agreement expires when all of ThromboGenics’ payment obligations expire. We are responsible for specified non-clinical activities during the research term. ThromboGenics is responsible for all development, manufacturing and commercialization activities with respect to the collaboration products. We granted ThromboGenics an exclusive, sublicensable, worldwide royalty-bearing license under our rights in any intellectual property made in the course of this collaboration, as well as under any other intellectual property we control during the research term that is necessary for ThromboGenics to perform its obligations to research, develop, manufacture and commercialize collaboration products. During the term of the agreement, neither we nor ThromboGenics, nor our respective affiliates other than any entities which become affiliates as a result of an acquisition of us or ThromboGenics, are permitted to research, develop, manufacture or commercialize any protein or peptide therapeutic that directly modulates one of the specified targets, except as otherwise provided in the agreement.

In connection with the agreement, we received an upfront, non-refundable payment of $1.75 million, and are entitled to receive payment for our performance of activities under the agreement at a set rate per full time annual equivalent personnel for research services pursuant to the agreement. We identified three deliverables in the arrangement: the research license, the research services and our participation on the joint research committee, or JRC deliverable, and concluded that there are two units of accounting: a combined research license and research services deliverable and the JRC deliverable. The estimated selling price for the JRC deliverable was de minimis, and thus we allocated the fixed arrangement consideration to the combined unit of accounting. We are recognizing revenue using the proportional performance method by which the amounts are recognized in

95

Table of Contents

proportion to the costs incurred based on full time equivalent efforts. In addition, we are eligible to receive up to an aggregate of $10.0 million if ThromboGenics achieves specified preclinical and clinical development milestones and up to an aggregate of $15.0 million if ThromboGenics achieves specified regulatory milestones. There are no commercialization or sales based milestones under the agreement. ThromboGenics is obligated to pay us a low single digit royalty on the sale of collaboration products. We recognized collaboration revenue of $2.2 million in connection with this collaboration for the year ended December 31, 2014 and $1.3 million for the year ended December 31, 2013. We expect that any revenue we generate from our collaboration with ThromboGenics will fluctuate from quarter to quarter as a result of the uncertain timing and amount of payments for research services, milestone payments and royalties.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.

In April 2013, we implemented a strategic restructuring designed to conserve resources and improve our financial position. As part of this strategic restructuring, we reduced spending on early stage research programs and implemented a reduction in force of 15 positions, or 50% of our workforce, primarily in the research area. We expect our research and development expenses to increase substantially as compared to prior periods in connection with conducting our pivotal Phase 3 clinical program for EBI-005, seeking marketing approval for EBI-005 in the United States and, whether alone or in collaboration with third parties, in the European Union and other jurisdictions, initiating and conducting additional clinical trials of EBI-005 for the treatment of allergic conjunctivitis or additional indications or for use in other patient populations, and continuing the research and development and initiating clinical trials of our other product candidates.

The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

96

Table of Contents

A change in the outcome of any of these variables with respect to the development of EBI-005 or any other product candidate that we may develop could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently contemplate will be required for the completion of clinical development of EBI-005 or any other product candidate that we may develop, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.

We allocate direct research and development expenses, consisting principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials, and costs related to manufacturing or purchasing clinical trial materials, to specific product programs. We do not allocate employee and contractor-related costs, costs associated with our platform and facility expenses, including depreciation or other indirect costs, to specific product programs because these costs are deployed across multiple product programs under research and development and, as such, are separately classified. The table below provides research and development expenses incurred for our EBI-005 product program and other expenses by category. We did not allocate research and development expenses to any other specific product program during the periods presented:

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation, in executive, operational, finance and human resource functions. Other general and administrative expenses include facility-related costs and professional fees for legal, patent, consulting and accounting services.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates. We also anticipate increased accounting, audit, legal, regulatory, compliance, insurance and investor and public relations expenses associated with being a public company.

Other Income (Expense), Net

Other income and expense consists primarily of interest income earned on cash and cash equivalents, interest expense on outstanding debt, the gain or loss associated with the change in the fair value of our preferred stock warrant liability and the convertible notes that are carried at fair value, the loss on extinguishment of debt and the expense related to the issuance costs allocated to warrants measured at fair value.

97

Table of Contents

Critical Accounting Policies and Significant Judgments and Estimates

This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued research and development expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our audited financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification, or ASC, 605, Revenue Recognition. Accordingly, we recognize revenue for each unit of accounting when all of the following criteria are met:

We record as deferred revenue any amounts received prior to satisfying the revenue recognition criteria. We classify as deferred revenue, current any amounts expected to be recognized as revenue within the 12 months following the balance sheet date. We classify as deferred revenue, net of current portion any amounts not expected to be recognized as revenue within the 12 months following the balance sheet date.

We evaluate multiple-element arrangements based on the guidance in ASC Topic 605-25, Revenue Recognition-Multiple-Element Arrangements, or ASC 605-25. Pursuant to the guidance in ASC 605-25, we evaluate multiple-element arrangements to determine (1) the deliverables included in the arrangement and (2) whether the individual deliverables represent separate units of accounting or whether they must be accounted for as a combined unit of accounting. This evaluation involves subjective determinations and requires us to make judgments about the individual deliverables and whether such deliverables are separable from the other aspects of the contractual relationship. Deliverables are considered separate units of accounting provided that the delivered item has value to the customer on a standalone basis, and if the arrangement includes a general right of return with respect to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in our control. In assessing whether an item has standalone value, we consider factors such as the research, development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, we consider whether the collaboration partner can use any other deliverable for its intended purpose without the receipt of the remaining deliverable, whether the value of the deliverable is dependent on the undelivered item and whether there are other vendors that can provide the undelivered items. The consideration received under the arrangement that is fixed or determinable is then allocated among the separate units of accounting using the relative selling price method. We determine the selling price of a unit of accounting following the hierarchy of evidence prescribed by ASC 605-25. Accordingly, we determine the estimated selling price for units of accounting within each arrangement using vendor-specific objective evidence, or

98

Table of Contents

VSOE, of selling price, if available, third-party evidence, or TPE, of selling price if VSOE is not available, or best estimate of selling price, or BESP, if neither VSOE nor TPE is available.

We recognize arrangement consideration allocated to each unit of accounting when all of the revenue recognition criteria in ASC 605 are satisfied for that particular unit of accounting. In the event that a deliverable does not represent a separate unit of accounting, we recognize revenue from the combined unit of accounting over our contractual or estimated performance period for the undelivered items, which is typically the term of our research and development obligations. If there is no discernible pattern of performance or objectively measurable performance measures do not exist, then we recognize revenue under the arrangement on a straight-line basis over the period we are expected to complete our performance obligations. Conversely, if the pattern of performance in which the service is provided to the customer can be determined and objectively measurable performance measures exist, then we recognize revenue under the arrangement using the proportional performance method. Revenue recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the straight-line method or proportional performance method, as applicable, as of the period ending date.

At the inception of an arrangement that includes milestone payments, we evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether: (1) the consideration is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item as a result of a specific outcome resulting from our performance to achieve the milestone; (2) the consideration relates solely to past performance; and (3) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. We evaluate factors such as the scientific, clinical, regulatory, commercial and other risks that must be overcome to achieve the particular milestone and the level of effort and investment required to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive. We have concluded that certain of the preclinical and clinical development milestone payments pursuant to our collaboration and license arrangement with ThromboGenics are substantive. Accordingly, in accordance with ASC Topic 605-28, Revenue Recognition-Milestone Method, we will recognize revenue in its entirety upon successful accomplishment of these milestones, assuming all other revenue recognition criteria are met. Milestones that are not considered substantive are recognized as earned if there are no remaining performance obligations or over the remaining period of performance, assuming all other revenue recognition criteria are met.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotes and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses are related to fees paid to CROs and other vendors in connection with research and development activities for which we have not yet been invoiced.

We base our expenses related to CROs on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the

99

Table of Contents

actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepayment expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in our reporting amounts that are too high or too low in any particular period. There have been no material changes in estimates for the periods presented.

Stock-based Compensation

We account for all stock-based compensation payments to employees, directors and non-employees using an option pricing model for estimating fair value. Accordingly, stock-based compensation expense is measured based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. We recognize compensation expense for the portion of the award that is ultimately expected to vest over the period during which the recipient renders the required services to us using the straight-line method. In accordance with authoritative guidance, we remeasure the fair value of non-employee stock-based awards as the awards vest, and recognize the resulting value, if any, as expense during the period the related services are rendered.

Significant Factors, Assumptions and Methodologies Used in Determining Fair Value

We apply the fair value recognition provisions of ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock options as of their grant date. We recognize stock-based compensation expense for service-based awards ratably over the requisite service period, which in most cases is the vesting period of the award. Calculating the fair value of stock-based awards requires that we make highly subjective assumptions.

We use the Black-Scholes option pricing model to value our stock option awards. Use of this valuation methodology requires that we make assumptions as to the volatility of our common stock, the expected term of our stock options, the risk free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. As a new public company, we do not have sufficient history to estimate the volatility of our common stock price or the expected life of the options. We calculate expected volatility based on reported data for similar publicly traded companies for which historical information is available and will continue to do so until the historical volatility of our common stock is sufficient to measure expected volatility for future option grants. During the periods we were a privately held company with a limited operating history, we utilized data from a representative group of public companies to estimate expected stock price volatility. We selected companies from the biopharmaceutical industry with similar characteristics to us, including those at a similar stage of development and with a similar therapeutic focus.

We use the “simplified method” to estimate the expected term of stock option grants to employees. Under this approach, the weighted-average expected life is presumed to be the average of the contractual term (ten years) and the vesting term (generally four years) of our stock options, taking into consideration multiple vesting tranches. We utilize this method due to a lack of historical exercise data and the plain-vanilla nature of our share-based awards. We have never paid, and do not anticipate paying, any cash dividends in the foreseeable future, and therefore use an expected dividend yield of zero in the option-pricing model. The risk-free rate is based on the yield curve of U.S. Treasury securities with periods commensurate with the expected term of the options being valued. The fair value of each stock option granted to employees is estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions noted in the following table:

100

Table of Contents

We are also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from our estimates, the difference is recorded as a cumulative adjustment in the period the estimates are revised. Stock-based compensation expense recognized in the financial statements is based on awards that are ultimately expected to vest. Through December 31, 2014, actual forfeitures have not been material.

Stock-based compensation expense was $2.4 million for the year ended December 31, 2014, $1.3 million for the year ended December 31, 2013 and $0.1 million for the year ended December 31, 2012. As of December 31, 2014, we had $2.7 million of total unrecognized stock-based compensation expense related to service-based vesting awards, which we expect to recognize over a weighted-average remaining vesting period of approximately 2.54 years. In addition, as of December 31, 2014, we had unrecognized compensation expense related to performance-based awards of $2.1 million, which will be recorded when the vesting conditions become probable of achievement. Our stock-based compensation expense is expected to increase as a result of recognizing our existing unrecognized stock-based compensation for awards that will vest and as we issue additional stock-based awards to attract and retain our employees.

We allocated stock-based compensation expense as follows:

Fair Value of Common Stock

Prior to the completion of our IPO, we were required to estimate the fair value of our common stock underlying our stock-based awards when performing the fair value calculations using the Black-Scholes option pricing model. The fair value of our common stock underlying our stock-based awards was determined on each grant date by our board of directors, with input from management. All options to purchase shares of our common stock are intended to be granted with an exercise price per share no less than the fair value per share of our common stock underlying those options on the date of grant, based on the information known to us on the date of grant. In the absence of a public trading market for our common stock, on each grant date, we developed an estimate of the fair value of our common stock in order to determine an exercise price for the option grants. We determined the fair value of stock options using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants, or AICPA, Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation, or the AICPA Practice Guide. In addition, we considered various objective and subjective factors, along with input from management and contemporaneous valuations, to determine the fair value of our common stock, including:

101

Table of Contents

There is inherent uncertainty in the estimates, forecasts and projections we used in determining the fair value of our common stock prior to becoming a public company, and if we had made different assumptions and estimates than those described above, the amount of our share-based compensation expense, net loss and net loss per share amounts could have been materially different.

Emerging Growth Company Status

The Jumpstart our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted.

Results of Operations

Comparison of the Year Ended December 31, 2014 and 2013

102

Table of Contents

Revenue. Revenue was $2.2 million for the year ended December 31, 2014 compared to $1.3 million for the year ended December 31, 2013. The increase of $0.9 million was due to revenue recognized pursuant to the ThromboGenics collaboration and license agreement entered into in May 2013.

Research and development expenses. Research and development expenses were $26.7 million for the year ended December 31, 2014 compared to $13.8 million for the year ended December 31, 2013. The increase of $12.9 million was primarily due to an increase of $12.5 million of EBI-005 related development expenses. In early 2014, we initiated a pivotal Phase 3 clinical program evaluating EBI-005 for the treatment of moderate to severe dry eye disease. We also initiated and completed a Phase 2 clinical trial to evaluate the use of EBI-005 in patients with allergic conjunctivitis in 2014. These increases in research and development expenses were partially offset by decreases in research and development expenses as a result of the completion of the Phase 1b/2a clinical trial of EBI-005 in patients with moderate to severe dry eye disease in 2013.

General and administrative expenses. General and administrative expenses were $8.5 million for the year ended December 31, 2014 compared to $4.0 million for the year ended December 31, 2013. The increase of $4.4 million was primarily due to increased operating costs as a result of our transition from a private company to a public company, including legal, accounting, insurance and investor relations expenses. In addition, stock-based compensation expense allocated to general and administrative expenses was $1.4 million for the year ended December 31, 2014 compared to $0.1 million for the year ended December 31, 2013.

Other expense, net. Other expense, net was $1.2 million for the year ended December 31 2014 compared to $1.5 million for the year ended December 31, 2013. The decrease was primarily due to the change in the fair value of the convertible notes payable of $(1.0) million recorded in 2013 and none in 2014 partially offset by the loss on extinguishment of debt of $0.5 million and the expense related to the issuance costs allocated to warrants measured at fair value of $0.3 million, both recorded in 2014.

Comparison of the Year Ended December 31, 2013 and 2012

Revenue. Revenue was $1.3 million for the year ended December 31, 2013 compared to $0 for the year ended December 31, 2012. The increase of $1.3 million was due to revenue recognized pursuant to the ThromboGenics collaboration and license agreement entered into in May 2013.

Research and development expenses. Research and development expenses were $13.8 million for the year ended December 31, 2013 compared to $15.3 million for the year ended December 31, 2012. The decrease of $1.5 million was primarily due to a decrease of $1.3 million of EBI-005 related development expenses and a decrease

103

Table of Contents

in platform-related laboratory expenses of $0.7 million. In April 2013, we implemented a strategic restructuring to focus more of our research and development expenses on the development of EBI-005. As a result, we reduced headcount from 30 to 15, including 13 positions in our research and development function. These decreases in research and development expenses were partially offset by an increase in employee and contractor-related expenses of $0.5 million to support the increased development activities of the Phase 1b/2a clinical trial of EBI-005.

General and administrative expenses. General and administrative expenses were $4.0 million for the year ended December 31, 2013 compared to $4.2 million for the year ended December 31, 2012. The decrease of $0.2 million was primarily due to our strategic restructuring, which focused more of our resources on the development of EBI-005. As a result of the restructuring in April 2013, we reduced total headcount from 30 to 15, including two positions in our general and administrative function.

Other expense, net. Other expense, net was $1.5 million for the year ended December 31 2013 compared to $0.2 million for the year ended December 31, 2012. The increase was primarily due to the change in the fair value of the warrant liability, which increased from $0.1 million to $0.3 million, the change in the fair value of convertible notes payable of $1.0 million, and an increase in interest expense due to additional borrowings under our debt facility during the year ended December 31, 2013.

Liquidity and Capital Resources

Sources of Liquidity

Since inception, we have incurred significant operating losses. All of our revenue to date has been collaboration revenue. To date, we have financed our operations primarily through private placements of our common stock, preferred stock and bridge notes convertible into our preferred stock, venture debt borrowings, our IPO, which we closed in February 2014, and, to a lesser extent, from a collaboration.

In May 2013, we entered into the collaboration and license agreement with ThromboGenics. Under this collaboration, ThromboGenics made a $1.75 million up-front, non-refundable cash payment to us and will fund the research services that we provide under the agreement.

Cash Flows

As of December 31, 2014, we had cash and cash equivalents of $54.1 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

The following table sets forth the primary sources and uses of cash for each of the periods set forth below:

Operating activities. Net cash used in operating activities was $29.3 million for the year ended December 31, 2014, and consisted primarily of a net loss of $34.2 million adjusted for non-cash items, including stock-based compensation expense of $2.4 million, loss on extinguishment of debt of $0.5 million, depreciation expense of

104

Table of Contents

$0.4 million, expense related to the issuance costs allocated to warrants measured at fair value of $0.3 million, change in fair value of warrant liability of $0.1 million and a net change in operating assets and liabilities of $1.1 million.

Net cash used in operating activities was $13.5 million for the year ended December 31, 2013, and consisted primarily of a net loss of $18.0 million adjusted for non-cash items, including stock-based compensation expense of $1.3 million, depreciation expense of $0.4 million, change in fair value of warrant liability of $0.2 million, change in fair value of convertible notes payable of $1.0 million and a net change in operating assets and liabilities of $1.6 million. The significant item in the net change in operating assets and liabilities include an increase in deferred revenue of $1.5 million due to the up-front payment related to the ThromboGenics collaboration.

Net cash used in operating activities was $19.1 million for the year ended December 31, 2012, and consisted primarily of a net loss of $19.7 million adjusted for non-cash items, including depreciation expense of $0.4 million, stock-based compensation expense of $0.1 million and a net change in operating assets and liabilities of $(0.1) million.

Investing activities. Net cash used in investing activities consists of purchases of property and equipment. For the year ended December 31, 2014, we purchased $0.1 million of property and equipment. We made no such purchases during the year ended December 31, 2013. For the year ended December 31, 2012, we purchased $0.1 million of property and equipment, primarily laboratory equipment.

Financing activities. Net cash provided by financing activities for the year ended December 31, 2014 was $75.6 million and consisted primarily of net proceeds from the IPO and the net proceeds from the private placement of common stock completed in December 2014. We received aggregate net proceeds from the IPO of approximately $50.2 million, after deducting underwriting discounts and commissions and other offering expenses payable by us, of which $1.3 million were paid in 2013. We received aggregate net proceeds from the private placement of approximately $18.2 million, after deducting placement agent’s fees and other offering expenses payable by us, of which $1.3 million were paid in 2014.

Net cash provided by financing activities for the year ended December 31, 2013 was $13.6 million and consisted primarily of net proceeds from the issuance of series B preferred stock and convertible notes of $12.3 million to certain of our stockholders and additional borrowings under our debt facility of $3.0 million. These amounts were partially offset by deferred initial public offering costs of $1.3 million.