UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM 10-K/A

(Amendment No. 1)



(Mark One)



| | þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2017

OR



| |  ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------



For the transition period from ________________
to ________________



Commission file number 001-37797



INNOVATE
BIOPHARMACEUTICALS, INC.

(Exact name of registrant as specified
in its charter)



|Delaware                        |  | 27-3948465         
|------------------------------- |  | -------------------
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)



8480 Honeycutt Road, Suite 120Raleigh, North Carolina 27615(Address of principal executive offices, including zip code)



(919) 275-1933(Registrant’s telephone number, including area code)



SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF
THE ACT:



|Title of each class            | Name of each exchange on which registered
|------------------------------ | -----------------------------------------
|Common Stock $0.0001 Par Value | The Nasdaq Stock Market LLC              



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 ̈ Noþ



Indicate
by check mark if the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes ̈ Noþ



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. Yesþ
No ̈



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



Indicate
by check mark if the 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 the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or an amendment to this 10-K. ̈



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



|Large accelerated filer                     |  ̈ |  | Accelerated filer         |  ̈
|------------------------------------------- | - |  | ------------------------- | -
|Non-accelerated filer                       |  ̈ |  | Smaller reporting company | þ
|(Do not check if smaller reporting company) |   |  | Emerging growth company   | þ



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



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ̈
Noþ



The aggregate value of common stock held by non-affiliates of
the registrant as of June 30, 2017, the last business day of the registrant’s most recently completed second fiscal quarter,
was $3,878,345 (based on the last reported closing sale price on the Nasdaq Capital Market on that date of $4.90 per share).



As of March 12, 2018, the registrant had 25,691,680 shares of
common stock, par value $0.0001 per share, issued and outstanding.






















TABLE OF CONTENTS

Form 10-K/A

(Amendment No. 1)



|EXPLANATORY NOTE
|----------------
|                
|PART
    I      
|                
|ITEM 1.         
|                
|PART
    IV     
|                
|ITEM 15.        
|                
|                



2







EXPLANATORY NOTE



Innovate Biopharmaceuticals, Inc. (the
“Company”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to amend the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission
(the “SEC”) on March 14, 2018 (the “Form 10-K”). This Amendment is being filed solely to (i) update
“Item 1. Business” to reflect comments received from the SEC Staff on the Company’s Form 8-K filed with the SEC
on February 2, 2018, as amended and previously reflected therein, (ii) re-file Exhibits 10.1 and 10.2 to the Form 10-K (the “Exhibits”)
and (iii) amend Part IV, “Item 15. Exhibits, Financial Statement Schedules” of the Form 10-K, including revising
the Exhibit Index. The Exhibits, as re-filed on this Amendment, restore certain provisions that had previously been redacted
in accordance with the Company’s application for confidential treatment in response to comments received from the SEC Staff.
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by the Company’s
principal executive officer and principal financial officer are filed as exhibits to this Amendment.



No attempt has been made in this Amendment
to modify or update the other disclosures presented in the Form 10-K. This Amendment does not reflect events occurring after the
filing of the Form 10-K (i.e., those events occurring after March 14, 2018) or modify or update disclosures that may be affected
by subsequent events. Such subsequent matters are addressed in subsequent reports filed with the SEC. Accordingly, this Amendment
should be read in conjunction with the Form 10-K and the Company’s other filings with the SEC.



PART I



Item 1. Business.



Merger of Monster
Digital, Inc. and Innovate Biopharmaceuticals Inc.



On
January 29, 2018, Monster Digital, Inc. (“Monster”) and privately held Innovate Biopharmaceuticals Inc. (“Private
Innovate”) completed a reverse recapitalization in accordance with the terms of the Agreement and Plan of Merger and Reorganization,
dated July 3, 2017, as amended (the “Merger Agreement”), by and among Monster, Monster Merger Sub, Inc. (“Merger
Sub”) and Private Innovate, which changed its name in connection with the transaction to IB Pharmaceuticals Inc. (“IB
Pharmaceuticals”). Pursuant to the Merger Agreement, Merger Sub merged with and into IB Pharmaceuticals with IB Pharmaceuticals
surviving as the wholly owned subsidiary of Monster (the “Merger”).  Immediately following the Merger,
Monster changed its name to Innovate Biopharmaceuticals, Inc. (“Innovate”). In connection with the closing of the Merger,
Innovate’s common stock began trading on the Nasdaq Capital Market under the ticker symbol “INNT” on February
1, 2018. Prior to the Merger, Monster was incorporated in Delaware in November 2010 under the name “Monster Digital,
Inc.”



Except
as otherwise noted or where the context otherwise requires, as used in this report, the words “we,” “us,”
“our,” the “Company” and “Innovate” refer to Innovate Biopharmaceuticals, Inc. as of and
following the closing of the Merger on January 29, 2018 and, where applicable, the business of Private Innovate prior to the Merger.
All references to “Monster” refer to Monster Digital, Inc. prior to the closing of the Merger.



Overview



Prior to the Merger,
Monster’s primary business focus was the design, development and marketing of premium products under the “Monster Digital”
brand for use in high-performance consumer electronics, mobile products and computing applications.



After the Merger,
we are a clinical-stage biopharmaceutical company developing novel medicines for autoimmune and inflammatory diseases with unmet
needs. Our pipeline includes drug candidates for celiac disease, nonalcoholic steatohepatitis (NASH), Crohn’s disease (CD)
and ulcerative colitis (UC). Our lead program, INN-202 (larazotide acetate or larazotide) is entering Phase 3 registration
trials, targeted for the second half of 2018, and has the potential to be the first-to-market therapeutic for celiac disease, an
unmet medical need, which affects an estimated 1% of the North American population or approximately 3 million individuals. Celiac
patients have no treatment alternative other than a strict lifelong adherence to a gluten-free diet, which is difficult to maintain
and can be deficient in key nutrients. Additionally, current FDA labeling standards allow up to 20 parts per million (ppm) of gluten
in “gluten-free” labelled foods, which are sufficient to cause celiac symptoms in many patients, including abdominal
pain, abdominal cramping, bloating, gas, headaches, ataxia, ’‘brain fog’’ and fatigue. Long-term ramifications
of celiac disease include enteropathy associated T-cell lymphoma (EATL), osteoporosis and anemia.



3











Figure 1: Larazotide’s mechanism of action is applicable
to multiple diseases.



Larazotide is
an 8-amino acid peptide orally administered in a capsule which has been tested in more than 500 celiac patients with statistically
significant improvement in celiac symptoms. The FDA has granted larazotide Fast Track Designation for celiac disease. Larazotide’s
safety profile was similar to placebo primarily because larazotide is not systemically absorbed into the blood circulation. Additionally,
larazotide’s mechanism of action (MoA) as a tight junction regulator is a new approach to treating autoimmune diseases, such
as celiac disease. Pre-clinical studies have shown larazotide causes a reduction in permeability across the intestinal epithelial
barrier, making it the only drug candidate known to us which is in clinical trials with this MoA. Increased intestinal permeability
underlies several diseases in addition to celiac disease, including NASH, Crohn’s disease, ulcerative colitis and irritable
bowel syndrome (IBS), among others (Figure 1). We are engaging in multiple research collaborations to expand larazotide’s
clinical indications with a shorter time to proof-of-concept.



With the release
of the Phase 2b trial data in 342 celiac patients at the 2014 Digestive Disease Week (DDW) conference, larazotide became the first
and the only drug for the treatment of celiac disease (published data), which met its primary efficacy endpoint with statistical
significance. The Phase 2b data showed statistically significant (p=0.022) reduction in abdominal and non-GI (headache) symptoms
as measured by the CeD PRO. After a successful End-of-Phase 2 meeting with the FDA, which confirmed the regulatory path forward,
we expect to launch the Phase 3 registration program later this year with topline data expected by 2019.



Larazotide is
being investigated as an adjunct to a gluten-free diet for celiac patients who continue to experience symptoms despite adhering
to a gluten-free diet. Due to the difficulty of maintaining a gluten-free diet due to lack of easy access to and the higher cost
of gluten-free foods, contamination from gluten as well as social pressures, it is estimated that more than half the celiac population
experiences multiple, potentially debilitating, symptoms per month. A study from the UK indicates that more than 70% of patients
diagnosed with celiac disease consume gluten either intentionally or inadvertently (Hall et al. 2013).



4







Another indication
for which larazotide is currently being developed is NASH. NASH is an unmet need disease affecting approximately 5%-6% of the US
adult population. There are currently several drugs in development; however, to our knowledge, none have larazotide’s MoA.
We are developing a proprietary formulation of larazotide, INN-217, for efficient delivery to the intestine. INN-217 has the potential
to reduce the transport of lipopolysaccharide (LPS), which is produced by gram negative bacteria in the gut, from the intestinal
lumen to the liver via the portal circulation. Several studies have shown the link between NASH and increased levels of LPS, which
translocates across an inflamed, “leaky” epithelial barrier to the liver thus directly damaging liver cells via an
inflammatory cascade. INN-217 can potentially decrease the flux of LPS across the leaky epithelial barrier, which is known to play
an important role in the pathogenesis of NASH. Since none of the NASH drugs in development currently target intestinal permeability,
INN-217 has the potential to affect NASH alone and work synergistically with late stage NASH drugs in development, which are primarily
focused on metabolic targets such as farnesoid X receptor (FXR) and acetyl-CoA carboxylase (ACC).







Figure 2: LPS (Lipopolysaccharide) is a toxin produced by
intestinal bacteria and can translocate via the leaky epithelial barrier to the liver and damage liver cells. Thus LPS has been
implicated in the pathogenesis of NASH.



5







INN-108, is in
development for the treatment of mild-to-moderate UC. INN-108 is expected to be delivered orally using an azo-bonded pro-drug approach
linking mesalamine or 5-ASA (5-amino salicylic acid) to 4-APAA (approved as Actarit in Japan in 1994 for the treatment of rheumatoid
arthritis). After having completed a successful Phase 1 trial at currently approved doses of mesalamine, INN-108 is expected to
enter a proof-of-concept Phase 2 trial. The azo-bond protects INN-108 (Figure 2) from the low pH in the stomach, allowing it to
transit to the colon where the UC lesions are primarily located. In the colon, the azo bond is broken enzymatically by azoreductases,
leading to the separation of mesalamine and 4-APAA which has a synergistic anti-inflammatory effect. Although the majority of patients
present with mild-to-moderate UC, the focus of drug development has been in moderate-to-severe UC with little innovation or drug
development for mild-to-moderate UC. The mainstay of treatment for mild-to-moderate UC continues to be various oral reformulations
of mesalamine such as Shire’s Lialda (approved 2007) and Pentasa (approved 1993), Allergan’s Asacol HD (approved 2008)
and Valeant/Salix’s Apriso (approved 2008).



We also own the
global rights to INN-329, a proprietary formulation of secretin, a peptide hormone which is used to improve visualization in magnetic
resonance cholangiopancreatography (MRCP) procedures. Secretin is a 27-amino acid long hormone which rapidly stimulates release
of pancreatic secretions, thus improving visualization of the pancreatic ducts during imaging procedures.



6







Our Strategy



Our goal is to
become a leading biopharmaceutical company by developing novel therapeutics that have the potential to transform current treatment
paradigms for patients and to address unmet medical needs. We are currently pursuing the development of drugs for autoimmune and
inflammatory diseases that target established biological pathways. The critical components of our strategy are as follows:



| | • | Advance INN-202 (larazotide) for celiac disease into Phase 3 clinical trials. Our highest clinical priority is to initiate the Phase 3 trials for larazotide for the treatment of celiac disease. We had a successful End-of-Phase 2 meeting with the FDA in 2017. With the guidance and agreement reached with the FDA, we plan to initiate our Phase 3 trials during the second half of 2018.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Accelerate development of INN-217 (larazotide) for NASH. Increased intestinal permeability leads to LPS translocation to the liver and is one of the key recognized pathogenic factors in NASH.  Larazotide’s mechanism of action to decrease intestinal permeability could thus have a therapeutic effect in NASH. We plan to develop larazotide alone and in combination with select NASH therapies in clinical trials with the potential for synergistic therapeutic benefit.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Further the study INN-108 for Ulcerative colitis . We are currently developing plans to initiate the proof of concept Phase 2 trials for INN-108 for the treatment of UC. We plan to initially develop INN-108 for mild-to-moderate UC in adults.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Further the study of INN-289 (larazotide) for Crohn’s disease. The mechanism of action of larazotide to decrease intestinal permeability can have a therapeutic effect in inflammatory bowel disease (IBD). In an IL-10 knockout animal model, larazotide showed promising data which can position it for a proof-of-concept study using a proprietary formulation of larazotide, INN-289, alone and in combinations with select approved immunological therapies.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Seek partnerships to commercialize late stage pipeline drugs. With large addressable markets, such as celiac disease, we plan to seek out partners with established presences and histories of successful commercialization.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Leverage and protect our existing intellectual property portfolio and secure patents for additional indications. We intend to continue to expand our intellectual property protection strategy, grounded in securing composition of matter patents and method of use patents for newer indications. We plan to develop newer formulations for the product candidates for other indications and improved performance of existing indications.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | In-license additional intellectual property and pipeline drugs to expand our presence in the treatment of autoimmune and inflammatory diseases . In addition to broadening our current pipeline through indication expansion, we plan to explore expansion of our product pipeline through in-licensing, strategic partnerships and product acquisitions, as we did in 2016 by in-licensing of larazotide from Alba Therapeutics Corporation. We expect that future pipeline expansion decisions will be based on the unmet medical needs in autoimmune and inflammatory disease areas including, but not limited to, celiac disease and ulcerative colitis, the commercial opportunity, and the ability to rapidly develop and commercialize a product candidate.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Leverage the expertise of our management team and network of scientific advisors and key opinion leaders . We are led by a strong management team with deep experience in drug development, collaborations, operations, and corporate finance. Our team has been involved in a broad spectrum of R&D activities leading to successful outcomes, including FDA approvals and drug launches. We will continue to leverage the collective experience and talent of our management team, network of leading scientific experts, and key opinion leaders to strategize and implement our development and eventually our commercialization strategy.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Out-license our non-core assets/indications and establish research collaborations . From time to time, we review our internal research priorities and therapeutic focus areas and may decide to out-license non-core assets/indications that arise from current and future available data. We may seek research collaborations that leverage the capabilities of our core assets to monetize and expand upon the breadth of opportunities that may be accessible through our drug candidates.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Outsource capital intensive operations . We plan to continue to outsource capital intensive operations, including most clinical development and all manufacturing operations of our product candidates, to facilitate the rapid development of our pipeline by using high quality specialist vendors and consultants in a capital efficient manner.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



7







Our Drug Product Pipeline



Our current pipeline
is focused on clinical stage assets with large markets and unmet medical needs. We continue to leverage additional proof-of-concept
work for larazotide to expand into additional indications, including NASH, Crohn’s disease and ulcerative colitis. The following
table summarizes key information about our pipeline of drug product candidates to date (Table 1):







Table 1: Our key pipeline products are clinical stage and
address large markets with chronically dosed therapies.



INN-202 (Larazotide) for Celiac Disease



Larazotide is
being developed for the treatment of celiac disease and has successfully completed a Phase 2b trial showing statistically significant
reduction in abdominal and non-GI (headache) symptoms. We are planning to launch the Phase 3 trials in the second half of 2018.



Larazotide is
an orally administered, locally acting, non-systemic, synthetic 8-amino acid (Figure 3), tight junction regulator being investigated
as an adjunct to a gluten-free diet in celiac disease patients who still experience persistent GI symptoms despite being on a gluten-free
diet. Because of larazotide’s lack of absorption into the blood circulation, we believe that fewer complications, if any,
are likely to develop for individuals taking chronically dosed lifetime medication.



The larazotide
drug product is an enteric coated drug product formulated as enteric coated multiparticulate beads filled into hard gelatin capsules
for oral delivery. The enteric coating is designed to allow the bead particles to bypass the stomach and release larazotide upon
entry into the small intestine (duodenum). A mixed bead formulation is used to allow partial release of larazotide upon entry into
the duodenum and to release the remaining larazotide approximately 30 minutes later. In clinical trials, larazotide has been dosed
15 minutes before meals allowing time for its effect in the small bowel before exposure to gluten.



8











Figure 3: Larazotide acetate is an 8-amino acid peptide in
an oral capsule using a proprietary formulation



Larazotide’s Mechanism
of Action



In research studies
supportive of the mechanism of action, larazotide has been shown to stimulate recovery of mucosal barrier function via the regulation
of tight junctions both in vitro and in vivo , including in a celiac disease mouse model (Gopalakrishnan, 2012).
In doing so, it is proposed that larazotide reduces the symptoms associated with celiac disease.



In several autoimmune
diseases, this increased intestinal permeability or paracellular leakage allows increased exposure to a triggering antigen and
a consequent inflammatory response, the characteristics of which are determined by the particular disease and the genetic makeup
of the individual. A new paradigm for autoimmune diseases is that there are three contributing factors to the development of disease:



| | 1. | A genetically susceptible immune system that allows the host to react abnormally to an environmental antigen;
| | -- | -------------------------------------------------------------------------------------------------------------



| | 2. | An environmental antigen that triggers the disease process; and
| | -- | ---------------------------------------------------------------



| | 3. | The ability of the environmental antigen to interact with the immune system.
| | -- | ----------------------------------------------------------------------------



Larazotide regulates
tight junction opening triggered by both gluten and inflammatory cytokines, thus reducing uptake of gluten. Larazotide also disrupts
the intestinal permeability-inflammation loop, and has been shown to reduce symptoms associated with celiac disease.



Larazotide’s Dose Response



Previously published
in vitro work using Caco-2 cells has shown a linear dose response for larazotide in reducing permeability of the epithelial
barrier by tightening the tight junctions (Gopalakrishnan, 2012). In several clinical trials, larazotide has exhibited clinical
benefit by reducing celiac symptoms at lower doses while inhibition of this activity occurs at the higher doses. To better understand
this observation, Dr. Anthony Blikslager from North Carolina State University evaluated the pharmacology of larazotide at the luminal
surface of the small intestine in an ex vivo porcine model. A section of the porcine intestine was ligated, placed in an
Ussing chamber and changes in permeability were measured by electrical resistance. Multiple experiments demonstrated that following
an ischemic insult causing increased intestinal permeability, full length larazotide is capable of restoring intestinal wall integrity
to that of the non-ischemic control. Subsequently, it was discovered that a specific aminopeptidase located within the brush borders
of the intestinal epithelium cleaves larazotide into two fragments which lack either one or both N-terminus glycine (G) residues
( GG VLVQPG). Both cleaved fragments, GVLVQPG and VLVQPG, do not decrease intestinal permeability. Moreover, when
these two fragments are administered in combination with the active full-length larazotide, they inhibit larazotide’s activity
to restore intestinal wall integrity or reduce permeability. These data demonstrate that higher doses of larazotide lead to local
buildup of breakdown fragments, which then compete with and block activity of larazotide after threshold concentration is reached.
The in vitro experiments using Caco-2 monolayers did not show the same pharmacology and dose response because they lack
the brush border and therefore lack the aminopeptidase which cleaves larazotide. These data also provide an explanation for the
clinical observations of an optimal lower dose of larazotide, which avoids the reservoir of competing inactive fragments generated
at high doses of larazotide.



9









Figure 4: An aminopeptidase in the brush border cleaves larazotide
into two fragments, #1 and #2, which then act as inhibitors of larazotide







Figure 5: Illustrative effect of gluten ingestion, breakdown
to gliadin which can cross a “leaky” epithelial barrier in the small bowel thus activating the intestinal-inflammatory
loop and leading to symptoms and villous atrophy.



The Intestinal Barrier, Tight
Junctions, and Intestinal Permeability



The intestine
is one of the largest interfaces between a person and his or her environment, and an intact intestinal barrier is essential in
maintaining overall health. An important function of the intestinal barrier is to regulate the trafficking of macromolecules between
the environment and the host. Together with gut-associated lymphoid tissue and the neuroendocrine network, the intestinal epithelial
barrier controls the equilibrium between tolerance and immunity to non self-antigens. When the finely tuned trafficking of macromolecules
is dysregulated, both intestinal and extra-intestinal autoimmune disorders can occur in genetically susceptible individuals (Figure
5).



10







Transcellular
fluxes (through the cell membrane) allow nutrients and small molecules to enter the cell from the luminal side of the intestine
and exit on the serosal side (internal milieu). Paracellular fluxes (between cells) in contrast are limited by size and charge
constraints imposed by the tight junctions between epithelial cells. The paracellular pathway is the key regulator of intestinal
permeability to larger more complex macromolecules that may be immunogenically significant.



Intestinal epithelial
cells adhere to each other through junction complexes. The tight junction, also referred to as zonula occludens, represents the
major barrier to diffusion within the paracellular space between intestinal cells. Multiple proteins that make up the tight junction
have been identified including occludin, claudin family members, and junctional adhesion protein (JAM). These interact with cytosolic
proteins (ZO-1, ZO-2, and ZO-3) that function as adaptors between the tight junction proteins and actin and myosin contractile
elements within the cell. Acting together, they open and close the paracellular junctions between cells. It is now apparent that
tight junctions are dynamic structures that are involved in developmental, physiological, and pathological processes.



The role of tight
junction dysfunction in the pathogenesis of autoimmune diseases is under active investigation. Many autoimmune populations have
increased intestinal permeability, and it is believed that this may play a fundamental role in the development of autoimmunity.
In susceptible populations, the opening of tight junctions between intestinal epithelial cells may lead to exposure to oral antigens
via paracellular transport and a consequent autoimmune response. A wide range of gastrointestinal and systemic inflammatory diseases
are associated with abnormal intestinal permeability including celiac disease, type 1 diabetes, inflammatory bowel diseases (Crohn’s
disease and UC), and ankylosing spondylitis.



Summary of Key Clinical Trials using Larazotide in Celiac
Disease



Larazotide has
been administered to humans in seven clinical trials. These include three Phase 1 trials: (two trials in healthy subjects and a
Phase 1b proof of concept (POC) trial in subjects with celiac disease), two Phase 2 gluten challenge studies in subjects with controlled
celiac disease, and additionally two Phase 2 trials in subjects with active celiac disease (Table 2). After the Phase 1 studies,
larazotide was tested to explore which endpoint would be suitable for celiac disease. After looking at permeability changes in
the gut, which turned out to be highly variable in a large trial setting, and then mucosal healing, which likely requires a longer-term
study, symptom reduction showed the most consistent and reliable reduction both in a gluten challenge and a ’‘real-life’’
trial. Importantly, after exposure in more than 800 subjects, the safety profile of larazotide remained similar to placebo due
to its lack of absorption into the bloodstream, which we believe is an important advantage for a chronically dosed drug.



The initial Investigational
New Drug Application (IND) for the treatment of celiac disease was filed with the FDA by Alba Therapeutics Corporation (Alba) on
12 August 2005 for the use of larazotide acetate (INN-202). The IND was transferred from Alba to Innovate effective March 8, 2016.
Over the course of the seven clinical studies, 5 patients experienced a serious adverse event, of which 2 received placebo and
3 received larazotide. These events included inflammation of the gallbladder, gall stones, depression, allergic reaction to penicillin,
and appendicitis. We do not believe that any of these events were considered related to treatment with study medication.



|Trial |  | Study Date |  | Clinical Trial                                                                 |  | No. of Subjects
|----- |  | ---------- |  | ------------------------------------------------------------------------------ |  | ---------------
|-001  |  | 2005       |  | Phase 1: Single Escalating Doses in Healthy Volunteers                         |  | 24             
|-002  |  | 2005-06    |  | Phase 1b: Multiple Dose POC in Celiac Patients – Gluten Challenge              |  | 21             
|-003  |  | 2006       |  | Phase 1: Multiple Escalating Dose in Volunteers                                |  | 24             
|-004  |  | 2006-07    |  | Phase 2a: Multiple Dose POC in Celiac Patients Gluten Challenge 2 weeks        |  | 86             
|-006  |  | 2008       |  | Phase 2b: Dose Ranging, in Celiac Patients Gluten Challenge, 6 weeks           |  | 184            
|-011  |  | 2008-09    |  | Phase 2b: POC and Dose Ranging in Active Celiac Patients                       |  | 105            
|-06B  |  | 2008       |  | Phase 2b: Similar to -006, in Celiac Patients                                  |  | 42             
|-012  |  | 2011-13    |  | Phase 2b: Multiple dose in Celiac patients with Symptoms on a Gluten-Free Diet |  | 342            



Table 2: Significant drug exposure in more than 800 subjects
in multiple clinical trials consistently showed a safety profile similar to placebo, which we believe is an important advantage
for chronic lifetime administration.



11







Clinical Trial (’006) Results Revealed Key Insight
into Symptom Reduction as a Primary Endpoint



A Phase 2b study
with a gluten challenge (CLIN1001-006) was conducted in 184 subjects with well-controlled celiac disease on a gluten-free diet.
Subjects were randomized to one of four treatment groups, (placebo, 1 mg, 4 mg, or 8 mg larazotide) and asked to take treatment
15 minutes prior to each meal (TID). Nine hundred (900) mg of gluten was taken with each meal. Subjects remained on their gluten-free
diet throughout the duration of the trial. The trial results revealed key insights into how to move the program forward by focusing
on reduction of symptoms. The 1-mg dose prevented the development of gluten-induced symptoms as measured by GSRS (a patient-reported
outcome (PRO) devised and validated by AstraZeneca), and all drug treatment groups had lower anti-transglutaminase antibody levels
than the placebo group. Results of pre-specified secondary endpoints suggest that larazotide reduced antigen exposure as manifested
by reduced production of anti-tissue transglutaminase (tTG) levels and immune reactivity towards gluten and gluten-related gastrointestinal
symptoms in subjects with celiac disease undergoing a gluten challenge.





Figure 6: The overall trial designs for Phase 2b and Phase
3 are similar with a screening period followed by 12 weeks of randomization to larazotide vs. placebo.







Figure 7: Responder Rate Analysis: Larazotide is the only
drug in development for celiac disease to meet its primary endpoint with statistical significance as measured by the copyrighted
CeD PRO (celiac disease patient reported outcome), an FDA-agreed upon primary endpoint for Phase 3 (shown above). Source: Gastroenterology
2015; 148:1311–1319; p. 1315



Clinical Trial (’012) Met the Primary Endpoint with
Statistical Significance (CeD-GSRS/CeD PRO)



The purpose of
the ’012 study was to assess the efficacy (reduction and relief of signs and symptoms of celiac disease) of 3 different doses
of larazotide (0.5 mg, 1 mg, and 2 mg TID) versus placebo for the treatment of celiac disease in adults as an adjunct to a gluten-free
diet. Larazotide or placebo which was administered TID, 15 minutes prior to each meal. After a screening period, subjects were
asked to continue following their current gluten-free diet into a placebo-run in phase for 4 weeks after which they were randomized
to drug versus placebo. Subjects maintained an electronic diary capturing: daily symptoms celiac disease patient reported outcome
(CeD-PRO), weekly symptoms (CeD-GSRS), bowel movements (BSFS), and a self-reported daily general well-being assessment (Figure
6).



12







The primary endpoint
of average on-treatment CeD GSRS score throughout the treatment period was met at the 0.5 mg TID dose. In addition, a number of
pre-specified secondary and exploratory endpoints, such as symptomatic days and symptom-free days, collectively demonstrated that
a dose of 0.5 mg TID was superior to placebo and higher doses of larazotide. No difference was observed between the two higher
dose levels (1 and 2 mg TID) or placebo, suggesting a narrow dose range around the 0.5mg dose which seems to correlate with pre-clinical
data.





Figure 8: Treatment effect of larazotide from the Phase 2b
trial (’012) compared to approved IBS/CIC drugs with varying treatment effects mostly in the mid to high single digit range.
Source: Gastroenterology 2015; 148:1311–1319; p. 1315 and FDA Drug Labels



The CeD PRO, a
copyrighted PRO created specifically for celiac disease and wholly owned by us, showed a statically significant (p=0.022) treatment
effect of 14.3% (drug responder rate minus placebo responder rate). Although to our knowledge there are no celiac drugs approved
as a comparator, the treatment effect was greater than several other GI dugs approved for IBS and chronic idiopathic constipation
(CIC) which use a similar clinical trial design (Figure 8).



13







Path Forward to Phase 3 Trials



After a successful
End-of-Phase 2 meeting with the FDA, agreements were reached on the key aspects of the Phase 3 trials. The FDA agreed on using
the previously validated CeD PRO as the primary endpoint with two doses of larazotide which bracket the range of efficacy in previous
trials. Two Phase 3 trials with a size of about 500 patients each would allow for more than a 90% power to replicate the Phase
2b trial results. Most other criteria, such as inclusion, exclusion and site selection/coordination, are expected to remain similar
to the ’012 Phase 2b trial.



About Celiac Disease



Celiac disease
is a genetic autoimmune disease triggered by the ingestion of gluten-containing foods such as wheat, barley, and rye. Individuals
with celiac disease have increased intestinal permeability, commonly referred to as a ’‘leaky’’ gut. This
allows macromolecules that normally remain on the luminal side of the intestine to pass through to the serosal side through tight
junctions via paracellular diffusion (Figure 9). In the case of celiac disease, this permeability may allow gluten break-down products,
the triggering antigens of celiac disease, to reach gut-associated lymphoid tissue(GALT), initiating an inflammatory response.
Celiac disease is characterized by chronic inflammation of the small intestinal mucosa that may result in diverse symptoms, malabsorption,
atrophy of intestinal villi, and a variety of clinical manifestations.







Figure 9: The epithelial barrier separates the intestinal
content from the immune system (lamina propria) and the vasculature.



14











Figure 10: Intestinal villi atrophy in celiac patients, a
characteristic finding upon biopsy of the small intestine.



Large Population —
Unmet Need (no drug approved); Serious Long-Term Consequences



Celiac disease
affects an estimated 1% of the Western population (Dubé, 2005). Currently, there are no therapeutics available to treat
celiac disease, and the current management of celiac disease is a life-long adherence to a gluten-free diet. Changes in dietary
habits are difficult to maintain, and foods labeled as gluten-free may still contain small amounts of gluten (up to 20 ppm per
FDA labeling standards). Dietary compliance is imperfect in a large fraction of patients (Rostom, 2006) and difficult to adhere
to on an ongoing basis (Green, 2007). In a survey conducted in the United Kingdom non-adherence to the gluten-free diet was found
to be as high as 70% (Hall, 2013).



There are serious
long-term consequences to exposure to gluten in patients with celiac disease, including the risk of developing osteoporosis, stomach,
esophageal, or colon cancers, and T-cell lymphoma (Green 2003, Green 2007). The continuous GI symptoms often result in significant
morbidity with a substantial reduction in quality of life. In addition, not all patients respond to a gluten-free diet. Patients
with known celiac disease may continue to have or re-develop symptoms despite being on a gluten-free diet (Rostom 2006). This suggests
a need for a therapeutic agent for the treatment of celiac disease (Green, 2007; Hall, 2013).



Celiac disease represents a model of an autoimmune disorder
in which the following elements are known:



| | 1. | The triggering environmental factor is glutenin or gliadin, the proline, glutamine and glycine rich glycoprotein fractions of gluten;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------



| | 2. | There is a close genetic association with HLA haplotypes DQ2 and/or DQ8; and
| | -- | ----------------------------------------------------------------------------



| | 3. | A highly specific humoral autoimmune response occurs.
| | -- | -----------------------------------------------------



Genetics of Celiac Disease



The high incidence
of celiac disease in first degree relatives of celiac patients (10 − 15%) and high concordance rate in monozygotic twins
(80%) suggest a strong genetic component. Gliadin deamidation by tissue transglutaminase (tTG) enhances the recognition of gliadin
peptides by human leukocyte antigen (HLA) DQ2 and DQ8 T cells in genetically predisposed subjects, which in turn may initiate the
cascade of autoimmune reactions responsible for mucosal destruction. This interaction implies that gliadin and/or its breakdown
peptides in some way cross the intestinal epithelial barrier and reach the lamina propria of the intestinal mucosa where
they are recognized by antigen-presenting cells. The enhanced paracellular permeability of individuals with celiac disease would
allow passage of macromolecules through the paracellular spaces with resulting autoimmune inflammation. There is a strong genetic
predisposition to celiac disease, with major risk associated with HLA DQ2 (approximately 95% of celiac disease patients) and HLA-DQ8
(approximately 5% of celiac disease patients). The prevalence of celiac disease in the U.S. is estimated to be approximately 1%;
however approximately 30% of the general U.S. population is HLA DQ2 positive (Figure 11), indicating that additional factors are
involved in the development of celiac disease.



15











Figure 11: Distribution of HLA-DQ2/DQ8 in the general US
population and in celiac disease. Source: J. Clin. Invest. 2007 Jan 2;117(1):41.



In celiac disease,
an inflammatory reaction occurs in the intestine that is characterized by infiltration of immune cells in the lamina propria
and epithelial compartments with chronic inflammatory cells and progressive architectural changes to the mucosa. Both adaptive
and innate branches of the immune system are involved. The adaptive response is mediated by gluten-reactive CD4+ T cells in the
lamina propria that recognize gluten-derived peptides when presented by the HLA class II molecules DQ2 or DQ8. The CD4+
T cells then produce pro-inflammatory cytokines such as interferon gamma. This results in an inflammatory cascade with the release
of cytokines, anti-tTG antibodies, T cells, and other tissue-damaging mediators leading to villous injury and crypt hyperplasia
in the intestine. Anti-human tissue transglutaminase (anti-tTG) antibodies are also produced, which form the basis of serological
diagnosis of celiac disease.



Anti-tTG Antibodies: Highly
Sensitive and Specific Blood-based ELISA Diagnostic Test



The current approach
for diagnosis of celiac disease is to use anti-tissue transglutaminase-2 (tTG-2) antibody tests as an initial screen with definitive
diagnosis from biopsy of the small intestine mucosa. The diagnosis of celiac disease is confirmed by demonstration of characteristic
histologic changes in the small intestinal mucosa, which are scored based on criteria initially put forth by Marsh and later modified.
In 2012, the European Society of Pediatric Gastroenterology, Hepatology, and Nutrition (ESPGHAN) Guidelines allowed symptomatic
children with serum anti-tTG antibody levels ≥10 times upper limit of normal to avoid duodenal biopsies after positive human
leukocyte (HLA) test and serum anti-endomysial antibodies.



The need for multiple
clinical and laboratory findings to diagnose celiac disease makes monitoring disease progression difficult. International guidelines
give standardized definitions and criteria for the diagnosis of celiac disease, however there are not clear standards for follow-up
and monitoring of treatment. This is particularly true for celiac patients diagnosed as adults, who respond differently and less
completely to a gluten-free diet than do celiac patients diagnosed as children. It is not clear who should perform follow-up of
patients with celiac disease and at what frequency but the American College of Gastroenterology suggests that an annual follow-up
seems reasonable. Recommendations for monitoring disease progression include assessing symptoms and dietary compliance, and repeating
serology tests. Markers of celiac disease progression and improvement that are both validated and provide a timely assessment of
disease activity are lacking.



Role of Tissue Transglutaminase in Celiac Disease



Anti-tTG-2 antibodies
are produced in the small-intestinal mucosa (Picarelli et al. 1996), where they can bind tTG-2 present in the basement membrane
and around blood vessels and form deposits characteristic of the disease. tTG-2 has been implicated in a variety of human disorders
including several neurodegenerative conditions and cancer. Transglutaminases (TGs) were first discovered in the 1950s and are a
family of enzymes which catalyze Ca2+-dependent post-translational modification of proteins. Of the seven isoforms discovered so
far all share the same basic four-domain tertiary structure, with minor variations, although their catalytic mechanism is conserved,
resembling that of the cysteine proteases. tTGs cause transamidation, esterification, and hydrolysis, all of which lead to post-translational
modifications in the target proteins. Characteristically, tTG’s mediate selective protein cross-linking by forming covalent
isopeptide linkages between two target proteins. The resulting cross-linked products in many cases have high molecular masses and
are unusually resistant to proteolytic degradation and mechanical strain. As in the case of the gliadin fragments in celiac disease,
they are able to pass thru the leaky paracellular pathway from the lumen to the lamina propria , where the immune cells
reside and are then activated.



16







Gliadin fragments,
in addition to being rich in proline, also have high glutamine content, which makes them suitable substrates for tTG-2, which targets
glutamine residues. For augmented DQ2/8 binding, the conversion of glutamine residues to glutamic acid is catalyzed by tTG-2 as
a deamidation reaction. After deamidation, the gliadin peptides become highly negatively charged in key anchor positions, thereby
increasing their affinity to the HLA molecules. CD4+ T cells recognize the deamidated gliadin peptides bound to the HLA DQ2 or
DQ8 molecules by their T cell receptors, thus activating intestinal inflammation leading to villous atrophy.



Gluten and Food Labeling



Gluten is a complex
molecule contained in several grains such as wheat, rye and barley. Gluten can be subdivided into two major protein subgroups according
to its solubility in alcohol and aqueous solutions. These subclasses consist of gliadins, soluble in 40 − 70% ethanol and
glutenins which are large, polymeric molecules insoluble in both alcohol and aqueous solutions. The gliadins and glutenins can
be further subdivided into groups according to their molecular weight. Glutenins can be subdivided into low and high molecular
weight proteins, while the gliadin protein family contains α-, β-, γ- and ω- types. Both glutenins and gliadins
are characterized by a high amount of prolines (20%) and glutamines (40%) that protect them from complete degradation in the gastrointestinal
tract and make them difficult to digest. Currently 31 nine-amino acid peptide sequences in the prolamins of wheat and related species
have been defined as being celiac toxic or celiac ’‘epitopes.’’ These epitopes are located in the repetitive
domains of the prolamins, which are proline and glutamine-rich, and the high levels of proline make the peptide resistant to proteolysis.
In addition, the prolamin-reactive T cells also recognize these epitopes to a greater extent when specific glutamine residues in
their sequences have been deamidated to glutamic acid by tTG-2. The immunodominant sequence after wheat challenge corresponds to
a well-characterized 33 residue peptide from α-gliadin, ’’33-mer,’’ that is resistant to gastrointestinal
digestion (with pepsin and trypsin) and was initially identified as the major celiac toxic peptide in the gliadins.



The FDA finalized
a standard definition of ’‘gluten-free’’ in August 2013. As of August 5, 2014, all manufacturers of FDA-regulated
packaged food making a gluten-free claim must comply with the guidelines outlined by the FDA ( www.fda.gov/gluten-freelabeling
). A ’‘gluten free’’ claim still allows up to 20 ppm of gluten which leads to more than 100mg/day up to
500 mg/day of gluten exposure. Due to presence of gluten in foods, beer/liquor, cosmetics and household products, exposure is virtually
impossible to completely avoid, and with cross-contamination, celiac patients cannot avoid exposure to gluten therefore, making
symptoms more frequent than expected.



|CNS                     |  | Endocrine                  |  | Oncology/Heme                                                 |  | Skin                     |  | Other                       
|----------------------- |  | -------------------------- |  | ------------------------------------------------------------- |  | ------------------------ |  | ----------------------------
|Headaches               |  | Type 1 Diabetes            |  | Enteropathy
        associated T-cell
        lymphoma (EATL) |  | Dermatitis herpetiformis |  | Rheumatoid arthritis (RA)   
|Gluten ataxia           |  | Autoimmune
        Thyroid |  | anemia                                                        |  | Alopecia areata          |  | Reduced bone
        Density
|Peripheral neuropathies |  | Addison’s disease          |  |                                                               |  | Vitiligo                 |  | Sjogren’s syndrome          



Table 3: Diseases associated with celiac
disease



Non-GI Manifestations of Celiac Disease and Co-Morbidities



Headache, Gluten Ataxia: Nervous System Manifestation of
Celiac Disease. The association between celiac disease and neurologic disorders has been supported by numerous studies over
the past 40 years. While peripheral neuropathy and ataxia have been the most frequently reported neurologic extra-intestinal manifestations
of celiac disease a growing body of literature has established headache as a common presentation of celiac disease as well. The
exact prevalence of headache among patients ranges from about 30% to 6% (Lebwohl, 2016).



Dermatitis herpetiformis: Skin Manifestation of Celiac Disease.
Dermatitis herpetiformis (DH) is an inflammatory cutaneous disease characterized by intensely pruritic polymorphic lesions with
a chronic-relapsing course, first described by Duhring in 1884. DH’s only treatment is a strict lifelong gluten-free diet,
for achieving and maintaining a permanent control. It appears in around 25% patients with celiac disease, at any age of life, mainly
in adults and is a very characteristic clinical presenting symptom.



17







INN-217: Non-alcoholic steatohepatitis (NASH) and The Microbiome



NASH is a growing
epidemic affecting approximately 5 – 6% of the general population. An additional 10% to 20% of the general population who
ingest little (< 70 g/week for females and <140 g/week for males) to no alcohol are characterized with fat accumulation in
the liver, without inflammation or damage, a condition called nonalcoholic fatty liver disease (NAFLD). The progression of fatty
liver to NAFLD to NASH to cirrhosis is a serious condition which has no approved FDA treatment. Evidence supporting a role for
the gut-liver axis in the pathogenesis of NAFLD/NASH has been accumulating over the past 20 years. LPS or endotoxin translocation
is thought to be a primary cause of downstream signaling in the liver causing inflammation and damage. NASH is associated with
increased gut permeability caused by disruption of intercellular tight junctions in the intestine allowing LPS from bacteria to
pass into the portal circulation to the liver directly damaging hepatocytes. LPS constitutes the outer leaflet of the outer membrane
of most gram-negative bacteria. LPS is comprised of a hydrophilic polysaccharide and a hydrophobic component known as lipid A which
is responsible for the major bioactivity of endotoxin. When released and translocated into the bloodstream from the gut, LPS can
cause a variety of cytokine activity and inflammation in the host.



The disrupted
barrier along with an altered microbiome in the gut contribute to NASH as recently demonstrated by a group from Emory University,
Rahman et. al. , in Gastroenterology (2016). Knockout mice missing the junctional adhesion molecule A (JAM-A) ( F11r-/-
), which have a defect in the intestinal epithelial barrier thus making it “leaky,” develop more severe steatohepatitis.
JAM-A is a component of the tight junction complex that regulates intestinal epithelial paracellular permeability. F11r-/-
mice therefore have leaky tight junctions that allow for translocation of gut bacteria to peripheral organs. By restoring the leaky
tight junctions, larazotide could potentially have a beneficial therapeutic effect by blocking translocation of bacterial toxins
via the paracellular pathway and may also help normalize the dysbiotic microbiome found in NASH.



According to a
marketing and research firm, GlobalData, the market for NASH therapeutics is expected to grow significantly. GlobalData estimates
that the market in the United States, France, Germany, Italy, Spain, the United Kingdom, and Japan for such therapeutics will be
approximately $25.3 billion by 2026. We expect that this market could be addressed by larazotide, although we are unable to estimate
what portion until the effect in this population has been studied in clinical trials to understand the specific patient-type in
NASH that may derive benefit.









Figure 12: Growing NASH population up to 5%-6% of adults
in the US alone.



INN-289: Crohn’s Disease:
Chronic Disease with need to oral therapeutics



Innovate is working
on a proprietary formulation of larazotide for Crohn’s disease, INN-289. Animal data has shown the effect of larazotide on
disease attenuation in an IL-10 knockout mouse model (Arrieta, 2009), which has been well established and used for several drug
development programs. Larazotide was placed in the drinking water of the mice at a low dose (0.1 mg/ml) or high dose (1.0 mg/ml)
during the period from 4 to 17 weeks of age. Results were compared to wild type mice, IL-10 knockout mice with no treatment, and
IL-10 knockout mice treated with probiotics. Intestinal and colonic permeability was significantly reduced in the high dose larazotide
treatment group, but not in the untreated IL-10 knockout group. Larazotide treatment caused a reduction in all tissue markers of
colonic inflammation (IFNγ and TNFα) and in histological inflammation.



18







Other Indications using Larazotide’s Mechanism of Action



Larazotide for Environmental Enteric Dysfunction (EED):
Positive in vitro Data;



Environmental
enteric dysfunction (EED) is a rare pediatric tropical disease in the U.S. and Europe, however, more than 165 million children
in developing countries in Africa and Asia suffer from it. As per section 524 of the Federal Food, Drug, and Cosmetic Act (FD&C)
Act, EED would likely fall under ’‘Current List of Tropical Disease’’ number ’S,’ thus making
a drug approved for EED in the U.S. potentially eligible for a Priority Review Voucher.



The histological
presentation of EED is very similar to celiac disease with villous atrophy and chronic inflammation of the small bowel and the
pathogenesis of EED is linked to increased intestinal permeability. We have tested larazotide against some of the pathogens commonly
found in EED (unpublished) and found positive in vitro results which will need to be confirmed in animal models before starting
a clinical trial in EED.



INN-108: Mild-to-Moderate Ulcerative Colitis



INN-108 is in
development for mild-to-moderate UC and is expected to enter a proof-of-concept Phase 2 trial in the second half of 2018 after
a successful Phase 1 trial at currently approved doses of mesalamine. UC is an IBD that affects more than 1.25 million people in
the major markets of the United States, France, Germany, Italy, Spain, the United Kingdom, and Japan and is characterized by inflammation
and ulcers in the colon and rectum. UC is a chronic disease that can be debilitating and sometimes lead to life-threatening complications.
While poorly understood, a multitude of environmental factors and genetic vulnerabilities are thought to lead to the dysregulation
of the immune response via a defective epithelial barrier. Although the majority of patients present with mild-to-moderate UC which
can progress to severe UC, the focus of drug development has been in moderate-to-severe UC with little innovation or drug development
for mild-to-moderate UC. The mainstay of treatment for mild-to-moderate UC remain various oral reformulations of mesalamine or
5-ASA (5-amino salicylic acid) such as Shire’s Lialda (approved 2007) and Pentasa (approved 1993), Allergan’s Asacol
HD (approved 2008) and Valeant/Salix’s Apriso (approved 2008).



The initial IND
was filed with the FDA by Nobex Corporation on May 15, 2003 for the use of APAZA (INN-108) for the treatment of ulcerative colitis.
The IND was then transferred from Seachaid Corporation to Innovate effective March 19, 2014. Two Phase 1 studies in healthy subjects
and patients with ulcerative colitis were conducted by Nobex with INN-108. No serious adverse events were reported during either
study.



INN-108 uses an
azo-bonded pro-drug approach linking mesalamine to 4-APAA. Mitsubishi Pharma developed 4-APAA as Actarit in Japan which was approved
in 1994 for rheumatoid arthritis. IBD drugs were all originally approved for RA, from the oldest 5-ASA, sulfasalazine, to the latest
biologics, Humira and Enbrel. 4-APAA has more than two decades of safety data as a standalone drug and has an MoA which is differentiated
from mesalamine though the ultimate effect for both is anti-inflammatory (Figure 13). Taken orally as a tablet, the azo-bond protects
INN-108 from the low pH in the stomach, thus allowing it to transit to the colon where the UC lesions are located. In the colon,
the azo bond is broken enzymatically leading to the release of mesalamine and 4-APAA which have a synergistic anti-inflammatory
effect. With the addition of 4-APAA, which is not approved in the U.S. or EU, to the already approved mesalamine, the synergistic
effect could lead to superior clinical efficacy over the currently approved oral mesalamines.







Figure 13: 4-APAA is covalently bonded to 5-ASA via a high
energy azo-bond which is only enzymatically cleaved in the colon. The anti-inflammatory effect of each of 5-ASA and 4-APAA via
different pathways which could lead to a potential synergistic anti-inflammatory effect as seen in animal studies.



19







INN-108: UC Animal Model Data Shows Synergy between 4-APAA
and Mesalamine



The effects of
chronic treatment with INN-108 on Clostridium diffıcile toxin A — induced colitis of the colon is shown in Figure
14. Orally administered INN-108 was significantly more potent than sulfasalazine or 4-APAA alone (McVey, 2005).







Figure 14: A rat UC model using toxin A induced-colitis as
the insult leads to sloughing of the colonic epithelium with increasing doses. Using sulfasalazine vs. INN-108 to protect against
the toxin A injury showed INN-108 was significantly more potent that sulfasalazine. Source: McVey DC et al. Digestive Diseases
and Sciences. 2005 Mar 1;50(3):565-73.



INN-108 Clinical Development Pathway



After completing
two Phase 1 studies, the first of which was conducted between June 2003 and July 2003, and the second of which was conducted between
and February 2004 and June 2004, a profile was established with dosing of mesalamine and 4-APAA at 2 grams each for a total of
4 grams three times a day.



The typical dose
of the various approved mesalamine formulations range from 1.5g to 2.4g per day, thus INN-108’s mesalamine content is within
the established approved dose range. The addition of 4-APAA is thought to improve the efficacy above mesalamine, which would allow
INN-108 to be used either after or instead of current mesalamines. In a Phase 2 trial, we plan to compare INN-108 to mesalamine
seeking to demonstrate a greater clinical effect than mesalamine alone.



Ulcerative Colitis: Lack of Innovation in New Drug Development
for Past Several Decades



Conventional therapies
broadly inhibit mechanisms involved in the inflammatory process and are commonly used to effectively treat patients experiencing
a mild-to-moderate form of the disease. For mild-to-moderate UC, oral mesalamine has an established efficacy and safety profile.
However, gastroenterologists cite the need for new therapies for mild-to-moderate UC.



Patients who do
not respond to mesalamine are typically eventually transitioned to biologics. The primary targets for biologics have been to control
the immune response and inflammatory cascade, by inhibiting or downregulating molecules such as TNF-α, NF-κB, IL-1β
and IFN1-γ. We believe INN-108 bridges the gap between mesalamine and biologics by its mechanism of action of both inhibiting
the inflammatory process and down-regulating the cytokines.



About Ulcerative Colitis



UC is a chronic
intermittent relapsing inflammatory disorder of the large intestine and rectum. While poorly understood, a multitude of environmental
factors and genetic vulnerabilities are thought to lead to the dysregulation of the immune response via a defective epithelial
barrier. As a result, chronic inflammation and ulceration of the colon occurs. UC is specific to the colon and affects only the
mucosal lining of the colon. Common symptoms of UC include diarrhea, bloody stools, and abdominal pain. The majority of patients
are intermittent in their disease course, in that they experience a relapse among periods of remission. However, some patients
experience only a single episode of the disease prior to maintaining remission whereas other patients are chronically symptomatic
and may require a proctocolectomy to treat their condition.



20







History of Drug Development in Mild-to-Moderate Ulcerative
Colitis



The original compound
used in UC was sulfasalazine (Azulfidine), a conjugate of 5-ASA linked to sulfapyridine by an azo bond, which is split into the
two molecules by bacterial azoreductases in the colon. The 5-ASA component or mesalamine is the active therapeutic moiety of sulfasalazine,
with sulfapyridine thought to have little if any therapeutic effect. Sulfapyridine, however, is the cause of most of the significant
adverse side effects of sulfasalazine.



This led
to the development of other 5-ASA preparations utilizing azo chemistry to deliver high concentrations of mesalamine or 5-ASA to
the colon by preventing early absorption of the drug in the small intestine. Such preparations include olsalazine (Dipentum), consisting
of two molecules of 5-ASA bonded together by an azo bond, and balsalazide (Colazal), consisting of 5-ASA azo bonded to an inert
carrier (4-aminobenzoyl-β-alanine). The efficacy of these newer oral forms of 5-ASA is comparable to that of sulfasalazine,
but they are better tolerated. However, some side effects persist which prevent wider use. In each of these preparations, the only
active moiety is mesalamine or 5-ASA, an anti-inflammatory agent.



INN-329



INN-329 is a proprietary
formulation of secretin, a peptide hormone which is used to improve visualization in a magnetic resonance cholangiopancreatography
(MRCP) procedures. Secretin is a 27-amino acid long hormone which rapidly stimulates release of pancreatic secretions, thus improving
visualization of the pancreatic ducts during imaging procedures. Secretin has also been tested in a variety of central nervous
system conditions such as autism, though currently approved only for pancreatic function testing and imaging with endoscopic retrograde
cholangiopancreatography (ERCP).. We acquired the assets of secretin from Repligen Corporation in December 2014.



The initial IND
and was filed with the FDA by Repligen on July 29, 2005 for MRCP. The IND was transferred from Repligen to Innovate in January
2015. The New Drug Application (NDA) for MRCP was filed with the FDA on December 21, 2011 and was transferred to Innovate in January
2015.



MRCP has been
used for more than 20 years as a non-invasive tool for imaging pancreatic ducts. With the addition of secretin pancreatic secretions
are increased leading to significantly improved visualization of the pancreatic ducts for detection of abnormalities, including
pancreatic cancer. The gold standard for pancreatic duct imaging had been ERCP, an expensive and invasive procedure with complications
such as pancreatitis (3 − 5%), bleeding (1 − 2%), perforation (1%), infection (1 − 2%) and death (1/250). More
than a half-million ERCP procedures are performed annually in the U.S. and as the role of ERCP diminishes for screening, it will
further the need for approval of secretin for S-MRCP. We expect to repeat a Phase 3 trial with a partner, if and when secured,
as per previous discussion with the FDA to look at improvement in visualization of the pancreatic duct via MRCP with and without
secretin.



Our Intellectual Property



We strive to protect
the proprietary technology that we believe is important to our business, including our product candidates and our processes. We
seek patent protection in the United States and internationally for our product candidates, their methods of use, and processes
of manufacture and any other technology to which we have rights, as appropriate. Additionally, we have licensed the rights to intellectual
property related to certain of our product candidates, including patents and patent applications that cover the products or their
methods of use or processes of manufacture. The terms of the licenses are described below under the heading “Licensing Agreements.”
The patent families related to the intellectual property covered by the licenses include 29 U.S. patents and 107 foreign patents
with expiration dates ranging from 2018 to 2035. We also rely on trade secrets that may be important to the development of our
business.



Our success will
in part depend on the ability to obtain and maintain patent and other proprietary rights in commercially important technology,
inventions and know-how related to our business, the validity and enforceability of our patents, the continued confidentiality
of our trade secrets, and our ability to operate without infringing the valid and enforceable patents and proprietary rights of
third parties. We also rely on continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary
position.



We cannot be sure
that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications
we may own or license in the future, nor can we be sure that any of our existing patents or any patents we may own or license in
the future will be useful in protecting our technology and products. For this and more comprehensive risks related to our intellectual
property, please see “Risk Factors—Risks Related to Our Intellectual Property.”



21







CeD PRO: Copyrighted Primary Endpoint for Celiac Disease
Tested in a Successful Clinical Trial



The patient reported
outcome (PRO) primary end point for celiac disease (CeD PRO) was developed based on FDA guidance and is copyrighted in the United
States effective October 13, 2011.  The copyright registration is in effect for 95 years from the year of first publication
or 120 years from the year of creation, whichever expires first. If the drug is approved by the FDA and is the first drug to be
approved for celiac disease, Innovate believes that the PRO will become the standard for assessing efficacy in celiac disease.  Competitor
companies seeking to use a PRO to establish efficacy in this indication would either need to develop their own PRO or would be
required to license the CeD PRO from Innovate, thus providing an additional barrier to competitor entry into the marketplace.



Strategic Collaborations and License Agreements



We have entered
into collaboration agreements with several academic institutions and other contract research organizations to investigate pre-clinical
studies for the use of our product candidates in potential other indications or to further broaden our understanding of the current
indications.



Licensing Agreements



License with Alba Therapeutics Corporation



In February 2016,
we entered into a license agreement (the “Alba License”) with Alba Therapeutics Corporation (“Alba”) to
obtain an exclusive worldwide license to certain intellectual property relating to larazotide and related compounds.



Our initial area
of focus for this asset relates to the treatment of celiac disease. We now refer to this program as INN-202. The license agreement
gives us the rights to (i) patent families owned by University of Maryland, Baltimore (UMB) and licensed to Alba, (ii) certain
patent families owned by Alba, and (iii) one patent family that is jointly owned. In connection with the Alba License, we also
entered into a sublicense agreement with Alba under which Alba sublicensed the UMB patents to us (the “Alba Sublicense”).



As consideration
for the Alba License, we agreed to pay (i) a one-time, non-refundable fee of $0.4 million at the time of execution and (ii) set
payments totaling up to $151.5 million upon the achievement of certain milestones in connection with the development of the product,
which milestones include the dosing of the first patient in the Phase 3 clinical trial, acceptance and approval of the New Drug
Application, the first commercial sale, and the achievement of certain net sales targets. The last milestone payment is due upon
the achievement of annual net sales of INN-202 in excess of $1.5 billion. Upon the first commercial sale of INN-202, the license
becomes perpetual and irrevocable. The term of the Alba Sublicense, for which we paid a one-time, non-refundable fee of $0.1 million,
extends until the earlier of (i) the termination of the Alba License, (ii) the termination of the underlying license agreement,
or (iii) an assignment of the underlying license agreement to us. After we make the first milestone payment after the dosing of
the first patient in the Phase 3 clinical trial and are able to demonstrate sufficient financial resources to complete the trial,
we have the exclusive option to purchase the assets covered by the license.



The patents covering
the composition-of-matter for the larazotide peptide expire in 2018 (2019 outside the United States). The Alba Therapeutics patent
estate nevertheless provides product exclusivity for INN-202 in the U.S. until June 4, 2031, not including patent term extensions
that may apply upon product approval.



Significant patents
in the INN-202 patent estate include issued patents in the U.S. for methods of treating celiac disease with larazotide (US Patents
8,034,776 and 9,279,807), of which the last to expire has a term to July 16, 2030.



Other significant
patents include the larazotide formulation patent family, which has three issued U.S. patents as well as 39 filings outside the
U.S. (31 issued). The significant patents in the INN-202 patent estate formulation patent family includes patents covering the
composition-of-matter (US Patent 9,265,811) and corresponding methods of treatment (US Patents 8,168,594 and 9,241,969) for the
larazotide formulation, with the last to expire patent having an expiration in the U.S. of June 4, 2031.



22







License with Seachaid Pharmaceuticals, Inc.



In April 2013,
we entered into a license agreement (the “Seachaid License”) with Seachaid Pharmaceuticals, Inc. (“Seachaid”)
to further develop and commercialize the licensed product, the compound known as APAZA. This program is now referred to as INN-108
by us.



The license agreement
gives us the exclusive rights to (i) commercialize products covered by the patents owned or controlled by Seachaid related to the
composition, formulation or use of any APAZA compound in the territory that includes the U.S., Canada, Japan, and most countries
in Europe, and (ii) use, research, develop, export and make products worldwide for the purposes of such commercialization.



As consideration
for the Seachaid License, we agreed to pay a one-time, non-refundable fee of $0.2 million at the earlier of the time we meet certain
financing levels or 18 months following the execution of the agreement and set payments totaling up to $6.0 million upon the achievement
of certain milestones in connection with the development of the product, filing of the New Drug Application, the first commercial
sale, and payments ranging from $1.0 million to $2.5 million based on the achievement of certain net sales targets. There are future
royalty payments in the single digits based on achieving sales targets, and we are required to pay Seachaid a portion of any sublicense
revenue. The royalty payments continue for each licensed product and in each applicable country until the earlier of (i) the date
of expiration of the last valid claim for such products to expire or (ii) the date that one or more generic equivalents if such
product makes up 50 percent or more of sales in the applicable country. The term of the Seachaid License extends on a product-by-product
and country-by-country basis until the expiration of the royalty period for the applicable product in the applicable country.



The INN-108 patent
estate includes issued patents for:



(i.) immunoregulatory compounds
and derivatives and methods of treating diseases therewith, of which the last to expire has a term to December 17, 2021 (in the
U.S.) and August 28, 2021 (in Europe);

(ii.) methods and compositions
employing 4-aminophenylacetic acid, of which the last to expire has a term to to August 29, 2021 (in the U.S.);

(iii.) 5-ASA derivatives
having anti-inflammatory and antibiotic activity, of which the last to expire has a term to August 29, 2021 (in the U.S.) and August
28, 2021 (in Europe); and

(iv.) synthesis of azo bonded
immunoregulatory compounds, of which the last to expire has a term to May 31, 2028 (in the U.S.) and July 7, 2025 (in Europe).



The corresponding
European patent application for (ii.) methods and compositions employing 4-aminophenylacetic acid is still pending, but if issued
would provide a term to March 22, 2025 in the countries where the application is validated.



The INN-108 patent
estate includes also provisional patent applications for pharmaceutical compositions, delivery compositions, methods of prophylaxis
and methods of treatment. These patent applications have not yet been issued, and so it is impossible to know the expiration date
of any intellectual property that might result from these applications.



23







Asset Purchase Agreement



In December 2014,
we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Repligen Corporation (“Repligen”)
to acquire Repligen’s RG-1068 program for the development of secretin for the pancreatic imaging market and MRCP procedures.
We now refer to this program as INN-329. As consideration for the Asset Purchase Agreement, we agreed to make a non-refundable
cash payment on the date of the agreement and future royalty payments consisting of a percentage between five and fifteen of annual
net sales, with such royalty payment percentage increasing as annual net sales increase. The royalty payments are made on a product-by-product
and country-by-country basis and the obligation to make the payments expires with respect to each country upon the later of (i)
the expiration of regulatory exclusivity for the product in that country or (ii) ten years after the first commercial sale in that
country. The royalty amount is subject to reduction in certain situations, such as the entry of generic competition in the market.



Manufacturing and Supply



We contract with
third parties for the manufacturing of all of our product candidates, including INN-108, INN-202 and INN-329, for pre-clinical
and clinical studies and intend to continue to do so in the future. We do not own or operate any manufacturing facilities, and
we have no plans to build any owned clinical or commercial scale manufacturing capabilities. We believe that the use of contract
manufacturing organizations (CMOs) eliminates the need to directly invest in manufacturing facilities, equipment and additional
staff. Although we rely on contract manufacturers, our personnel or consultants have extensive manufacturing experience overseeing
CMOs.



As we further
develop our molecules, we expect to consider secondary or back-up manufacturers for both active pharmaceutical ingredient and drug
product manufacturing. To date, our third-party manufacturers have met the manufacturing requirements for our product candidates
in a timely manner. We expect third-party manufacturers to be capable of providing sufficient quantities of our product candidates
to meet anticipated full-scale commercial demands but we have not assessed these capabilities beyond the supply of clinical materials
to date. We currently engage CMOs on a ’‘fee for services’’ basis based on our current development plans.
We plan to identify CMOs and enter into longer term contracts or commitments as we move our product candidates into Phase 3 clinical
trials.



We believe alternate
sources of manufacturing will be available to satisfy our clinical and future commercial requirements; however we cannot guarantee
that identifying and establishing alternative relationships with such sources will be successful, cost effective, or completed
on a timely basis without significant delay in the development or commercialization of our product candidates. All of the vendors
we use are required to conduct their operations under current Good Manufacturing Practices, or cGMP, a regulatory standard for
the manufacture of pharmaceuticals.



Commercialization



We own or control
exclusive rights to all three of our product candidates in the markets of the United States, France, Germany, Italy, Spain, the
United Kingdom, and Japan. We plan to pursue regulatory approvals for our products in the United States and the European Union,
and may independently commercialize these products in the United States. In doing so, we may engage strategic partners to assist
with the sales and promotion of our products.



Our anticipated
commercialization strategy in the United States would target key prescribing physicians, including specialists such as gastroenterologists,
as well as provide patients with support programs to ensure product access. Outside of the United States, we plan to seek partners
to commercialize our products via out-licensing agreements or other similar commercial arrangements.



24







Competition



The pharmaceutical
industry is highly competitive and characterized by intense and rapidly changing competition to develop new technologies and proprietary
products. Our potential competitors include both major and specialty pharmaceutical companies worldwide. Our success will be based
in part on our ability to identify, develop and manage a portfolio of product candidates that are safer and more effective than
competing products.



The competitive
landscape in celiac disease is currently limited, which we believe is due to lack of significant past R&D investments and lack
of recognition and education around the disease. To our knowledge, there are no late stage competitors entering Phase 3 clinical
trials or any who have successfully completed Phase 2 studies to date. However, in recent years large pharmaceutical companies
have begun to expand their focus areas to autoimmune diseases such as celiac disease, and given the unmet medical needs in these
areas, we anticipate increasing competition. A few early stage programs are active, with time to enter Phase 1 clinical trials
still several years away, including Roche/Genetech’s RG7625 (cathepsin S inhibitor), Takeda/PvP’s KumaMax (gluten degrading
enzyme), Celimmune/Amgen’s AMG-714 (an IL-15 MAb) and Dr. Falk Pharma/Zeria’s ZED-1227 (a tTG-2 inhibitor). ImmunogenX’s
IMGX003 (two gluten degrading enzymes) failed to meet its primary endpoint in a Phase 2b trial in 2015.



|Product  |  | Status       |  | Mechanism                       |  | Company                                     |  | Route                          |  | Product Type                           
|-------- |  | ------------ |  | ------------------------------- |  | ------------------------------------------- |  | ------------------------------ |  | ---------------------------------------
|AMG 714  |  | Phase 2      |  | Anti-IL-15
        MAb          |  | Celimmune/
        Amgen                    |  | Subcutaneous;
        2x/month |  | MAb
        (humanized)                
|         |  |              |  |                                 |  |                                             |  |                                |  |                                        
|ZED-1227 |  | Phase 1b     |  | TGase-2 inhibitor               |  | Zedira GmbH/
        Dr Falk
        Pharma |  | Oral                           |  | Small molecule
        (peptidomimetic)
|         |  |              |  |                                 |  |                                             |  |                                |  |                                        
|Nexvax2  |  | Phase 1      |  | Tolerizing vaccine              |  | ImmusanT                                    |  | Intradermal                    |  | 3 gliadin epitopes (peptides)          
|KumaMax  |  | Pre-clinical |  | Enzymatic degradation of gluten |  | Takeda/PvP
        Biologics                |  | Oral                           |  | Recombinant enzyme                     



Table 4: Current celiac drugs in development
are still in pre-clinical to early Phase 2 proof-of-concept stage. No drugs have completed a successful Phase 2b efficacy trial
other than larazotide.



Ulcerative colitis
drug development has historically been primarily focused on the moderate-to-severe UC population with little investment and research
and development in mild-to-moderate UC, which is the majority of the patient populations. Current treatments for mild-to-moderate
UC include the mesalamine reformulations that are pictured in Figure 15 below and described above under the heading “History
of Drug Development in Mild to Moderate Ulcerative Colitis,” as well as Lialda, Pentasa, Asacol HD and Apriso, Valeant/Salix’s
Uceris (oral MMX-formulated budesonide; a corticosteroid) and 5-mercaptopurine (severe side effects). Eventually, half of the mild-to-moderate
UC patients progress from mesalamine to the more expensive biologics, which creates a significant potential market opportunity
for any drug that is more effective than mesalamine and less expensive than the biologics.



25











Figure 15: Other than various reformulations of mesalamine
which have been used for the past several decades, no new drugs have been approved for mild-to-moderate UC



Government Regulations



The FDA and other
regulatory authorities at federal, state, and local levels, as well as in foreign countries, extensively regulate, among other
things, the research, development, testing, manufacture, quality control, import, export, safety, effectiveness, labeling, packaging,
storage, distribution, record keeping, approval, advertising, promotion, marketing, post-approval monitoring, and post-approval
reporting of drugs, such as those we are developing. Along with third-party contractors, we will be required to navigate the various
preclinical, clinical and commercial approval requirements of the governing regulatory agencies of the countries in which we wish
to conduct studies or seek approval or licensure of our product candidates. The process of obtaining regulatory approvals and the
subsequent compliance with appropriate federal, state, local, and foreign statutes and regulations require the expenditure of substantial
time and financial resources.



Government Regulation of Drugs



The process required
by the FDA before drug product candidates may be marketed in the United States generally involves the following:



| | • | completion of preclinical laboratory tests and animal studies performed in accordance with the FDA’s current Good Laboratory Practices, or GLP, regulation;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | submission to the FDA of an Investigational New Drug application, or IND, which must become effective before clinical trials may begin and must be updated annually or when significant changes are made;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | approval by an independent Institutional Review Board, or IRB, or ethics committee for each clinical site before a clinical trial can begin;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | • | performance of adequate and well-controlled human clinical trials to establish the safety, purity and potency of the proposed product candidate for its intended purpose;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | preparation of and submission to the FDA of a New Drug Application, or NDA, after completion of all required clinical trials;
| | - | -----------------------------------------------------------------------------------------------------------------------------



26







| | • | a determination by the FDA within 60 days of its receipt of a NDA to file the application for review;
| | - | -----------------------------------------------------------------------------------------------------



| | • | satisfactory completion of an FDA Advisory Committee review, if applicable;
| | - | ---------------------------------------------------------------------------



| | • | satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the proposed product is produced to assess compliance with current Good Manufacturing Practices, or cGMP, and to assure that the facilities, methods and controls are adequate to preserve the product’s continued safety, purity and potency, and of selected clinical investigational sites to assess compliance with current Good Clinical Practices, or cGCPs; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States, which must be updated annually and when significant changes are made.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The testing and approval processes require
substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be
granted on a timely basis, if at all. Prior to beginning the first clinical trial with a product candidate, we must submit an IND
to the FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The
central focus of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also
includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic
characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature
to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND
automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises safety
concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor
and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore
may or may not result in FDA authorization to begin a clinical trial.



Clinical trials involve the administration
of the investigational product to human subjects under the supervision of qualified investigators in accordance with cGCPs, which
include the requirement that all research subjects provide their informed consent for their participation in any clinical study.
Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be
used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made
for each successive clinical trial conducted during product development and for any subsequent protocol amendments. Furthermore,
an independent Institutional Review Board, or IRB, for each site proposing to conduct the clinical trial must review and approve
the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the
study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds,
including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its
stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study
sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated
check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable
safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting
of ongoing clinical studies and clinical study results to public registries.



For purposes of NDA approval, human clinical
trials are typically conducted in three sequential phases that may overlap.



| | • | Phase 1.  The drug product is initially introduced into healthy human subjects and tested for safety. In the case of some products for severe or life-threatening diseases, the initial human testing is often conducted in patients.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Phase 2.  The drug product is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Phase 3.  Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk to benefit ratio of the product and provide an adequate basis for product labeling.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Phase 4.  In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product. These so-called Phase 4 studies may be required as a condition to approval of the NDA.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



27







Phase 1, Phase 2 and Phase 3 testing may
not be completed successfully within a specified period, if at all, and there can be no assurance that the data collected will
support FDA approval or licensure of the product. Concurrent with clinical trials, companies may complete additional animal studies
and develop additional information about the drug characteristics of the product candidate, and must finalize a process for manufacturing
the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently
producing quality batches of the product candidate. Additionally, appropriate packaging must be selected and tested and stability
studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf
life.



NDA Submission and Review by the FDA



Assuming successful completion of all required
testing in accordance with all applicable regulatory requirements, the results of product development, nonclinical studies and
clinical trials are submitted to the FDA as part of a NDA requesting approval to market the product for one or more indications.
The NDA must include all relevant data available from pertinent preclinical and clinical studies, including negative or ambiguous
results as well as positive findings, together with detailed information relating to the product’s chemistry, manufacturing,
controls, and proposed labeling, among other things. Data can come from company-sponsored clinical studies intended to test the
safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by investigators.
The submission of a NDA requires payment of a substantial User Fee to FDA, and the sponsor of an approved NDA is also subject to
annual product and establishment user fees. These fees are typically increased annually. A waiver of user fees may be obtained
under certain limited circumstances.



Within 60 days following submission of
the application, the FDA reviews an NDA to determine if it is substantially complete before the agency accepts it for filing. The
FDA may refuse to file any NDA that it deems incomplete or not properly reviewable at the time of submission and may request additional
information. In this event, the NDA must be resubmitted with the additional information. Once a NDA has been filed, the FDA’s
goal is to review the application within ten months after it accepts the application for filing, or, if the application relates
to an unmet medical need in a serious or life-threatening indication, six months after the FDA accepts the application for filing.
The review process may be significantly extended by FDA requests for additional information or clarification. The FDA reviews a
NDA to determine, among other things, whether a product is safe and effective for the indication being pursued, and the facility
in which it is manufactured, processed, packed, or held meets standards designed to assure the product’s continued safety
and effectiveness. The FDA may convene an advisory committee to provide clinical insight on application review questions. Before
approving a NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not
approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements
and adequate to assure consistent production of the product within required specifications. Additionally, before approving a NDA,
the FDA will typically inspect one or more clinical sites to assure compliance with cGCP. If the FDA determines that the application,
manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often
will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA
ultimately may decide that the application does not satisfy the regulatory criteria for approval.



The testing and approval process requires
substantial time, effort and financial resources, and each may take several years to complete. The FDA may not grant approval on
a timely basis, or at all, and we may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental
approvals, which could delay or preclude us from marketing our products. After the FDA evaluates a NDA and conducts inspections
of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an
approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the product with specific
prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application
is complete and the application is not ready for approval. A Complete Response Letter may request additional information or clarification.
The FDA may delay or refuse approval of a NDA if applicable regulatory criteria are not satisfied, require additional testing or
information and/or require post-marketing testing and surveillance to monitor safety or efficacy of a product.



If regulatory approval of a product is
granted, such approval may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA
may approve the NDA with a Risk Evaluation and Mitigation Strategy, or REMS, plan to mitigate risks, which could include medication
guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries
and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or
the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance
with pre- and post-marketing regulatory standards is not maintained or if problems occur after the product reaches the marketplace.
The FDA may require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s
safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these
post-marketing studies. In addition, new government requirements, including those resulting from new legislation, may be established,
or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development.



28







A sponsor may seek approval of its product
candidate under programs designed to accelerate FDA’s review and approval of new drugs that meet certain criteria. Specifically,
new drug products are eligible for fast track designation if they are intended to treat a serious or life-threatening condition
and demonstrate the potential to address unmet medical needs for the condition. For a fast track product, the FDA may consider
sections of the NDA for review on a rolling basis before the complete application is submitted if relevant criteria are met. A
fast track designated product candidate may also qualify for priority review, under which the FDA sets the target date for FDA
action on the NDA at six months after the FDA accepts the application for filing. Priority review is granted when there is evidence
that the proposed product would be a significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention
of a serious condition. If criteria are not met for priority review, the application is subject to the standard FDA review period
of 10 months after FDA accepts the application for filing. Priority review designation does not change the scientific/medical standard
for approval or the quality of evidence necessary to support approval.



Under the accelerated approval program,
the FDA may approve an NDA on the basis of either a surrogate endpoint that is reasonably likely to predict clinical benefit, or
on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict
an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence
of the condition and the availability or lack of alternative treatments. Products subject to accelerated approval must have associated
marketing materials submitted for pre-approval by the FDA’s Office of Prescription Drug Promotion during the pre-approval
review period. Post-marketing studies or completion of ongoing studies after marketing approval are generally required to verify
the product’s clinical benefit in relationship to the surrogate endpoint or ultimate outcome in relationship to the clinical
benefit. In addition, the Food and Drug Administration Safety and Innovation Act, or FDASIA, which was enacted and signed into
law in 2012, established breakthrough therapy designation. A sponsor may seek FDA designation of its product candidate as a breakthrough
therapy if the product candidate is intended, alone or in combination with one or more other drugs or biologics, to treat a serious
or life-threatening disease or condition and preliminary clinical evidence indicates that the therapy may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed
early in clinical development. Sponsors may request the FDA to designate a breakthrough therapy at the time of or any time after
the submission of an IND, but ideally before an end-of-Phase 2 meeting with FDA. If the FDA designates a breakthrough therapy,
it may take actions appropriate to expedite the development and review of the application, which may include holding meetings with
the sponsor and the review team throughout the development of the therapy; providing timely advice to, and interactive communication
with, the sponsor regarding the development of the drug to ensure that the development program to gather the nonclinical and clinical
data necessary for approval is as efficient as practicable; involving senior managers and experienced review staff, as appropriate,
in a collaborative, cross-disciplinary review; assigning a cross-disciplinary project lead for the FDA review team to facilitate
an efficient review of the development program and to serve as a scientific liaison between the review team and the sponsor; and
considering alternative clinical trial designs when scientifically appropriate, which may result in smaller or more efficient clinical
trials that require less time to complete and may minimize the number of patients exposed to a potentially less efficacious treatment.
Breakthrough designation also allows the sponsor to file sections of the NDA for review on a rolling basis. We may seek designation
as a breakthrough therapy for some or all of our product candidates.



Fast Track designation, priority review
and breakthrough therapy designation do not change the standards for approval but may expedite the development or approval process.



Orphan Drug Status



Under the Orphan Drug Act, the FDA may
grant orphan drug designation to drug candidates intended to treat a rare disease or condition, which is generally a disease or
condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States
and for which there is no reasonable expectation that costs of research and development of the drug for the indication can be recovered
by sales of the drug in the United States. Orphan drug designation must be requested before submitting an NDA. After the FDA grants
orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the
FDA. Although there may be some increased communication opportunities, orphan drug designation does not convey any advantage in
or shorten the duration of the regulatory review and approval process.



If a drug candidate that has orphan drug
designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled
to orphan drug exclusivity, which means that the FDA may not approve any other applications, including a full NDA, to market the
same drug for the same indication for seven years, except in very limited circumstances, such as if the second applicant demonstrates
the clinical superiority of its product or if FDA finds that the holder of the orphan drug exclusivity has not shown that it can
assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition
for which the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same
disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation
are tax credits for certain research and a waiver of the NDA application user fee.



29







Orphan drug exclusivity could block the
approval of our drug candidates for seven years if a competitor obtains approval of the same product as defined by the FDA or if
our drug candidate is determined to be contained within the competitor’s product for the same indication or disease.



As in the United States, designation as
an orphan drug for the treatment of a specific indication in the European Union, must be made before the application for marketing
authorization is made. Orphan drugs in Europe enjoy economic and marketing benefits, including up to 10 years of market exclusivity
for the approved indication unless another applicant can show that its product is safer, more effective or otherwise clinically
superior to the orphan designated product.



The FDA and foreign regulators expect holders
of exclusivity for orphan drugs to assure the availability of sufficient quantities of their orphan drugs to meet the needs of
patients. Failure to do so could result in the withdrawal of marketing exclusivity for the orphan drug.



Post-Approval Requirements



Any products manufactured or distributed
by us pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements
relating to record-keeping, reporting of adverse experiences, periodic reporting, distribution, and advertising and promotion of
the product. After approval, most changes to the approved product labeling, 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. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain
state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with GMP,
which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the manufacturing
process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented.
FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting requirements upon us
and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and
effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
We cannot be certain that we or our present or future suppliers will be able to comply with the cGMP regulations and other FDA
regulatory requirements. If our present or future suppliers are not able to comply with these requirements, the FDA may, among
other things, halt their clinical trials, require them to recall a product from distribution, or withdraw approval of the NDA.



Future FDA and state inspections
may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production
or distribution, or require substantial resources to correct. In addition, discovery of previously unknown problems with a product
or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved
NDA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could
delay or prohibit further marketing.



The FDA may withdraw approval of an NDA
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 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 studies to assess new safety risks; or imposition
of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:



| | • | restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market, or product recalls;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



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



| | • | refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | • | product seizure or detention, or refusal to permit the import or export of products; or
| | - | ---------------------------------------------------------------------------------------



30







| | • | injunctions or the imposition of civil or criminal penalties.
| | - | -------------------------------------------------------------



The FDA closely regulates the marketing,
labeling, advertising and promotion of drugs and biologics. A company can make only those claims relating to safety and efficacy
that are consistent with the FDA approved label and with FDA regulations governing marketing of prescription products. The FDA
and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with
these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential
civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s
labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties.
Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does
not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications
on the subject of off-label use of their products.



Other Healthcare Laws and Compliance Requirements



Our sales, promotion, medical education,
clinical research and other activities following product approval will be subject to regulation by numerous regulatory and law
enforcement authorities in the United States in addition to FDA, including potentially the Federal Trade Commission, the Department
of Justice, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human
Services and state and local governments. Our promotional and scientific/educational programs and interactions with healthcare
professionals must comply with the federal Anti-Kickback Statute, the civil False Claims Act, physician payment transparency laws,
privacy laws, security laws, anti-bribery and corruption laws, and additional federal and state laws similar to the foregoing.



The federal Anti-Kickback Statute prohibits,
among other things, the knowing and willing, direct or indirect offer, receipt, solicitation or payment of remuneration in exchange
for or to induce the referral of patients, including the purchase, order or lease of any good, facility, item or service that would
be paid for in whole or part by Medicare, Medicaid or other federal health care programs. Remuneration has been broadly defined
to include anything of value, including cash, improper discounts, and free or reduced price items and services. The federal Anti-Kickback
Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers,
formulary managers, and beneficiaries on the other. Although there are a number of statutory exceptions and regulatory safe harbors
protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that involve
remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to increased
scrutiny and review if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular
applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback
Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all
its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose
of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the federal Anti-Kickback
Statute has been violated. The government has enforced the federal Anti-Kickback Statute to reach large settlements with healthcare
companies based on sham research or consulting and other financial arrangements with physicians. Further, a person or entity does
not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation. In addition, the
government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the False Claims Act. Many states have similar laws that apply to their
state health care programs as well as private payers.



Federal false claims and false statement
laws, including the federal civil False Claims Act, or FCA, impose liability on persons and/or entities that, among other things,
knowingly present or cause to be presented claims that are false or fraudulent or not provided as claimed for payment or approval
by a federal health care program. The FCA has been used to prosecute persons or entities that “cause” the submission
of claims for payment that are inaccurate or fraudulent, by, for example, providing inaccurate billing or coding information to
customers, promoting a product off-label, submitting claims for services not provided as claimed, or submitting claims for services
that were provided but not medically necessary. Actions under the FCA may be brought by the Attorney General or as a qui tam action
by a private individual, or whistleblower, in the name of the government. Violations of the FCA can result in significant monetary
penalties and treble damages. The federal government is using the FCA, and the accompanying threat of significant liability, in
its investigation and prosecution of pharmaceutical and biotechnology companies throughout the country, for example, in connection
with the promotion of products for unapproved uses and other illegal sales and marketing practices. The government has obtained
multi-million and multi-billion dollar settlements under the FCA in addition to individual criminal convictions under applicable
criminal statutes. In addition, certain companies that were found to be in violation of the FCA have been forced to implement extensive
corrective action plans, and have often become subject to consent decrees or corporate integrity agreements, restricting the manner
in which they conduct their business.



31







The federal Health Insurance Portability
and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit, among other things, knowingly
and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party
payers; knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious
or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services; and willfully
obstructing a criminal investigation of a healthcare offense. Like the federal Anti-Kickback Statute, the Affordable Care Act amended
the intent standard for certain healthcare fraud statutes under HIPAA such that a person or entity no longer needs to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation.



Given the significant size of actual and
potential settlements, it is expected that the federal government will continue to devote substantial resources to investigating
healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws. Many states have similar
fraud and abuse statutes or regulations that may be broader in scope and may apply regardless of payer, in addition to items and
services reimbursed under Medicaid and other state programs. To the extent that our products, once commercialized, are sold in
a foreign country, we may be subject to similar foreign laws.



There has been a recent trend of increased
federal and state regulation of payments made to physicians and other healthcare providers. The Patient Protection and Affordable
Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, among other
things, imposed new reporting requirements on certain manufacturers of drugs, devices, biologics and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, for payments
or other transfers of value made by them to physicians and teaching hospitals, as well as ownership and investment interests held
by physicians and their immediate family members. Covered manufacturers are required to collect and report detailed payment data
and submit legal attestation to the accuracy of such data to the government each year. Failure to submit required information may
result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for
“knowing failures”), for all payments, transfers of value or ownership or investment interests that are not timely,
accurately and completely reported in an annual submission. Additionally, entities that do not comply with mandatory reporting
requirements may be subject to a corporate integrity agreement. Certain states also mandate implementation of commercial compliance
programs, impose restrictions on covered manufacturers’ marketing practices and/or require the tracking and reporting of
gifts, compensation and other remuneration to physicians and other healthcare professionals.



We may be subject to data privacy and security
regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information
Technology and Clinical Health Act, or HITECH, and their respective implementing regulations impose specified requirements on certain
health care providers, plans and clearinghouses (collectively, “covered entities”) and their “business associates,”
relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH
makes HIPAA’s security standards directly applicable to “business associates,” defined as independent contractors
or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing
a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be imposed against
covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil
actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with
pursuing federal civil actions. In addition, certain states have their own laws that govern the privacy and security of health
information in certain circumstances, many of which differ from each other and/or HIPAA in significant ways and may not have the
same effect, thus complicating compliance efforts.



If our operations are found to be in violation
of any of such laws or any other governmental regulations that apply to them, we may be subject to penalties, including, without
limitation, civil and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of our operations, exclusion
from participation in federal and state healthcare programs, imprisonment, contractual damages, reputational harm, and diminished
profits and future earnings, any of which could adversely affect our ability to operate our business and our financial results.



In addition to the foregoing health care
laws, we are also subject to the U.S. Foreign Corrupt Practices Act, or FCPA, and similar worldwide anti-bribery laws, which generally
prohibit companies and their intermediaries from making improper payments to government officials or private-sector recipients
for the purpose of obtaining or retaining business. We have plans to adopt an anti-corruption policy, which will become effective
upon the completion of this transaction, and expect to prepare and implement procedures to ensure compliance with such policy.
The anti-corruption policy mandates compliance with the FCPA and similar anti-bribery laws applicable to our business throughout
the world. However, we cannot assure you that such a policy or procedures implemented to enforce such a policy will protect us
from intentional, reckless or negligent acts committed by our employees, distributors, partners, collaborators or agents. Violations
of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative impact on
our business, results of operations and reputation.



32







Coverage and Reimbursement



Sales of pharmaceutical products depend
significantly on the extent to which coverage and adequate reimbursement are provided by third-party payers. Third-party payers
include state and federal government health care programs, managed care providers, private health insurers and other organizations.
Although we currently believe that third-party payers will provide coverage and reimbursement for our product candidates, if approved,
we cannot be certain of this. Third-party payers are increasingly challenging the price, examining the cost-effectiveness, and
reducing reimbursement for medical products and services. In addition, significant uncertainty exists as to the reimbursement status
of newly approved healthcare products. The U.S. government, state legislatures and foreign governments have continued implementing
cost containment programs, including price controls, restrictions on coverage and reimbursement and requirements for substitution
of generic products. Adoption of price controls and cost containment measures, and adoption of more restrictive policies in jurisdictions
with existing controls and measures, could further limit our net revenue and results. We may need to conduct expensive clinical
studies to demonstrate the comparative cost-effectiveness of our products. The product candidates that we develop may not be considered
cost-effective and thus may not be covered or sufficiently reimbursed. It is time consuming and expensive for us to seek coverage
and reimbursement from third-party payers, as each payer will make its own determination as to whether to cover a product and at
what level of reimbursement. Thus, one payer’s decision to provide coverage and adequate reimbursement for a product does
not assure that another payer will provide coverage or that the reimbursement levels will be adequate. Moreover, a payer’s
decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Reimbursement
may not be available or sufficient to allow them to sell our products on a competitive and profitable basis.



Healthcare Reform



The United States and some foreign jurisdictions
are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could
materially affect our ability to sell our products profitably. Among policy makers and payers in the United States and elsewhere,
there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs,
improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these
efforts and has been significantly affected by major legislative initiatives.



By way of example, in 2010 the Affordable
Care Act was signed into law, intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending,
enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries,
impose new taxes and fees on the health industry and impose additional health policy reforms. Among the provisions of the Affordable
Care Act of importance to our potential drug candidates are:



| | • | an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for a manufacturer’s outpatient drugs to be covered under Medicare Part D;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; and
| | - | --------------------------------------------------------------------------------------------------------------------



| | • | a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



33







In addition, other legislative changes
have been proposed and adopted since the Affordable Care Act was enacted. These changes include, among others, the Budget Control
Act of 2011, which mandates aggregate reductions to Medicare payments to providers of up to 2% per fiscal year effective in 2013,
and, due to subsequent legislative amendments, will remain in effect through 2024, unless additional Congressional action is taken.
The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including
hospitals and cancer treatment centers, 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,
which could have a material adverse effect on customers for our product candidates, if approved, and, accordingly, our financial
operations.



We expect that healthcare reform measures
that may be adopted in the future, including the possible repeal and replacement of the Affordable Care Act which the Trump administration
has stated is a priority, are unpredictable, and the potential impact on our operations and financial position are uncertain, but
may result in more rigorous coverage criteria and lower reimbursement, and place additional downward pressure on the price that
we receive for any approved product. Any reduction in reimbursement from Medicare or other government-funded programs may result
in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms
may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.



Foreign Regulation



In addition to regulations in the United
States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution
of our products to the extent we choose to develop or sell any products outside of the United States. The approval process varies
from country to country and the time may be longer or shorter than that required to obtain FDA approval. The requirements governing
the conduct of clinical trials, product licensing, pricing and reimbursement, and privacy, can vary greatly from country to country.



Research and Development Expenses



Private Innovate had research and development
expenses of $4.0 million and $1.9 million for the years ended December 31, 2017 and December 31, 2016, respectively.



Employees





Following completion of the Merger, we
now have five full-time employees. We also engage consultants to provide services to us, including clinical development, manufacturing
support, regulatory support, business development, and general business operational support.



Corporate Information



Private Innovate
was incorporated under the laws of North Carolina under the name “GI Therapeutics, Inc.” in 2012 and changed its name
to “Innovate Biopharmaceuticals Inc.” when it converted to a Delaware corporation in 2014. In January 2018, Merger
Sub merged with and into Private Innovate with Private Innovate surviving as a wholly owned subsidiary of the Company,
and the Company changed its name to Innovate Biopharmaceuticals, Inc. Our principal executive offices are located at 8480 Honeycutt
Road, Suite 120, Raleigh, NC 27615 and our telephone number is (919) 275-1933. Our corporate website address is  http://www.innovatebiopharma.com
.. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed
pursuant to Sections 13(a) and 15(d) of the Exchange Act, will be made available free of charge on our website as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, or
the SEC. The contents of our website are not incorporated into this Annual Report on Form 10-K and our reference to the URL for
our website is intended to be an inactive textual reference only.



This Annual Report
on Form 10-K contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks
and trade names referred to in this Annual Report on Form 10-K, including logos, artwork and other visual displays, may appear
without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the
fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We
do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement
or sponsorship of us by, any other company.



34







We are an “emerging
growth company” as defined in the JOBS Act, and therefore we may take advantage of certain exemptions from various public
company reporting requirements. As an “emerging growth company:”



| | • | we will present no more than two years of audited financial statements and no more than two years of related management’s discussion and analysis of financial condition and results of operations;                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;
| | • | we will provide less extensive disclosure about our executive compensation arrangements; and                                                                                                                              
| | • | we will not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.                                                                                                    



However, we have
chosen to irrevocably opt out of the extended transition periods available under the JOBS Act for complying with new or revised
accounting standards. We will remain an “emerging growth company” for up to five years, although we will cease to be
an “emerging growth company” upon the earliest of (1) December 31, 2021, (2) the last day of the first fiscal year
in which our annual gross revenues are $1.07 billion or more, (3) the date on which we have, during the previous rolling three-year
period, issued more than $1 billion in non-convertible debt securities, and (4) the date on which we are deemed to be a “large
accelerated filer” as defined in the Exchange Act.

35







PART IV



Item 15. Exhibits, Financial Statement Schedules.



| | (a)(1) | Financial Statements
| | ------ | --------------------



The financial statements required by this
item were previously submitted in a separate section beginning on page F-1 of the Form 10-K filed on March 14, 2018.



| | (a)(2) | Financial Statement Schedules
| | ------ | -----------------------------



Financial statement schedules have been
omitted because they are either not required, not applicable, or the information is otherwise included.



| | (a)(3) | Exhibits
| | ------ | --------



36







EXHIBIT INDEX





|            |   |                                                                                                                                                                                                |  | FILED    |  | INCORPORATED BY REFERENCE
|----------- | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- |  | -------------------------
|EXHIBIT NO. |   | DESCRIPTION                                                                                                                                                                                    |  | HEREWITH |  | FORM                     
|            |   |                                                                                                                                                                                                |  |          |  |                          
|2.1         | + | Agreement and Plan of Merger and Reorganization by and among Monster Digital, Inc., Merger Sub and Innovate Biopharmaceuticals Inc., dated July 3, 2017                                        |  |          |  | 8-K                      
|            |   |                                                                                                                                                                                                |  |          |  |                          
|2.2         |   | Amendment, dated January 3, 2018, to Agreement and Plan of Merger and Reorganization by and among Monster Digital, Inc., Merger Sub and Innovate Biopharmaceuticals Inc., dated July 3, 2017   |  |          |  | 8-K                      
|            |   |                                                                                                                                                                                                |  |          |  |                          
|2.3         |   | Form of Support Agreement, by and between Monster Digital, Inc. and certain directors, officers and stockholders of Innovate Biopharmaceuticals Inc. (now IB Pharmaceuticals Inc.)             |  |          |  | 8-K                      
|            |   |                                                                                                                                                                                                |  |          |  |                          
|2.4         |   | Form of Support Agreement, by and between Innovate Biopharmaceuticals Inc. and the directors and executive officers and certain stockholders of Monster Digital, Inc. (now IB Pharmaceuticals) |  |          |  | 8-K                      
|            |   |                                                                                                                                                                                                |  |          |  |                          
|3.1         |   | Certificate of Incorporation of the Company, as amended                                                                                                                                        |  | *        |  |                          
|            |   |                                                                                                                                                                                                |  |          |  |                          
|3.2         |   | Amended and Restated Bylaws of the Company                                                                                                                                                     |  |          |  | 8-K                      
|            |   |                                                                                                                                                                                                |  |          |  |                          
|4.1         |   | Form of Share Certificate                                                                                                                                                                      |  | *        |  |                          
|            |   |                                                                                                                                                                                                |  |          |  |                          
|4.2         |   | Form of Warrant                                                                                                                                                                                |  |          |  | 8-K                      
|            |   |                                                                                                                                                                                                |  |          |  |                          
|4.3         |   | Senior Note dated January 29, 2018                                                                                                                                                             |  |          |  | 8-K                      
|            |   |                                                                                                                                                                                                |  |          |  |                          
|4.4         |   | Subscription Agreement dated January 29, 2018                                                                                                                                                  |  |          |  | 8-K                      
|            |   |                                                                                                                                                                                                |  |          |  |                          
|4.5         |   | Form of Warrant Certificate                                                                                                                                                                    |  |          |  | S-1                      
|            |   |                                                                                                                                                                                                |  |          |  |                          
|4.6         |   | Form of Warrant Agreement by and between Monster Digital, Inc. and Corporate Stock Transfer, Inc.                                                                                              |  |          |  | S-1                      
|            |   |                                                                                                                                                                                                |  |          |  |                          
|4.7         |   | Warrant dated August 18, 2015 held by Noel Lee                                                                                                                                                 |  |          |  | S-1                      
|            |   |                                                                                                                                                                                                |  |          |  |                          
|4.8         |   | Registration Rights Agreement dated November 10, 2016 by and between Monster Digital, Inc. and Gibralt Capital Corporation                                                                     |  |          |  | 10-K                     
|            |   |                                                                                                                                                                                                |  |          |  |                          
|10.1        | † | Sublicense Agreement, dated February 19, 2016, between Innovate Biopharmaceuticals Inc. (now IB Pharmaceuticals Inc.) and Alba Therapeutics Corporation                                        |  | X        |  |                          
|            |   |                                                                                                                                                                                                |  |          |  |                          
|10.2        | † | License Agreement, dated February 26, 2016, between Innovate Biopharmaceuticals Inc. (now IB Pharmaceuticals Inc.) and Alba Therapeutics Corporation                                           |  | X        |  |                          
|            |   |                                                                                                                                                                                                |  |          |  |                          
|10.3        | † | Asset Purchase Agreement, dated December 23, 2014, between Innovate Biopharmaceuticals Inc. (now IB Pharmaceuticals Inc.) and Repligen Corporation                                             |  | *        |  |                          
|            |   |                                                                                                                                                                                                |  |          |  |                          
|10.4        | † | Apaza License Agreement, dated April 19, 2013, between Innovate Biopharmaceuticals Inc. (now IB Pharmaceuticals Inc.) and Seachaid Pharmaceuticals, Inc., as amended                           |  | *        |  |                          





37









|            |   |                                                                                                                                    |  | FILED    |  | INCORPORATED BY REFERENCE
|----------- | - | ---------------------------------------------------------------------------------------------------------------------------------- |  | -------- |  | -------------------------
|EXHIBIT NO. |   | DESCRIPTION                                                                                                                        |  | HEREWITH |  | FORM                     
|            |   |                                                                                                                                    |  |          |  |                          
|10.5        |   | Note Purchase Agreement dated January 29, 2018                                                                                     |  |          |  | 8-K                      
|            |   |                                                                                                                                    |  |          |  |                          
|10.6        | # | Form of Director Indemnification Agreement                                                                                         |  |          |  | 8-K                      
|            |   |                                                                                                                                    |  |          |  |                          
|10.7        | # | Monster Digital, Inc. 2012 Omnibus Incentive Plan                                                                                  |  |          |  | S-1                      
|            |   |                                                                                                                                    |  |          |  |                          
|10.8        | # | Form of Option Agreement and Option Grant Notice under the 2012 Omnibus Incentive Plan                                             |  |          |  | S-1                      
|            |   |                                                                                                                                    |  |          |  |                          
|10.9        | # | Form of Restricted Stock Award Agreement and Notice of Grant of Restricted Stock Award under the 2012 Omnibus Incentive Plan       |  |          |  | S-1                      
|            |   |                                                                                                                                    |  |          |  |                          
|10.10       | # | Form of Restricted Stock Unit Award Agreement and Notice of Grant of Restricted Stock Unit Award under 2012 Omnibus Incentive Plan |  |          |  | S-1                      
|            |   |                                                                                                                                    |  |          |  |                          
|10.11       | # | Innovate Biopharmaceuticals Inc. 2015 Stock Incentive Plan, as amended                                                             |  | *        |  |                          
|            |   |                                                                                                                                    |  |          |  |                          
|10.12       | # | Form of Incentive Stock Option Agreement under the 2015 Stock Incentive Plan                                                       |  | *        |  |                          
|            |   |                                                                                                                                    |  |          |  |                          
|10.13       | # | Form of Nonstatutory Stock Option Agreement under the 2015 Stock Incentive Plan                                                    |  | *        |  |                          
|            |   |                                                                                                                                    |  |          |  |                          
|10.14       | # | Form of Restricted Stock Purchase Agreement under the 2015 Stock Incentive Plan                                                    |  | *        |  |                          
|            |   |                                                                                                                                    |  |          |  |                          
|10.15       | # | Consulting Agreement, dated May 7, 2015, by and between the Company and David Clarke                                               |  |          |  | S-1                      
|            |   |                                                                                                                                    |  |          |  |                          
|10.16       | # | Executive Employment Agreement, dated June 6, 2016, by and between the Company and David Olert                                     |  |          |  | S-1                      
|            |   |                                                                                                                                    |  |          |  |                          
|10.17       | # | Separation Agreement and Release of Claims, dated January 26, 2018, by and between the Company and David Olert                     |  | *        |  |                          
|            |   |                                                                                                                                    |  |          |  |                          
|10.18       |   | Consulting Agreement, dated February 17, 2018, by and between the Company and David Olert                                          |  | *        |  |                          





38









|            |   |                                                                                                                                                                           |  | FILED    |  | INCORPORATED BY REFERENCE
|----------- | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- |  | -------------------------
|EXHIBIT NO. |   | DESCRIPTION                                                                                                                                                               |  | HEREWITH |  | FORM                     
|            |   |                                                                                                                                                                           |  |          |  |                          
|10.19       | # | Consulting Agreement, dated May 26, 2016, by and between the Company and Jonathan Orban                                                                                   |  |          |  | S-1                      
|            |   |                                                                                                                                                                           |  |          |  |                          
|10.20       | # | Executive Employment Agreement, dated November 2, 2015, by and between Innovate Biopharmaceuticals Inc. (now IB Pharmaceuticals Inc.) and Christopher Prior, as amended   |  | *        |  |                          
|            |   |                                                                                                                                                                           |  |          |  |                          
|10.21       | # | Executive Employment Agreement, dated October 28, 2015, by and between Innovate Biopharmaceuticals Inc. (now IB Pharmaceuticals Inc.) and Sandeep Laumas, as amended      |  | *        |  |                          
|            |   |                                                                                                                                                                           |  |          |  |                          
|10.22       | # | Executive Employment Agreement, dated October 28, 2015, by and between Innovate Biopharmaceuticals Inc. (now IB Pharmaceuticals Inc.) and Jay Madan, as amended           |  | *        |  |                          
|            |   |                                                                                                                                                                           |  |          |  |                          
|10.23       | # | Executive Employment Agreement, dated March 9, 2018, by and between the Company and June Almenoff                                                                         |  | *        |  |                          
|            |   |                                                                                                                                                                           |  |          |  |                          
|10.24       | # | Non-Employee Director Compensation Policy                                                                                                                                 |  | *        |  |                          
|            |   |                                                                                                                                                                           |  |          |  |                          
|10.25       | # | Amended and Restated Executive Employment Agreement, dated March 11, 2018, by and between the Company and Sandeep Laumas                                                  |  | *        |  |                          
|            |   |                                                                                                                                                                           |  |          |  |                          
|10.26       | # | Amended and Restated Executive Employment Agreement, dated March 11, 2018, by and between the Company and Christopher Prior                                               |  | *        |  |                          
|            |   |                                                                                                                                                                           |  |          |  |                          
|10.27       | # | Amended and Restated Executive Employment Agreement, dated March 11, 2018, by and between the Company and Jay Madan                                                       |  | *        |  |                          
|            |   |                                                                                                                                                                           |  |          |  |                          
|21.1        |   | List of Subsidiaries                                                                                                                                                      |  | *        |  |                          
|            |   |                                                                                                                                                                           |  |          |  |                          
|23.1        |   | Consent of CohnReznick LLP                                                                                                                                                |  | *        |  |                          
|            |   |                                                                                                                                                                           |  |          |  |                          
|31.1        |   | Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | *        |  |                          
|            |   |                                                                                                                                                                           |  |          |  |                          
|31.2        |   | Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  | *        |  |                          





39









|            |  |                                                                                                                                                                                           |  | FILED    |  | INCORPORATED BY REFERENCE
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- |  | -------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                               |  | HEREWITH |  | FORM                     
|            |  |                                                                                                                                                                                           |  |          |  |                          
|31.3        |  | Certification of Principal Executive Officer pursuant to Exchange
    Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002             |  | X        |  |                          
|            |  |                                                                                                                                                                                           |  |          |  |                          
|31.4        |  | Certification
        of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section
        302 of the Sarbanes-Oxley Act of 2002 |  | X        |  |                          
|            |  |                                                                                                                                                                                           |  |          |  |                          
|32.1        |  | Certification
    of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002                             |  | *        |  |                          
|            |  |                                                                                                                                                                                           |  |          |  |                          
|32.2        |  | Certification
    of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002                             |  | *        |  |                          
|            |  |                                                                                                                                                                                           |  |          |  |                          
|101.INS     |  | XBRL Instance Document                                                                                                                                                                    |  | *        |  |                          
|            |  |                                                                                                                                                                                           |  |          |  |                          
|101.SCH     |  | XBRL Taxonomy Extension Schema Document                                                                                                                                                   |  | *        |  |                          
|            |  |                                                                                                                                                                                           |  |          |  |                          
|101.CAL     |  | XBRL Taxonomy Extension Calculation Linkbase
    Document                                                                                                                                 |  | *        |  |                          
|            |  |                                                                                                                                                                                           |  |          |  |                          
|101.DEF     |  | XBRL Taxonomy Extension Definition Document                                                                                                                                               |  | *        |  |                          
|            |  |                                                                                                                                                                                           |  |          |  |                          
|101.LAB     |  | XBRL Taxonomy Extension Label Linkbase Document                                                                                                                                           |  | *        |  |                          
|            |  |                                                                                                                                                                                           |  |          |  |                          
|101.PRE     |  | XBRL Taxonomy Extension Presentation Linkbase
    Document                                                                                                                                |  | *        |  |                          





| | + | Pursuant to Regulation S-K Item 601(b)(2), certain schedules (or similar attachments) to this exhibit have not been filed herewith. A list of omitted schedules (or similar attachments) is included in the agreement. The Company agrees to furnish supplementally a copy of any such schedule (or similar attachment) to the Securities and Exchange Commission upon request; provided, however, that the Company may request confidential treatment of omitted items.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | † | Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                  
| | # | Indicates management contract or compensatory plan or arrangement.                                                                                                                                                                                                                                                                                                                                                                                                      



|* | Indicates that the exhibit was previously filed or furnished on or with the Company’s Annual Report on Form 10-K on March 14, 2018, as applicable.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------



40







SIGNATURES



Pursuant to the requirements of the Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to its Annual Report on
Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized.



|Date: June 29, 2018 | Innovate Biopharmaceuticals, Inc.
|------------------- | ---------------------------------
|                    |                                  
|                    | By                               
|                    |                                  
|                    |                                  



41