424B3
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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-239989

 

LOGO   LOGO

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

 

 

To the Stockholders of Aduro Biotech, Inc. and Chinook Therapeutics U.S., Inc.,

Aduro Biotech, Inc., a Delaware corporation, or Aduro, and Chinook Therapeutics U.S., Inc., a Delaware corporation, or Chinook, entered into an Agreement and Plan of Merger and Reorganization, or the Merger Agreement, on June 1, 2020, pursuant to which a direct, wholly owned subsidiary of Aduro, Aspire Merger Sub, Inc., or Merger Sub, will merge with and into Chinook, with Chinook surviving as a wholly owned subsidiary of Aduro, and the surviving corporation of the merger, which transaction is referred to herein as the merger. The surviving corporation following the merger is referred to herein as the combined company.

At the effective time of the merger each share of Chinook’s common stock and each share of Chinook’s preferred stock will be converted into the right to receive a number of shares of Aduro common stock equal to the exchange ratio described in more detail in the section titled “The Merger Agreement—Exchange Ratio” beginning on page 122 of the accompanying proxy statement/prospectus.

In connection with the merger, each outstanding and unexercised option to purchase shares of Chinook common stock that, following assumption by Aduro at the effective time, will be eligible to be registered on Form S-8, will be assumed by Aduro and will be converted into an option to purchase shares of Aduro’s common stock, with necessary adjustments to reflect the exchange ratio.

Each share of Aduro common stock and option to purchase Aduro common stock that is issued and outstanding at the effective time of the merger will remain issued and outstanding and such shares, subject to the proposed reverse stock split, will be unaffected by the merger. Immediately after the merger, Aduro securityholders as of immediately prior to the merger are expected to own approximately 40% of the outstanding shares of the combined company on a fully-diluted basis, former Chinook securityholders, excluding shares purchased in the Chinook pre-closing financing, are expected to own approximately 40% of the outstanding shares of the combined company on a fully-diluted basis and shares issued in the Chinook pre-closing financing are expected to be approximately 20% of the outstanding shares of the combined company on a fully-diluted basis, subject to certain assumptions, including, but not limited to, (a) Aduro’s net cash as of closing being equal to $145 million and (b) Chinook’s cash and cash equivalents as of closing being equal to $10 million, without giving effect to the Chinook pre-closing financing. The shares of Chinook common stock issued in the Chinook pre-closing financing will result in dilution to all securityholders of the combined company (i.e., both the pre-merger Aduro securityholders and former Chinook securityholders).

Shares of Aduro common stock are currently listed on The Nasdaq Global Select Market, or Nasdaq, under the symbol “ADRO.” Aduro has filed an initial listing application for the combined company with Nasdaq. After completion of the merger, Aduro will be renamed “Chinook Therapeutics, Inc.” and it is expected that the common stock of the combined company will trade on Nasdaq under the symbol “KDNY.” On August 25, 2020, the last trading day before the date of the accompanying proxy statement/prospectus, the closing sale price of Aduro common stock was $3.02 per share.

The closing of the Chinook pre-closing financing is conditioned upon the satisfaction or waiver of the conditions to the closing of the merger as well as certain other conditions. The Chinook pre-closing financing is more fully described in the accompanying proxy statement/prospectus.

Aduro stockholders are cordially invited to attend the special meeting of Aduro stockholders. Aduro is holding its special meeting of stockholders, or the Aduro special meeting, on October 1, 2020, at 9:00 a.m. Pacific Daylight Time, unless postponed or adjourned to a later date, in order to obtain the stockholder approvals necessary to complete the merger and related matters. The Aduro special meeting will be held entirely online. Aduro stockholders will be able to attend and participate in the Aduro special meeting online by visiting www.virtualshareholdermeeting.com/ADRO2020SM where they will be able to listen to the meeting live, submit questions and vote. At the Aduro special meeting, Aduro will ask its stockholders to:

 

1.

Approve the issuance of shares of common stock of Aduro to stockholders of Chinook, pursuant to the terms of the Merger Agreement, as amended, a copy of which is attached as Annex A and Annex B to the accompanying proxy statement/prospectus, and the change of control resulting from the merger;


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2.

Approve an amendment to the amended and restated certificate of incorporation of Aduro to effect a reverse stock split of Aduro’s issued and outstanding common stock within a range, as determined by the Aduro board of directors and agreed to by Chinook, of every two to five shares (or any number in between) of outstanding Aduro common stock being combined and reclassified into one share of Aduro common stock in the form attached as Annex H to the accompanying proxy statement/prospectus. This amendment is intended to help Aduro satisfy the listing requirements of Nasdaq;

 

3.

Consider and vote upon an adjournment of the Aduro special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 and 2; and

 

4.

Transact such other business as may properly come before the stockholders at the Aduro special meeting or any adjournment or postponement thereof.

As described in the accompanying proxy statement/prospectus, certain Aduro stockholders who in the aggregate owned approximately 22.9% of the outstanding shares of Aduro as of July 31, 2020, and certain Chinook stockholders who in the aggregate owned approximately 98.0% of the outstanding shares of Chinook capital stock as of July 31, 2020, are parties to stockholder support agreements with Aduro and Chinook, respectively, whereby such stockholders have agreed to vote in favor of the approval of the transactions contemplated therein, including, with respect to Chinook stockholders, adoption of the Merger Agreement and approval of the merger and, with respect to such Aduro stockholders, the issuance of Aduro common stock in the merger pursuant to the Merger Agreement, subject to the terms of the support agreements. Following the effectiveness of the registration statement on Form S-4 of which the accompanying proxy statement/prospectus is a part and pursuant to the Merger Agreement, Chinook stockholders holding a sufficient number of shares of Chinook capital stock to adopt the Merger Agreement and approve the merger and related transactions will execute written consents providing for such adoption and approval.

After careful consideration, each of the Aduro and Chinook boards of directors have approved the Merger Agreement and have determined that it is advisable to consummate the merger. Aduro’s board of directors has approved the proposals described in the accompanying proxy statement/prospectus and unanimously recommends that its stockholders vote “FOR” the proposals described in the accompanying proxy statement/prospectus.

 

 

More information about Aduro, Chinook, the Merger Agreement and transactions contemplated thereby and the foregoing proposals is contained in the accompanying proxy statement/prospectus. Aduro urges you to read the accompanying proxy statement/prospectus carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 22 OF THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.

Aduro and Chinook are excited about the opportunities the merger brings to Aduro’s stockholders and thank you for your consideration and continued support.

Sincerely,

 

  
Stephen T. Isaacs
President and Chief Executive Officer
Aduro Biotech, Inc.
  

Eric Dobmeier

President and Chief Executive Officer
Chinook Therapeutics U.S., Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the accompanying proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus is dated August 26, 2020 and is first being mailed to Aduro stockholders on or about August 28, 2020.


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ADURO BIOTECH, INC.

740 HEINZ AVENUE

BERKELEY, CALIFORNIA 94710

(510) 848-4400

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To the stockholders of Aduro Biotech, Inc.:

NOTICE IS HEREBY GIVEN that a special meeting of stockholders, or the Aduro special meeting, will be held on October 1, 2020, at 9:00 a.m. Pacific Daylight Time, unless postponed or adjourned to a later date. The Aduro special meeting will be held entirely online. You will be able to attend and participate in the Aduro special meeting online by visiting www.virtualshareholdermeeting.com/ADRO2020SM where you will be able to listen to the meeting live, submit questions and vote.

The Aduro special meeting will be held for the following purposes:

 

1.

To approve the issuance of shares of common stock of Aduro Biotech, Inc., or Aduro, to stockholders of Chinook Therapeutics U.S., Inc., or Chinook, pursuant to the terms of the Agreement and Plan of Merger and Reorganization among Aduro, Chinook and Aspire Merger Sub, Inc., or Merger Sub, dated as of June 1, 2020, as amended, a copy of which is attached as Annex A and Annex B, which is referred to in this Notice as the Merger Agreement, and the change of control resulting from the merger;

 

2.

To approve an amendment to the amended and restated certificate of incorporation of Aduro to effect a reverse stock split of Aduro’s issued and outstanding common stock within a range, as determined by the Aduro board of directors and agreed to by Chinook, of every two to five shares (or any number in between) of outstanding Aduro common stock being combined and reclassified into one share of Aduro common stock in the form attached as Annex H. This amendment is intended to help Aduro satisfy the listing requirements of Nasdaq;

 

3.

To consider and vote upon an adjournment of the Aduro special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 and 2; and

 

4.

To transact such other business as may properly come before the stockholders at the Aduro special meeting or any adjournment or postponement thereof.

 

Record Date:

Aduro’s board of directors has fixed August 12, 2020 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Aduro special meeting and any adjournment or postponement thereof. Only holders of record of shares of Aduro common stock at the close of business on the record date are entitled to notice of, and to vote at, the Aduro special meeting. At the close of business on the record date, Aduro had 81,168,129 shares of common stock outstanding and entitled to vote.

Your vote is important. The affirmative vote of the holders of a majority of shares present in attendance or represented by proxy at the Aduro special meeting and entitled to vote on the matter, assuming a quorum is present, is required for approval of Proposal Nos. 1, 3 and 4. The affirmative vote of the holders of a majority of the outstanding shares of Aduro common stock entitled to vote at the Aduro special meeting is required for approval of Proposal No. 2. Approval of Proposal No. 1, referred to as the merger proposal, is a condition to the completion of the merger. Therefore, the merger cannot be consummated without the approval of Proposal No. 1.

Even if you plan to attend the Aduro special meeting, Aduro requests that you sign and return the enclosed proxy or vote by mail or online to ensure that your shares will be represented at the Aduro special meeting if you are unable to attend. You may change or revoke your proxy at any time before it is voted at the Aduro special meeting.

ADURO’S BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS FAIR TO, IN THE BEST INTERESTS OF, AND ADVISABLE TO ADURO AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. ADURO’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ADURO STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.

 

Important Notice Regarding the Availability of Proxy Materials for the Stockholders’ Meeting to Be Held on

October 1, 2020 at 9:00 a.m. Pacific Daylight Time via the internet.

The proxy statement/prospectus/information statement and annual report to stockholders are available at www.proxyvote.com

By Order of Aduro’s Board of Directors,

Stephen T. Isaacs

President and Chief Executive Officer

Berkeley, California

August 26, 2020


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Aduro Biotech, Inc. that is not included in or delivered with this document. You may obtain this information without charge through the Securities and Exchange Commission website (www.sec.gov) or upon your written or oral request by contacting the Corporate Secretary of Aduro Biotech, Inc., 740 Heinz Avenue, Berkeley, California 94710, by calling (510) 848-4400 or via email to investors@aduro.com.

To ensure timely delivery of these documents, any request should be made no later than September 25, 2020 to receive them before the Aduro special meeting.

For additional details about where you can find information about Aduro, please see the section titled “Where You Can Find More Information” beginning on page 243 of this proxy statement/prospectus.


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE MERGER

     v  

PROSPECTUS SUMMARY

     1  

The Companies

     1  

The Merger

     3  

Reasons for the Merger

     4  

Opinion of Aduro’s Financial Advisor

     4  

Interests of Certain Directors, Officers and Affiliates of Aduro and Chinook

     5  

Management Following the Merger

     7  

Overview of the Merger Agreement and Agreements Related to the Merger Agreement

     7  

Material U.S. Federal Income Tax Consequences of the Merger

     12  

Nasdaq Stock Market Listing

     13  

Anticipated Accounting Treatment

     13  

Appraisal Rights and Dissenters’ Rights

     13  

Comparison of Stockholder Rights

     13  

Risk Factors

     14  

SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION AND DATA

     15  

Selected Historical Consolidated Financial Data of Aduro

     15  

Selected Historical Consolidated Financial Data of Chinook

     17  

Selected Unaudited Pro Forma Combined Financial Data of Aduro and Chinook

     19  

MARKET PRICE AND DIVIDEND INFORMATION

     21  

Dividends

     21  

RISK FACTORS

     22  

Risks Related to the Merger

     22  

Risks Related to the Combined Company

     28  

Risks Related to Aduro’s Business

     35  

Risks Related to Chinook’s Financial Position

     35  

Risks Related to Chinook’s Product Development and Regulatory Approval

     38  

Risks Related to Commercialization and Manufacturing

     47  

Risks Related to Government Regulation

     54  

Risks Related to Chinook’s Intellectual Property

     59  

Risks Related to Employee Matters, Managing Growth and Other Risks Related to Chinook’s Business

     72  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     80  

THE SPECIAL MEETING OF ADURO STOCKHOLDERS

     81  

Date, Time and Place

     81  

Purposes of the Aduro Special Meeting

     81  

Recommendation of Aduro’s Board of Directors

     81  

Record Date and Voting Power

     82  

Voting and Revocation of Proxies

     82  

Required Vote

     83  

Solicitation of Proxies

     84  

Other Matters

     84  

THE MERGER

     85  

Background of the Merger

     85  

Aduro Reasons for the Merger

     93  

Chinook Reasons for the Merger

     96  

Opinion of Aduro’s Financial Advisor

     98  

Financial Forecasts

     104  

 

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Interests of Aduro Directors and Executive Officers in the Merger

     107  

Interests of Chinook Directors and Executive Officers in the Merger

     112  

Effective Time of the Merger

     114  

Regulatory Approvals

     114  

Material U.S. Federal Income Tax Consequences of the Merger

     115  

Tax Treatment of the Merger

     117  

Anticipated Accounting Treatment

     117  

Nasdaq Stock Market Listing

     117  

Appraisal Rights and Dissenters’ Rights

     118  

THE MERGER AGREEMENT

     121  

Structure

     121  

Completion and Effectiveness of the Merger

     121  

Merger Consideration

     121  

Exchange Ratio

     122  

Calculation of Aduro’s Final Net Cash

     123  

Treatment of Chinook Options

     124  

Treatment of Aduro Common Stock, Aduro Options and Aduro RSUs

     125  

Procedures for Exchanging Chinook Stock Certificates

     125  

Directors and Officers of Aduro Following the Merger

     126  

Amendment of the Amended and Restated Certificate of Incorporation of Aduro

     126  

Potential Asset Sale

     126  

Representations and Warranties

     127  

Covenants; Conduct of Business Pending the Merger

     128  

Contingent Value Rights

     131  

Non-Solicitation

     131  

Board Recommendation Change

     133  

Meeting of Aduro’s Stockholders and Written Consent of Chinook’s Stockholders

     135  

Regulatory Approvals

     135  

Indemnification and Insurance for Directors and Officers

     136  

Additional Agreements

     136  

Conditions to the Completion of the Merger

     137  

Termination and Termination Fees

     141  

Amendment and Waiver

     143  

Fees and Expenses

     143  

AGREEMENTS RELATED TO THE MERGER

     144  

Support Agreements

     144  

Lock-Up Agreements

     145  

Contingent Value Rights Agreement

     146  

Subscription Agreements

     153  

ADURO DIRECTORS, OFFICERS AND CORPORATE GOVERNANCE

     155  

ADURO EXECUTIVE COMPENSATION

     156  

Summary Compensation Table

     156  

Executive Employment and Consulting Arrangements and Potential Payments Upon Termination or Change in Control

     157  

Outstanding Equity Awards at December 31, 2019

     161  

CHINOOK EXECUTIVE COMPENSATION

     163  

Summary Compensation Table

     163  

Outstanding Equity Awards at December 31, 2019

     164  

Employment Arrangements

     164  

MATTERS BEING SUBMITTED TO A VOTE OF ADURO STOCKHOLDERS

     168  

Proposal No.  1: Approval of the Issuance of Common Stock in the Merger and the Change of Control Resulting from the Merger

     168  

 

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Proposal No.  2: Approval of the Amendment to Amended and Restated Certificate of Incorporation of Aduro Effecting the Reverse Stock Split

     169  

Proposal No.  3 Approval of Possible Adjournment of the Special Meeting

     176  

ADURO’S BUSINESS

     177  

CHINOOK’S BUSINESS

     178  

Overview

     178  

Chinook’s Pipeline

     180  

Chinook’s Strategy

     181  

Chronic Kidney Disease Background

     181  

Chinook’s Product Candidates

     184  

Atrasentan

     184  

CHK-336

     190  

Preclinical Product Candidates

     190  

License Agreements

     191  

Manufacturing

     192  

Sales and Marketing

     192  

Coverage & Reimbursement

     192  

Competition

     193  

Intellectual Property

     194  

Government Regulation

     196  

Employees

     207  

CHINOOK MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     209  

Results of Operations

     211  

Liquidity and Capital Resources

     214  

Contractual Obligations and Other Commitments

     216  

Off-Balance Sheet Arrangements

     217  

Quantitative and Qualitative Disclosures about Market Risk

     217  

Recent Accounting Pronouncements

     219  

Internal Control Over Financial Reporting

     219  

Remediation of Material Weaknesses in Internal Control over Financial Reporting

     220  

MANAGEMENT FOLLOWING THE MERGER

     221  

Election of Officers

     224  

Board of Directors of the Combined Company Following the Merger

     224  

Non-Employee Director Compensation

     226  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF THE COMBINED COMPANY

     228  

Chinook Transactions

     228  

Aduro Transactions

     229  

COMPARISON OF RIGHTS OF HOLDERS OF ADURO CAPITAL STOCK AND CHINOOK CAPITAL STOCK

     230  

PRINCIPAL STOCKHOLDERS OF CHINOOK

     239  

LEGAL MATTERS

     241  

EXPERTS

     242  

WHERE YOU CAN FIND MORE INFORMATION

     243  

OTHER MATTERS

     246  

Stockholder Proposals

     246  

Householding of Proxy Statement/Prospectus

     246  

INDEX TO CHINOOK CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     F-54  

 

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Annex A—Agreement and Plan of Merger and Reorganization

Annex B—Amendment to the Agreement and Plan of Merger and Reorganization

Annex C—Opinion of SVB Leerink LLC

Annex D—Form of Aduro Stockholder Support Agreement

Annex E—Form of Chinook Stockholder Support Agreement

Annex F—Form of Contingent Value Rights Agreement

Annex G—Form of Lock-Up Agreement

Annex H—Certificate of Amendment for the Reverse Stock Split

Annex I—Appraisal Rights (Section 262 of the Delaware General Corporation Law)

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus does not give effect to the proposed reverse stock split described in Proposal No. 2 of this proxy statement/prospectus.

The following section provides answers to frequently asked questions about the merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

 

Q:

What is the merger?

 

A:

Aduro Biotech, Inc., or Aduro, and Chinook Therapeutics U.S., Inc., or Chinook, have entered into an Agreement and Plan of Merger and Reorganization, or the Merger Agreement, dated as of June 1, 2020, as amended, a copy of which is attached as Annex A and Annex B. The Merger Agreement contains the terms and conditions of the proposed business combination of Aduro and Chinook. Pursuant to the Merger Agreement, Aspire Merger Sub, Inc., or Merger Sub, a direct, wholly owned subsidiary of Aduro will merge with and into Chinook, with Chinook surviving as a wholly owned subsidiary of Aduro. This transaction is referred to in this proxy statement/prospectus as the merger. After the completion of the merger, Aduro will change its corporate name to “Chinook Therapeutics, Inc.” Aduro following the merger is referred to herein as the combined company.

At the effective time of the merger each share of Chinook’s common stock and each share of Chinook’s preferred stock will be converted into the right to receive a number of shares of Aduro common stock equal to the exchange ratio described in more detail in the section titled “The Merger Agreement—Exchange Ratio” beginning on page 122 of this proxy statement/prospectus.

In connection with the merger, each outstanding and unexercised option to purchase shares of Chinook common stock will be assumed by Aduro and will be converted into an option to purchase shares of Aduro’s common stock, with necessary adjustments to reflect the exchange ratio.

Each share of Aduro common stock and option to purchase Aduro common stock that is issued and outstanding at the effective time of the merger will remain issued and outstanding and such shares will be unaffected by the merger. Immediately after the merger, Aduro securityholders as of immediately prior to the merger are expected to own approximately 40% of the outstanding shares of the combined company on a fully-diluted basis, former Chinook securityholders, excluding shares purchased in the Chinook pre-closing financing, are expected to own approximately 40% of the outstanding shares of the combined company on a fully-diluted basis and shares issued in the Chinook pre-closing financing are expected to be approximately 20% of the outstanding shares of the combined company on a fully-diluted basis, subject to certain assumptions, including, but not limited to, (a) Aduro’s net cash as of closing being equal to $145 million and (b) Chinook’s cash and cash equivalents as of closing being equal to $10 million, without giving effect to the Chinook pre-closing financing. The shares of Chinook common stock issued in the Chinook pre-closing financing will result in dilution to all securityholders of the combined company (i.e., both the pre-merger Aduro securityholders and former Chinook securityholders).

 

Q:

Why are the two companies proposing to merge?

 

A:

Aduro and Chinook believe that combining the two companies will result in a company with a robust pipeline, strong leadership team and substantial capital resources, positioning it to become a leading company researching, developing and commercializing therapies for kidney diseases. For a more complete description of the reasons for the merger, please see the sections titled “The Merger—Aduro Reasons for the Merger” and “The Merger—Chinook Reasons for the Merger” beginning on pages 93 and 96, respectively, of this proxy statement/prospectus.

 

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Q:

Why am I receiving this proxy statement/prospectus?

 

A:

You are receiving this proxy statement/prospectus because you have been identified as a stockholder of Aduro as of the record date, and you are entitled to vote at the Aduro special meeting to approve the matters set forth herein. This document serves as:

 

   

a proxy statement of Aduro used to solicit proxies for the Aduro special meeting to vote on the matters set forth herein; and

 

   

a prospectus of Aduro used to offer shares of Aduro common stock in exchange for shares of Chinook common stock and preferred stock in the merger.

 

Q:

What is the Chinook pre-closing financing?

 

A:

On June 1, 2020, immediately prior to the execution and delivery of the Merger Agreement, Chinook entered into a Note Purchase Agreement with certain existing investors of Chinook named therein, pursuant to which the investors agreed to purchase, in the aggregate, $25.0 million in promissory notes convertible into securities of Aduro, referred to as the Chinook note financing. In August 2020, Chinook entered into Subscription Agreements with certain investors, including EcoR1 Capital, OrbiMed, Fidelity Management & Research Company, LLC, funds managed by Rock Springs Capital, Avidity Partners, Surveyor Capital (a Citadel company), Ally Bridge Group, Monashee Investment Management LLC, Northleaf Capital Partners, Janus Henderson Investors, Sphera Biotech, and other top-tier healthcare investors, pursuant to which the investors agreed to purchase shares of Chinook’s common stock for an aggregate purchase price of approximately $115 million. Immediately after the merger, the shares issued in the Chinook pre-closing financing are expected to be approximately 20% of the outstanding shares of the combined company on a fully diluted basis. The Note Purchase Agreement was terminated in connection with the signing of the Subscription Agreements. The closing of the Chinook pre-closing financing is conditioned upon the satisfaction or waiver of the conditions to the closing of the merger as well as certain other conditions.

 

Q:

What proposals will be voted on at the Aduro special meeting in connection with the merger?

 

A:

Pursuant to the terms of the Merger Agreement, the following proposal must be approved by the requisite stockholder vote at the Aduro special meeting in order for the merger to close:

 

   

Proposal No. 1 to approve the issuance of shares of Aduro common stock to Chinook stockholders pursuant to the Merger Agreement and the change of control resulting from the merger.

Proposal No. 1 is referred to herein as the merger proposal. The approval of the merger proposal is a condition to completion of the merger. The issuance of Aduro common stock in connection with the merger and the change of control resulting from the merger, or Proposal No. 1, will not take place unless approved by Aduro stockholders and the merger is consummated.

In addition to the requirement of obtaining Aduro stockholder approval, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived. For a more complete description of the closing conditions under the Merger Agreement, please see the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 137 of this proxy statement/prospectus.

The presence, by accessing online or being represented by proxy, at the Aduro special meeting of the holders of a majority of the shares of Aduro common stock outstanding and entitled to vote at the Aduro special meeting is necessary to constitute a quorum at the meeting for the purpose of approving the merger proposal.

 

Q:

What proposals are to be voted on at the Aduro special meeting, other than the merger proposal?

 

A:

At the Aduro special meeting, the holders of Aduro common stock will also be asked to consider the following proposals:

 

   

Proposal No. 2 to approve an amendment to the amended and restated certificate of incorporation of Aduro to effect a reverse stock split of Aduro’s issued and outstanding common stock within a

 

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range, as determined by the Aduro board of directors and agreed to by Chinook, of every two to five shares (or any number in between) of outstanding Aduro common stock being combined and reclassified into one share of Aduro common stock, which is referred to herein as the reverse stock split, in the form attached as Annex H. This amendment is intended to help Aduro satisfy the listing requirements of Nasdaq.

 

   

Proposal No. 3 to approve an adjournment of the Aduro special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 and 2.

 

   

Proposal No. 4 to transact such other business as may properly come before the stockholders at the Aduro special meeting or any adjournment or postponement thereof.

The approval of Proposal Nos. 2, 3 and 4 are not a condition to the merger. Such proposals, together with the merger proposal, are referred to collectively in this proxy statement/prospectus as the proposals.

The presence, by accessing online or being represented by proxy, at the Aduro special meeting of the holders of a majority of the shares of Aduro common stock outstanding and entitled to vote at the Aduro special meeting is necessary to constitute a quorum at the meeting for the purpose of approving the proposals.

 

Q:

What stockholder votes are required to approve the proposals at the Aduro special meeting?

 

A:

The affirmative vote of the holders of a majority of shares present in attendance or represented by proxy at the Aduro special meeting and entitled to vote on the matter, assuming a quorum is present, is required for approval of Proposal Nos. 1, 3 and 4. The affirmative vote of the holders of a majority of the outstanding shares of Aduro common stock entitled to vote at the Aduro special meeting is required for approval of Proposal No. 2.

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and any broker non-votes. Abstentions and broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the special meeting. Abstentions will be counted towards the vote totals for each proposal, and will have the same effect as “AGAINST” votes. Broker non-votes will have no effect on Proposal Nos. 1, 3 and 4, and will have the same effect as “AGAINST” votes for Proposal No. 2.

As of July 31, 2020, the directors and certain executive officers of Aduro owned or controlled 0.2% of the outstanding shares of Aduro common stock entitled to vote at the Aduro special meeting. The directors and certain executive officers of Aduro owning these shares are subject to stockholder support agreements pursuant to which they have agreed to vote all shares of Aduro common stock owned by them as of the record date in favor of Proposal Nos. 1, 2, 3 and 4 and against any competing “acquisition proposal” (as defined in the support agreements).

 

Q:

What are contingent value rights (CVRs)?

 

A:

The CVRs represent the contractual right to receive payments from Aduro upon the actual receipt by Aduro or certain of its affiliates of certain contingent proceeds derived from any consideration that is paid to Aduro as a result of the disposition of any of Aduro’s non-renal assets or revenue received from the license of certain non-renal assets, or as a result of Aduro’s equity ownership in any subsidiary that is established to hold such non-renal assets or the subsequent disposition of any such equity securities (collectively referred to as the CVR Milestones), net of any tax, transaction costs and certain other expenses.

At the effective time of the merger, Aduro and Computershare Trust Company, N.A., as rights agent, will enter into a Contingent Value Rights Agreement, or the CVR Agreement, pursuant to which Aduro’s common stockholders of record as of the close of business on the last business day prior to the day on which the effective time of the merger occurs will receive one CVR for each outstanding share of Aduro common stock held by such stockholder on such date. A copy of the form of CVR Agreement is included as Annex F to this proxy statement/prospectus.

 

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The contingent payments under the CVR Agreement, if they become payable, will become payable to the Rights Agent for subsequent distribution to the holders of the CVRs. In the event that no CVR Milestones occur, holders of the CVRs will not receive any payment pursuant to the CVR Agreement. There can be no assurance that any CVR Milestones will be achieved or that any holders of CVRs will receive payments with respect thereto.

The right to the contingent payments contemplated by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement. The CVRs will not be evidenced by a certificate or any other instrument and will not be registered with the SEC. The CVRs will not have any voting or dividend rights and will not represent any equity or ownership interest in Aduro or the combined company or any of its affiliates. No interest will accrue on any amounts payable in respect of the CVRs.

For a more detailed description of the CVRs and the CVR Agreement, see “Agreements Related to the Merger—Contingent Value Rights Agreement” elsewhere in this proxy statement/prospectus.

 

Q:

What will Chinook stockholders and optionholders receive in the merger?

 

A:

Chinook stockholders will receive shares of Aduro common stock, and Chinook optionholders will receive options to purchase Aduro common stock. Applying the exchange ratio, the former Chinook securityholders immediately before the merger, excluding shares purchased in the Chinook pre-closing financing, are expected to own approximately 40% of the aggregate number of shares of the combined company’s common stock on a fully-diluted basis following the merger, Aduro securityholders immediately before the merger are expected to own approximately 40% of the aggregate number of shares of the combined company common stock on a fully-diluted basis following the merger and shares issued in the Chinook pre-closing financing are expected to be approximately 20% of the outstanding shares of the combined company on a fully-diluted basis following the merger, in each case subject to certain assumptions, including, but not limited to, Aduro’s net cash as of closing being equal to $145 million and Chinook’s cash and cash equivalents as of closing being equal to $10 million, without giving effect to the Chinook pre-closing financing.

In connection with the merger, each outstanding and unexercised option to purchase shares of Chinook common stock that, following assumption by Aduro at the effective time, will be eligible to be registered on Form S-8, will be converted into an option to purchase Aduro common stock, with the number of shares and exercise price being appropriately adjusted to reflect the exchange ratio between Aduro common stock and Chinook common stock or preferred stock, as the case may be, determined in accordance with the Merger Agreement.

For a more complete description of what Chinook stockholders and optionholders will receive in the merger, please see the sections titled “The Merger Agreement—Merger Consideration” and The Merger Agreement—Exchange Ratio” beginning on pages 121 and 122, respectively, of this proxy statement/prospectus. For a description of the effect of the Chinook pre-closing financing on Aduro’s and Chinook’s current securityholders, please see the section titled “Agreements Related to the Merger—Subscription Agreements ” beginning on page 153 of this proxy statement/prospectus.

 

Q:

Will the common stock of the combined company trade on an exchange?

 

A:

Shares of Aduro common stock are currently listed on Nasdaq under the symbol “ADRO.” Aduro has filed an initial listing application for the combined company with Nasdaq. After completion of the merger, Aduro will be renamed “Chinook Therapeutics, Inc.” and it is expected that the common stock of the combined company will trade on Nasdaq under the symbol “KDNY.” On August 25, 2020, the last trading day before the date of this proxy statement/prospectus, the closing sale price of Aduro common stock was $3.02 per share.

 

Q:

Who will be the directors of the combined company following the merger?

 

A:

Immediately following the merger, the combined company’s board of directors will be composed of seven (7) members, consisting of (i) two (2) current Aduro board members, namely Ross Haghighat and William

 

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  M. Greenman, (ii) three (3) current Chinook board members, namely Eric Dobmeier (who is Chinook’s Chief Executive Officer and will serve as Chief Executive Officer of the combined company), Jerel Davis and Srinivas Akkaraju, and (iii) two (2) members to be determined by mutual agreement by a majority of the Aduro board designees and the Chinook board designees, one of whom is expected to be Michelle Griffin and each of whom shall meet Nasdaq’s independence standards. The staggered structure of the Aduro board of directors will remain in place for the combined company following the completion of the merger.

 

Q:

Who will be the executive officers of the combined company immediately following the merger?

 

A:

Immediately following the merger, the executive management team of the combined company is expected to consist of members of the Chinook executive management team prior to the merger, including:

 

Name

  

Title

Eric Dobmeier

   President and Chief Executive Officer

Tom Frohlich

   Chief Business Officer

Alan Glicklich

   Chief Medical Officer

Andrew King

   Head of Renal Discovery and Translational Medicine

 

Q:

As an Aduro stockholder, how does Aduro’s board of directors recommend that I vote?

 

A:

After careful consideration, Aduro’s board of directors unanimously recommends that Aduro stockholders vote “FOR” all of the proposals.

 

Q:

What risks should I consider in deciding whether to vote in favor of the merger?

 

A:

You should carefully review the section titled “Risk Factors” beginning on page 22 of this proxy statement/prospectus and the documents incorporated by reference herein, which set forth certain risks and uncertainties related to the merger, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which each of Aduro and Chinook, as independent companies, are subject.

 

Q:

When do you expect the merger to be consummated?

 

A:

The merger is anticipated to close in the fourth quarter of 2020, but the exact timing cannot be predicted. For more information, please see the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 137 of this proxy statement/prospectus.

 

Q:

What do I need to do now?

 

A:

Aduro urges you to read this proxy statement/prospectus carefully, including the annexes and the documents incorporated by reference, and to consider how the merger affects you.

If you are an Aduro stockholder of record, you may provide your proxy instructions in one of four different ways:

 

   

You can attend the Aduro special meeting online and vote online during the special meeting.

 

   

You can mail your signed proxy card in the enclosed return envelope.

 

   

You can provide your proxy instructions via telephone by following the instructions on your proxy card.

 

   

You can provide your proxy instructions via the internet by following the instructions on your proxy card.

 

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Your vote must be received by September 30, 2020, 11:59 p.m. Eastern Time to be counted.

If you hold your shares in “street name” (as described below), you may provide your proxy instructions via telephone or the internet by following the instructions on your vote instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the Aduro special meeting.

 

Q:

What happens if I do not return a proxy card or otherwise vote or provide proxy instructions, as applicable?

 

A:

If you are an Aduro stockholder, the failure to return your proxy card or otherwise vote or provide proxy instructions will reduce the aggregate number of votes required to approve Proposal Nos. 1, 3 and 4 and will have the same effect as a vote “AGAINST” Proposal No. 2. Also, your shares will not be counted for purposes of determining whether a quorum is present at the Aduro special meeting unless your broker has discretionary authority to vote on certain matters.

 

Q:

May I attend the Aduro special meeting and vote in person?

 

A:

In light of the coronavirus/COVID-19 outbreak and governmental decrees that in-person gatherings be postponed or cancelled, and in the best interests of public health and the health and safety of Aduro’s board of directors and stockholders, the Aduro special meeting will be held entirely online. Stockholders of record as of August 12, 2020 will be able to attend and participate in the Aduro special meeting online by accessing www.virtualshareholdermeeting.com/ADRO2020SM. To join the Aduro special meeting, you will need to have your 16-digit control number which is included on your Notice of Internet Availability of Proxy Materials and your proxy card.

 

Q:

Who counts the votes?

 

A:

Broadridge Financial Solutions, Inc., or Broadridge, has been engaged as Aduro’s independent agent to tabulate stockholder votes, which Aduro refers to as the inspector of election. If you are a stockholder of record, your executed proxy card is returned directly to Broadridge for tabulation. If you hold your shares through a broker, your broker returns one proxy card to Broadridge on behalf of all its clients.

 

Q:

If my Aduro shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:

Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of Aduro common stock on matters requiring discretionary authority without instructions from you. If you do not give instructions to your broker, your broker can vote your Aduro shares with respect to “discretionary,” routine items but not with respect to “non-discretionary,” non-routine items. Discretionary items are proposals considered routine under Rule 452 of the New York Stock Exchange on which your broker may vote shares held in “street name” in the absence of your voting instructions. With respect to non-routine items for which you do not give your broker instructions, your Aduro shares will be treated as broker non-votes. It is anticipated that Proposal Nos. 1 and 4 at the Aduro special meeting will be non-routine. It is anticipated that Proposal Nos. 2 and 3 will be routine. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

 

Q:

What are broker non-votes and do they count for determining a quorum?

 

A:

Generally, broker non-votes occur when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a particular proposal because the broker (i) has not received voting instructions from the beneficial owner and (ii) lacks discretionary voting power to vote those shares. A broker is entitled

 

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  to vote shares held for a beneficial owner on routine matters without instructions from the beneficial owner of those shares. On the other hand, absent instructions from the beneficial owner of such shares, a broker is not entitled to vote shares held for a beneficial owner on non-routine matters.

Broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Aduro special meeting. Broker non-votes will not have any effect with respect to Proposal Nos. 1, 3 and 4, and will have the same effect as “AGAINST” votes for Proposal No. 2.

It is anticipated that Proposal Nos. 2 and 3 will be discretionary proposals considered routine under the rules of the NYSE and thus will not result in broker non-votes.

 

Q:

May I change my vote after I have submitted a proxy or provided proxy instructions?

 

A:

Aduro stockholders of record, unless such stockholder’s vote is subject to a support agreement, may change their vote at any time before their proxy is voted at the Aduro special meeting in one of four ways:

 

   

You may submit another properly completed proxy with a later date by mail or via the internet.

 

   

You can provide your proxy instructions via telephone at a later date.

 

   

You may send a written notice that you are revoking your proxy to Aduro’s Corporate Secretary at 740 Heinz Avenue, Berkeley, California 94710.

 

   

You may attend the Aduro special meeting online and vote by following the instructions at www.virtualshareholdermeeting.com/ADRO2020SM. Simply attending the Aduro special meeting will not, by itself, revoke your proxy.

Your vote must be received by September 30, 2020, 11:59 p.m. Eastern Time to be counted.

If an Aduro stockholder who owns Aduro shares in “street name” has instructed a broker to vote its shares of Aduro common stock, the stockholder must follow directions received from its broker to change those instructions.

 

Q:

Who is paying for this proxy solicitation?

 

A:

Aduro and Chinook will share equally the cost of printing and filing of this proxy statement/prospectus and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Aduro common stock for the forwarding of solicitation materials to the beneficial owners of Aduro common stock. Aduro will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Aduro has retained MacKenzie Partners, Inc. to assist it in soliciting proxies using the means referred to above. Aduro will pay the fees of MacKenzie, which Aduro expects to be approximately $20,000, plus reimbursement of out-of-pocket expenses.

 

Q:

What are the material U.S. federal income tax consequences of the issuance of the CVRs, including any payments on the CVRs, and of the reverse stock split to holders of Aduro common stock?

 

A:

The U.S. federal income tax treatment of the CVRs and payments (if any) thereon is uncertain. Absent a change in law requiring otherwise after the date of the CVR Agreement, Aduro will not report the issuance of the CVRs as a current distribution and will report each payment (if any) on the CVRs as a distribution by Aduro for U.S. federal income tax purposes. This position may be challenged by the Internal Revenue Service, or the IRS, in which case holders of Aduro common stock could be required to recognize taxable income in respect of the CVRs without the corresponding receipt of cash. Please review the information in the section titled “Agreements Related to the Merger—Contingent Value Rights Agreement—Material U.S. Federal Income Tax Consequences of the CVRs to Holders of Aduro Common Stock” for a discussion of the material U.S. federal income tax consequences of the CVRs to holders of Aduro common stock.

 

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A holder of Aduro common stock generally should not recognize gain or loss upon the reverse stock split, except to the extent such holder receives cash in lieu of a fractional share of Aduro common stock, and subject to the discussion in the section titled “Matters Being Submitted to a Vote of Aduro Stockholders—Proposal No. 3: Approval of the Amendment to Amended and Restated Certificate of Incorporation of Aduro Effecting the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split.” Please review the information in the section titled “Matters Being Submitted to a Vote of Aduro Stockholders—Proposal No. 3: Approval of the Amendment to Amended and Restated Certificate of Incorporation of Aduro Effecting the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split” for a more complete description of the material U.S. federal income tax consequences of the reverse stock split to holders of Aduro common stock, including possible alternative treatments.

 

Q:

What are the material U.S. federal income tax consequences of the merger to United States holders of Chinook capital stock?

 

A:

Aduro and Chinook intend the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Assuming the merger constitutes a reorganization, subject to the limitations and qualifications described in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger,” holders of Chinook capital stock will not recognize gain or loss for U.S. federal income tax purposes on the receipt of shares of Aduro common stock issued in connection with the merger. For a more detailed discussion of the material U.S. federal income tax consequences of the merger, see “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 115.

 

Q:

Who can help answer my questions?

 

A:

If you are an Aduro stockholder and would like additional copies of this proxy statement/prospectus without charge or if you have questions about the merger, including the procedures for voting your shares, you should contact:

Aduro Biotech, Inc.

740 Heinz Avenue

Berkeley, California 94710

Telephone: (510) 848-4400

Attn: Investor Relations

Email: investors@aduro.com

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus and may not contain all of the information that is important to you. To better understand the merger and the proposals being considered at the Aduro special meeting, you should read this entire proxy statement/prospectus carefully, including the Merger Agreement and the other annexes to which you are referred in this proxy statement/prospectus, and the documents incorporated by reference therein. For more information, please see the section titled “Where You Can Find More Information” beginning on page 243 of this proxy statement/prospectus. Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus does not give effect to the proposed reverse stock split described in Proposal No. 3 of this proxy statement/prospectus.

The Companies

Aduro Biotech, Inc.

740 Heinz Avenue

Berkeley, California 94710

Telephone: (510) 848-4400

Aduro is an immunotherapy company focused on the discovery, development and commercialization of therapies that are designed to harness the body’s natural immune system for the treatment of patients with challenging diseases. Aduro’s primary technologies related to A Proliferation Inducing Ligand (APRIL) and the cyclic GMP-AMP Synthase–Stimulator of Interferon Genes (cGAS-STING) pathways have led to what Aduro believes is a strong pipeline of clinical candidates that are being investigated in cancer, autoimmune and inflammatory diseases. Aduro is collaborating with leading global pharmaceutical companies to help expand and drive its product pipeline. Aduro’s strategy is to rapidly advance therapeutic candidates from its APRIL and STING technologies through clinical development and regulatory approval. Aduro’s anti-APRIL antibody product candidate, BION-1301, is designed to suppress the autoimmune response in patients with IgA nephropathy, or IgAN, a chronic autoimmune kidney disease with unclear causality. Its lead STING pathway activator product candidate, ADU-S100 (MIW815), is designed to selectively modulate innate and adaptive immune responses to enhance immune control in oncology.

APRIL is a soluble factor that binds to B-cell maturation antigen, or BCMA, and transmembrane activator and CAML interactor, or TACI, receptors thereby inducing signaling, and is believed to be implicated in IgAN and other indications. Aduro is developing BION-1301, an investigational monoclonal antibody that blocks APRIL binding to both of its natural ligands, the BCMA and TACI receptors. BION-1301 is being evaluated in a phase 1 clinical trial for the treatment of IgAN. Because there currently are no approved therapies for IgAN with curative intent, Aduro believes there is opportunity for BION-1301 to address a significant unmet patient need. Aduro currently anticipates presenting interim results from this trial in the first half of 2021.

Aduro’s STING pathway activator technology is designed to activate the intracellular STING receptor, which may result in a potent tumor-specific immune response. ADU-S100 (MIW815), the first STING pathway activator to enter the clinic, is being investigated in a phase 2 clinical trial of ADU-S100 in combination with KEYTRUDA® (pembrolizumab), an approved anti-PD-1 monoclonal antibody, as a potential first-line treatment for patients with recurrent or metastatic squamous cell carcinoma of the head and neck. Aduro currently anticipates presenting interim results from this trial in the first half of 2021.

In addition to its current STING pathway product candidates that activate the STING receptor, Aduro is developing product candidates that are designed to prevent or control immune responses through the STING pathway as part of its cGAS-STING pathway inhibitor program under a research collaboration and exclusive



 

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license agreement with Eli Lilly and Company, or Lilly. Aduro’s cGAS-STING pathway inhibitor program involves the research and development of novel inhibitor product candidates for autoimmune and other inflammatory diseases.

Chinook Therapeutics U.S., Inc.

1600 Fairview Avenue East, Suite 100

Seattle, WA 98102

Telephone: (206) 485-7051

Chinook is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing precision medicines for kidney diseases. Chinook’s pipeline is focused on rare, severe chronic kidney diseases with well-defined and efficient clinical pathways. Chinook’s lead clinical program is atrasentan, an endothelin receptor antagonist that Chinook in-licensed from AbbVie Ireland Unlimited Company, or AbbVie, in late 2019. Chinook plans to initiate a phase 3 trial of atrasentan called ALIGN for IgAN in early 2021, as well as a phase 2 basket trial for primary glomerular diseases during the first half of 2021. Chinook is also advancing its second program, CHK-336, for the treatment of an ultra-orphan kidney disease towards a planned investigational new drug application, or IND, submission in 2021. In addition, Chinook is conducting research programs in polycystic kidney disease and other rare, severe chronic kidney diseases. Chinook seeks to build its pipeline by leveraging insights in kidney single cell RNA sequencing, human-derived organoids and new translational models, to discover and develop therapeutics with mechanisms of action targeted against key kidney disease pathways.

Chronic kidney disease is a large and growing problem globally, with few approved therapies and a large unmet medical need. In the United States alone, $120 billion is spent annually on managing and treating kidney diseases, much of which is dedicated to dialysis and transplant after a patient’s kidneys have already failed. Despite the large unmet medical need, there are few drugs approved to prevent the progression of kidney disease. Drug development in nephrology is challenging and has historically been hindered by categorization of disease based on clinical presentation or kidney pathology, rather than underlying molecular mechanism or genetics. This has resulted in the development of drugs with non-specific mechanisms to address broad indications that contain heterogeneous patient populations with a variety of distinct disease drivers. Complicating matters, large, lengthy and expensive outcome-based clinical trials have been required to establish proof of concept and regulatory approval for new drugs.

Chinook believes now is an opportune time for precision medicine to be applied in kidney disease, as many of the historical barriers can be overcome. The field is rapidly changing as an increased understanding of underlying disease biology has led to new and validated drug targets, novel translational platforms, and patient stratification tools. Importantly, regulators have recently indicated biomarkers, such as proteinuria and estimated glomerular filtration rate, or eGFR, may be accepted as registration endpoints in certain well-characterized disease populations, potentially reducing the time and cost previously associated with clinical trials in nephrology.

Chinook’s lead product candidate is atrasentan, a potent and selective endothelin receptor antagonist that Chinook is developing for treatment of primary glomerular diseases, including IgAN. IgAN is a serious progressive autoimmune disease of the kidney with no approved therapies, for which up to 45% of patients progress to end-stage renal disease, or ESRD. Based on the encouraging data from AbbVie’s phase 3 SONAR trial and strong mechanistic rationale, Chinook plans to initiate a phase 3 trial of atrasentan called ALIGN in early 2021 in patients with IgAN at high risk of kidney function decline. Chinook chose IgAN as the lead indication for evaluation of atrasentan due to the role of endothelin activation and proteinuria in disease progression, potential tolerability of atrasentan in this patient population, high unmet need, and the potential to submit a new drug application, or NDA, for accelerated approval based on surrogate endpoints, including



 

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proteinuria. Chinook also plans to initiate a phase 2 basket trial in patients with other primary glomerular diseases in the first half of 2021. If the trials proceed as planned, Chinook anticipates reporting data from initial cohorts of the phase 2 basket trial during 2022, and data for the primary proteinuria endpoint in the ALIGN trial in 2023. Chinook is also interested in continuing to explore atrasentan in diabetic kidney disease, potentially combined with SGLT2 inhibitors, such as canagliflozin, which was recently approved for the treatment of diabetic kidney disease.

Chinook’s second clinical product candidate is CHK-336, which it is developing for the treatment of an ultra-orphan kidney disease. CHK-336 is a small molecule currently in preclinical studies, and Chinook plans to submit an IND in 2021. Chinook plans to disclose the target and lead proposed indication for CHK-336 later in 2020. Chinook believes clinical proof of concept for CHK-336 can be achieved efficiently in small studies using a surrogate urinary biomarker as a primary efficacy endpoint, and that there also may be potential for an expedited registration pathway for the program, if the initial clinical trials are successful. Beyond CHK-336, Chinook has active research and discovery efforts focused on other rare, severe kidney diseases, including autosomal dominant polycystic kidney disease, or ADPKD. Chinook’s strategy in ADPKD, which is reflective of Chinook’s overall precision medicine research approach, focuses on target validation of the most promising molecular pathways that have recently been identified as key disease drivers of ADPKD in collaboration with key scientific advisors with expertise across disease mechanisms, technology platforms, animal models and translational medicine. In addition, Chinook plans to continue to explore additional research opportunities for drug discovery programs across kidney disease indications with high unmet medical need and aligned with Chinook’s guiding precision medicine principles.

Aspire Merger Sub, Inc.

740 Heinz Avenue

Berkeley, California 94710

Telephone: (510) 848-4400

Merger Sub is a direct, wholly owned subsidiary of Aduro and was formed solely for the purpose of carrying out the merger.

The Merger (see page 85)

If the merger is completed Merger Sub will merge with and into Chinook, with Chinook surviving as a wholly owned subsidiary of Aduro.

At the effective time, except for shares to be canceled pursuant to the Merger Agreement and dissenting shares, each outstanding share of Chinook common stock or Chinook preferred stock will be automatically converted solely into the right to receive a number of shares of Aduro common stock equal to the exchange ratio. The exchange ratio is calculated using a formula intended to allocate existing Aduro and Chinook securityholders a percentage of the combined company. Based on Aduro’s and Chinook’s capitalization as of July 31, 2020, the exchange ratio is estimated to be equal to approximately 1.47 shares of Aduro common stock. This estimate is subject to adjustment prior to closing of the merger for net cash at the cash determination time and as a result, Aduro securityholders could own more, and Chinook securityholders could own less, or vice versa, of the combined company.

In connection with the merger, each outstanding and unexercised option to purchase shares of Chinook common stock that is outstanding and unexercised immediately prior to the effective time of the merger and that, following assumption by Aduro at the effective time, will be eligible to be registered on Form S-8, whether or not vested, will be converted into an option to purchase shares of Aduro common stock. Any such assumed Chinook stock option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect



 

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any stock split or similar transaction with respect to shares of Aduro common stock. Any restriction on the exercise, and any provision providing for the acceleration of vesting and/or exercisability, of any Chinook stock option assumed by Aduro will continue in full force and effect and the term, exercisability, vesting schedule, acceleration rights and other provisions of such Chinook stock option will otherwise remain unchanged.

Each share of Aduro common stock issued and outstanding at the time of the merger will remain issued and outstanding and such shares will be appropriately adjusted to reflect the proposed reverse stock split. In addition, each option to purchase shares of Aduro common stock and each Aduro restricted stock unit that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, will survive the closing and remain outstanding in accordance with its terms. The number of shares of Aduro common stock underlying such options and restricted stock units, or RSUs, and the exercise prices for such stock options will be appropriately adjusted to reflect the proposed reverse stock split.

For a more complete description of the merger and the exchange ratio please see the section titled “The Merger Agreement” in this proxy statement/prospectus.

The merger will be completed as promptly as practicable after all of the conditions to completion of the merger are satisfied or waived, including the adoption of the Merger Agreement by the Chinook stockholders and the approval by the Aduro stockholders of the issuance of Aduro common stock and the change of control resulting from the merger. Aduro and Chinook are working to complete the merger as quickly as practicable. The merger is anticipated to close in the fourth quarter of 2020, after the Aduro special meeting. However, Aduro and Chinook cannot predict the exact timing of the completion of the merger because it is subject to the satisfaction of various conditions. After completion of the merger, assuming that Aduro receives the required stockholder approval, Aduro will be renamed “Chinook Therapeutics, Inc.”

Reasons for the Merger (see pages 93 and 96)

After consideration and consultation with its senior management and its financial and legal advisors, at a meeting held on June 1, 2020, the Aduro board of directors unanimously (i) determined that the Merger Agreement, the merger, and other transactions contemplated therein, are advisable and in the best interests of Aduro and its stockholders, (ii) approved the Merger Agreement, the merger and the transactions contemplated thereby in accordance with the General Corporation Law of the State of Delaware, or the DGCL, (iii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby and (iv) resolved to recommend that the Aduro stockholders vote to approve the issuance of shares of Aduro common stock in the merger. For more information regarding the factors considered by the Aduro board of directors in reaching its decision to approve the Merger Agreement, the merger and the transactions contemplated thereby, see “The Merger—Aduro Reasons for the Merger” beginning on page 93 of this proxy statement/prospectus.

The Chinook board of directors has unanimously approved the Merger Agreement, the merger and the transactions contemplated thereby. The Chinook board of directors reviewed several factors in reaching its decision and believes that the Merger Agreement, the merger and the transactions contemplated thereby are in the best interests of, and fair to, Chinook and its stockholders. For additional information, please see the section titled “The Merger—Chinook Reasons for the Merger” beginning on page 96 of this proxy statement/prospectus.

Opinion of Aduros Financial Advisor (see page 98)

On June 3, 2019, Aduro retained SVB Leerink LLC, or SVB Leerink, as its financial advisor in connection with the merger and the other transactions contemplated by the Merger Agreement. The Aduro board selected SVB Leerink to act as Aduro’s financial advisor based on SVB Leerink’s qualifications, reputation, experience



 

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and expertise in the biopharmaceuticals industry, its knowledge of and involvement in recent transactions in the biopharmaceutical industry, and its relationship and familiarity with Aduro and its business. SVB Leerink is an internationally recognized investment banking firm that has substantial experience in transactions similar to this transaction. In connection with this engagement, Aduro’s board of directors requested that SVB Leerink evaluate the fairness, from a financial point of view, to Aduro of the exchange ratio to be paid by Aduro for the conversion of shares of Chinook capital stock into Aduro common stock pursuant to the terms of the Merger Agreement. On June 1, 2020, at a meeting of Aduro’s board of directors, SVB Leerink rendered to the Aduro board its oral opinion, which was subsequently confirmed by delivery of a written opinion dated June 1, 2020, that, as of such date and based upon and subject to the various assumptions, qualifications and limitations upon the review undertaken by SVB Leerink in preparing its opinion, the exchange ratio to be paid by Aduro pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Aduro.

SVB Leerink’s financial advisory services and opinion were provided for the information and assistance of the members of the Aduro board (in their capacity as directors and not in any other capacity) in connection with and for purposes of the Aduro board’s consideration of the merger and the other transactions contemplated by the Merger Agreement and SVB Leerink’s opinion addressed only the fairness, from a financial point of view, as of the date thereof, to Aduro of the exchange ratio to be paid by Aduro pursuant to the terms of the Merger Agreement. SVB Leerink’s opinion did not address the fairness of the closing dividend to holders of record of Aduro common stock prior to the effective time of the merger, of CVRs pursuant to the terms of the CVR Agreement or any other term or aspect of the merger, the Merger Agreement or the transactions contemplated thereby and does not constitute a recommendation to any stockholder of Aduro as to whether or how such holder should vote with respect to the merger or otherwise act with respect to the merger or the other transactions contemplated by the Merger Agreement or any other matter. SVB Leerink has provided its written consent to the reproduction of its opinion in this proxy statement/prospectus, as more fully described below under the section titled “The Merger—Opinion of Aduros Financial Advisor” beginning on page 98 of this proxy statement/prospectus.

The full text of SVB Leerink’s written opinion, dated June 1, 2020, which describes the assumptions, qualifications and limitations upon the review undertaken by SVB Leerink in preparing its opinion, is attached hereto as Annex C and is incorporated herein by reference. Aduro’s stockholders should read the opinion carefully in its entirety.

Interests of Certain Directors, Officers and Affiliates of Aduro and Chinook (see pages 107 and 112)

In considering the recommendation of the Aduro board of directors with respect to issuing shares of Aduro common stock in the merger and the other matters to be acted upon by the Aduro stockholders at the Aduro special meeting, Aduro stockholders should be aware that Aduro’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of Aduro’s stockholders generally. Interests of the directors and executive officers may be different from or in addition to the interests of the stockholders for the following reasons, among others:

 

   

Certain current members of the Aduro board of directors will continue as directors of the combined company after the effective time of the merger, and, following the closing of the merger, will be eligible to be compensated as non-employee directors of Chinook pursuant to the Aduro non-employee director compensation policy following the effective time of the merger.

 

   

Under the Merger Agreement, Aduro’s directors and executive officers are entitled to continued indemnification, expense advancement and insurance coverage.

 

   

In connection with the merger, Aduro’s non-employee director compensation policy was amended to provide that the closing of the merger will constitute a change in control for purposes of the policy,



 

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such that each initial and annual stock option granted to Aduro’s non-employee directors will vest in full upon the closing of the merger, subject to an additional exercise period under certain circumstances.

 

   

In connection with the merger, the employment agreement of Stephen T. Isaacs, Aduro’s President and Chief Executive Officer and a member of the Aduro board of directors, was amended to provide that in the event of a qualifying termination of Mr. Isaacs’ employment between the signing of the Merger Agreement and the closing of the merger, then in addition to the payments, benefits and conditions described below, all of Mr. Isaacs’ then-unvested equity awards will vest in full upon his termination date, contingent on the closing of the merger and subject to certain limitations. Also, all vested Aduro stock options held by Mr. Isaacs will remain exercisable for an additional period of time.

 

   

In connection with the merger, Aduro and Blaine Templeman, Aduro’s Chief Administrative Officer and Chief Legal Officer, entered into a letter agreement where in the event of Mr. Templeman’s separation from service, Mr. Templeman’s then-outstanding Aduro stock options will remain exercisable for an additional period of time.

 

   

Certain executive officers of Aduro are eligible to receive payments and benefits under a severance plan in the event of a qualifying termination in connection with the merger.

 

   

Aduro also entered into retention bonus agreements with its executive officers.

These interests are discussed in more detail in the section titled “The Merger—Interests of Aduro Directors and Executive Officers in the Merger” beginning on page 107 of this proxy statement/prospectus. The members of Aduro’s board of directors were aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the merger, and in recommending to the stockholders that the merger proposal be approved.

Certain of Aduro’s executive officers and each of Aduro’s directors has also entered into a support agreement and a lock-up agreement in connection with the merger. For a more detailed discussion of the support agreements and lock-up agreements, please see the sections titled “Agreements Related to the Merger—Support Agreements” and “Agreements Related to the Merger—Lock-Up Agreements” beginning on page 144 and page 145, respectively, of this proxy statement/prospectus.

In considering the recommendation of the Chinook board of directors with respect to approving the merger and related transactions, Chinook stockholders should be aware that certain members of the Chinook board of directors and certain executive officers of Chinook have interests in the merger that may be different from, or in addition to, interests they have as Chinook stockholders. For example, Chinook’s executive officers have options, subject to vesting, to purchase shares of Chinook common stock, which will convert into options to purchase a number of shares of Aduro common stock determined by the exchange ratio, rounding any resulting fractional shares down to the nearest whole share, certain of Chinook’s directors and executive officers are expected to become directors and executive officers of the combined company upon the closing and all of Chinook’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement. These interests are discussed in more detail in the section titled “The Merger—Interests of Chinook Directors and Executive Officers in the Merger.”



 

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Management Following the Merger (see page 221)

Effective as of the closing of the merger, the combined company’s executive officers are expected to be members of the Chinook executive management team prior to the merger, including:

 

Name

  

Title

Eric Dobmeier

  

President and Chief Executive Officer

Tom Frohlich

  

Chief Business Officer

Alan Glicklich

  

Chief Medical Officer

Andrew King

  

Head of Renal Discovery and Translational Medicine

Overview of the Merger Agreement and Agreements Related to the Merger Agreement

Merger Consideration (see page 121)

At the effective time of the merger, upon the terms and subject to the conditions set forth in the Merger Agreement each outstanding share of Chinook common stock or Chinook preferred stock (excluding shares to be canceled pursuant to the Merger Agreement and excluding dissenting shares) will be automatically converted solely into the right to receive a number of shares of Aduro common stock equal to the exchange ratio described in more detail below.

Immediately after the merger, Aduro securityholders as of immediately prior to the merger are expected to own approximately 40% of the outstanding shares of Aduro common stock on a fully-diluted basis, subject to certain assumptions, including, but not limited to, Aduro’s net cash as of closing being equal to $145 million and Chinook’s cash and cash equivalents as of closing being equal to $10 million, without giving effect to the Chinook pre-closing financing. For information on the impact of the Chinook pre-closing financing, please see the section titled “Agreements Related to the Merger—Subscription Agreements” beginning on page 153 of this proxy statement/prospectus.

Treatment of Chinook Options (see page 124)

Under the terms of the Merger Agreement, each option to purchase shares of Chinook common stock that is outstanding and unexercised immediately prior to the effective time of the merger under Chinook’s 2019 Equity Incentive Plan and that, following assumption by Aduro at the effective time, will be eligible to be registered on Form S-8, whether or not vested, will be converted into an option to purchase shares of Aduro common stock. Accordingly, from and after the effective time of the merger, each outstanding Chinook stock option assumed by Aduro may be exercised solely for shares of Aduro common stock.

The number of shares of Aduro common stock subject to each outstanding Chinook stock option assumed by Aduro will be determined by multiplying the number of shares of Chinook common stock that were subject to such Chinook stock option, as in effect immediately prior to the effective time of the merger, by the exchange ratio, and rounding the resulting number down to the nearest whole number of shares of Aduro common stock. The per share exercise price of Aduro common stock issuable upon exercise of each Chinook stock option assumed by Aduro will be determined by dividing the per share exercise price of Chinook common stock subject to such Chinook stock option, as in effect immediately prior to the effective time of the merger, by the exchange ratio and rounding the resulting exercise price up to the nearest one-hundredth of a cent. Any restriction on the exercise, and any provision providing for the acceleration of vesting and/or exercisability, of any Chinook stock option assumed by Aduro will continue in full force and effect and the term, exercisability, vesting schedule, acceleration rights and other provisions of such Chinook stock option will otherwise remain unchanged.



 

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However, to the extent provided under the terms of a Chinook stock option assumed by Aduro in accordance with the terms of the Merger Agreement, such Chinook stock option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction with respect to shares of Aduro common stock subsequent to the effective time of the merger. In addition, the Aduro board of directors or a committee thereof will succeed to the authority and responsibility of the Chinook board of directors or any committee thereof with respect to each Chinook option assumed by Aduro in accordance with the terms of the Merger Agreement. Furthermore, in the case of each Chinook option assumed by Aduro in accordance with the Merger Agreement that is subject to “double-trigger” accelerated vesting, for purposes of such double-trigger acceleration provisions a “Change of Control” (or term of similar import) of Chinook will refer to a “Change of Control” (or term of similar import) of Aduro following the effective time of the merger.

Treatment of Aduro Common Stock, Aduro Options and Aduro Restricted Stock Units (see page 125)

Each share of Aduro common stock issued and outstanding at the time of the merger will remain issued and outstanding, and subject to the proposed reverse stock split, will be unaffected by the merger. In addition, each option to purchase shares of Aduro common stock and each Aduro RSU that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, will survive the closing and remain outstanding in accordance with its terms. The number of shares of Aduro common stock underlying such options and RSUs and the exercise prices for such stock options will be appropriately adjusted to reflect the proposed reverse stock split.

Conditions to the Completion of the Merger (see page 137)

To complete the merger, Aduro stockholders must approve Proposal No. 1 and Chinook stockholders must adopt the Merger Agreement and approve the merger and the additional transactions contemplated thereby. Additionally, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

Non-Solicitation (see page 131)

The Merger Agreement contains provisions prohibiting Aduro and Chinook from inquiring about or seeking a competing transaction, subject to specified exceptions described in the Merger Agreement (including exceptions for non-renal assets). Under these “non-solicitation” provisions, each of Aduro and Chinook has agreed that neither it nor its subsidiaries, nor any of its directors, officers, employees, agents, attorneys, accountants, investment bankers, advisors or representatives, will directly or indirectly:

 

   

solicit, initiate or knowingly encourage, induce or facilitate the communication, making, submission or announcement of, any Acquisition Proposal (as defined in the section of this proxy statement/prospectus entitled “The Merger Agreement—Non-Solicitation”) or Acquisition Inquiry (as defined in the section of this proxy statement/prospectus entitled “The Merger Agreement—Non-Solicitation”);

 

   

furnish any non-public information with respect to it to any person in connection with or in response to an Acquisition Proposal or Acquisition Inquiry;

 

   

engage in discussions or negotiations with any person with respect to any Acquisition Proposal or Acquisition Inquiry;

 

   

approve, endorse or recommend an Acquisition Proposal; or

 

   

execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to an Acquisition Transaction.



 

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Board Recommendation Change (see page 133)

Subject to specified exceptions described in the Merger Agreement, Aduro agreed that its board of directors may not take any of the following actions, each of which are referred to in this proxy statement/prospectus as an Aduro board recommendation change:

 

   

withhold, amend, withdraw or modify (or publicly propose to withhold, amend, withdraw or modify) the recommendation of the Aduro board of directors in a manner adverse to Chinook;

 

   

resolve, or have any committee of the Aduro board of directors resolve, to withdraw or modify the recommendation of the Aduro board of directors in a manner adverse to Chinook; or

 

   

adopt, approve or recommend (or publicly propose to adopt, approve or recommend) any Acquisition Proposal.

Subject to specified exceptions described in the Merger Agreement, Chinook agreed that its board of directors may not take any of the following actions:

 

   

withhold, amend, withdraw or modify (or publicly propose to withhold, amend, withdraw or modify) the recommendation of the Chinook board of directors in a manner adverse to Aduro (referred to in this proxy statement/prospectus as a Chinook board recommendation change);

 

   

resolve, or have any committee of the Chinook board of directors resolve, to withdraw or modify the recommendation of the Chinook board of directors in a manner adverse to Aduro; or

 

   

adopt, approve or recommend (or publicly propose to adopt, approve or recommend) any Acquisition Proposal.

Termination of the Merger Agreement (see page 141)

Either Aduro or Chinook may terminate the Merger Agreement under certain circumstances, which would prevent the merger from being consummated.

Termination Fee (see page 142)

If the Merger Agreement is terminated under certain circumstances, Aduro or Chinook will be required to pay the other party a termination fee of $6.4 million and, in some circumstances, reimburse the other party for expenses incurred in connection with the merger, up to a maximum of $2.0 million.

Support Agreements (see page 144)

Certain Chinook stockholders are party to a support agreement with Aduro pursuant to which, among other things, each of these stockholders agreed, solely in his, her or its capacity as a Chinook stockholder, to vote all of his, her or its shares of Chinook capital stock in favor of (i) the adoption of the Merger Agreement and approval of the merger, (ii) the approval of the related transactions contemplated by the Merger Agreement, (iii) the conversion of Chinook preferred stock into shares of Chinook common stock and (iv) the approval of certain additional proposals in connection with the merger that the Chinook board of directors may recommend. These Chinook stockholders also agreed to vote against (i) any competing Acquisition Proposal (as defined in the section of this proxy statement/prospectus entitled “The Merger Agreement—Non-Solicitation”) and (ii) any action, proposal, agreement, transaction or proposed transaction that would reasonably be expected to materially impede, interfere with, delay, postpone, discourage or adversely affect the merger or any of the other transactions contemplated by the Merger Agreement, subject to certain specified exceptions.



 

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As of July 31, 2020, the Chinook stockholders that are party to a support agreement with Aduro owned an aggregate of 14,176,495 shares of Chinook common stock and 40,500,000 shares of Chinook preferred stock, representing approximately 98.0% of the outstanding shares of Chinook capital stock on an as converted to common stock basis. These stockholders include executive officers and directors of Chinook, as well as certain other stockholders owning a significant portion of the outstanding shares of Chinook capital stock. Following the effectiveness of the registration statement on Form S-4 of which this proxy statement/prospectus is a part and pursuant to the Merger Agreement, Chinook stockholders holding a sufficient number of shares of Chinook capital stock to adopt the Merger Agreement and approve the merger and related transactions will execute written consents providing for such adoption and approval.

Certain Aduro stockholders are party to a support agreement with Chinook pursuant to which, among other things, each such stockholder has agreed, solely in his, her or its capacity as an Aduro stockholder, to vote all of his, her or its shares of Aduro common stock in favor of (i) the approval of the Merger Agreement, (ii) the transactions contemplated thereby, including the issuance of Aduro common stock to Chinook stockholders, (iii) if deemed necessary, an amendment to the amended and restated certificate of incorporation of Aduro to effect the proposed reverse stock split, (iv) any proposal to adjourn or postpone the meeting to a later date, if there are not sufficient votes for the approval of the Merger Agreement and the transactions contemplated therein and (v) the approval of certain additional proposals in connection with the merger that the Aduro board of directors may recommend. These Aduro stockholders also agreed to vote against (i) any competing Acquisition Proposal (as defined in the section of this proxy statement/prospectus entitled “The Merger Agreement—Non-Solicitation”) with respect to Aduro and (ii) any action, proposal, agreement, transaction or proposed transaction that would reasonably be expected to materially impede, interfere with, delay, postpone, discourage or adversely affect the merger or any of the other transactions contemplated by the Merger Agreement, subject to certain specified exceptions.

As of July 31, 2020, the Aduro stockholders that are party to a support agreement owned an aggregate of 18,592,129 shares of Aduro common stock representing approximately 22.9% of the outstanding shares of Aduro common stock. These stockholders include certain executive officers and directors of Aduro and certain other Aduro stockholders holding a significant portion of the outstanding shares of Aduro common stock.

Lock-Up Agreements (see page 145)

Certain of Chinook’s executive officers, directors and stockholders have entered into lock-up agreements, pursuant to which such parties have agreed not to, except in limited circumstances, offer, pledge, sell, contract to sell, sell any option to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, any shares of Aduro’s common stock, including, as applicable, shares purchased by existing Chinook stockholders in the Chinook pre-closing financing, shares received in the merger and shares issuable upon exercise of options, warrants or convertible securities, until 180 days after the effective time of the merger.

The Chinook stockholders who have executed lock-up agreements as of July 31, 2020 owned, in the aggregate, approximately 98.0% of the shares of Chinook’s outstanding capital stock.

Certain of Aduro’s executive officers, directors and stockholders have entered into lock-up agreements, pursuant to which such stockholders have agreed not to, except in limited circumstances, offer, pledge, sell, contract to sell, sell any option to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, any Aduro securities or shares of Aduro common stock, including, as applicable, shares issuable upon exercise of certain options, warrants or convertible securities, until 180 days after the effective time of the merger.



 

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Aduro stockholders who have executed lock-up agreements as of July 31, 2020 owned, in the aggregate, approximately 22.9% of the shares of Aduro common stock.

Subscription Agreements (see page 153)

Immediately prior to the execution and delivery of the Merger Agreement, certain existing investors of Chinook entered into a note purchase agreement with Chinook, pursuant to which such investors agreed to purchase certain convertible promissory notes (representing an aggregate commitment of $25,000,000) in the Chinook note financing. Upon entry into the Subscription Agreements (as defined below), the Note Purchase Agreement was terminated.

In August 2020, Chinook entered into subscription agreements, or the Subscription Agreements, with certain investors, including EcoR1 Capital, OrbiMed, Fidelity Management & Research Company, LLC, funds managed by Rock Springs Capital, Avidity Partners, Surveyor Capital (a Citadel company), Ally Bridge Group, Monashee Investment Management LLC, Northleaf Capital Partners, Janus Henderson Investors, Sphera Biotech, and other top-tier healthcare investors, pursuant to which Chinook agreed to sell, and the investors party thereto agreed to purchase, $115 million of Chinook’s common stock. Also participating were existing investors of Chinook previously party to the Note Purchase Agreement. The merger is conditioned upon the closing of this Chinook pre-closing financing in an amount of at least $25 million. The shares of Chinook common stock that are issued in the Chinook pre-closing financing will be converted into shares of Aduro common stock in the merger.

The consummation of the Chinook pre-closing financing is subject to certain conditions, including the satisfaction or waiver of each of the conditions to the consummation of the merger set forth in the Merger Agreement (other than the condition regarding the Chinook pre-closing financing); the SEC having declared effective the registration statement of which this proxy statement/prospectus is a part; no stop order suspending the effectiveness of the registration statement of which this proxy statement/prospectus is a part having been issued and remain pending; and the shares to be issued in the merger to the investors in the Chinook pre-closing financing are included in the registration statement of which this proxy statement/prospectus forms a part.

Potentially Transferrable Asset Dispositions (see page 126)

Pursuant to the Merger Agreement, and subject to certain requirements and limitations therein, Aduro is entitled, but is under no obligation, to sell, transfer, license, assign or otherwise divest of certain of its assets, including its STING-cGAS pathway programs, which are partnered with Novartis and Lilly, respectively, CD-27 program, which is outlicensed to Merck, CTLA4 (ADU-1604), SIRPa (ADU-1805), PD-1 (ADU-1503), early research antibody programs and LADD program, in a transaction or series of transactions provided that no such disposition will include the sale, transfer, license, assignment, divestment or other disposition of any of Aduro’s intellectual property rights that are necessary or reasonably useful for the research, development or commercialization of Aduro’s BION-1301 program or will adversely affect Aduro’s, any of its subsidiaries’, or Chinook’s rights to exploit the BION-1301 program.

Contingent Value Rights Agreement (see page 146)

At or prior to the effective time, Aduro and Computershare Trust Company, N.A., as rights agent, will enter into the CVR Agreement. As provided in the Merger Agreement, Aduro shall declare a dividend to its common stockholders of record the right to receive one CVR for each outstanding share of Aduro common stock held by such stockholder as of such date, each representing the non-transferable contractual right to receive certain contingent payments from Aduro upon the occurrence of certain events within agreed time periods.



 

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Pursuant to the CVR Agreement, each CVR holder is entitled to certain contingent cash payments, which are payable by Aduro to the rights agent for subsequent distribution to the CVR holders, of proceeds actually received by Aduro or its affiliates after the end of each fiscal quarter of Aduro following the first anniversary of the closing of the merger, subject to certain adjustments. These proceeds consist of consideration paid to or received by Aduro or any of its affiliates during the period beginning immediately following the effective time and ending on the tenth anniversary of the closing date (a) in respect of the disposition of Aduro’s non-renal assets as described in “The Merger Agreement—Potential Asset Sale” beginning on page 126 of this proxy statement/prospectus or (b)(i) in respect of certain other pre-identified assets or (ii) resulting from (A) the ownership of equity securities in any subsidiary established by Aduro to hold any right, title or interest in or to any of the non-renal assets described in clause (a) period beginning on the execution date of the Merger Agreement and ending six months after the closing of the merger or (B) the subsequent disposition of any such equity securities (regardless of whether such disposition occurs in such period). Such proceeds are subject to certain permitted deductions, including for applicable tax payments, certain reasonable and documented out-of-pocket costs and expenses incurred by Aduro or its affiliates, losses incurred or reasonably expected to be incurred by Aduro or its affiliates due to a third party proceeding in connection with a disposition and certain wind-down costs.

CVR holders will be entitled to a percentage of the proceeds less the permitted deductions described above based on the timing of the disposition from which such proceeds result. Such percentage, however, will be 100% for any proceeds from a disposition of equity securities of a type described in clause (B) of the preceding paragraph, regardless of when any such disposition is consummated. Additionally, Aduro may, in its reasonable discretion as resolved by the Aduro board of directors, withhold up to 10% of any payment payable to CVR holders pursuant to the CVR Agreement, provided that any such withheld proceeds will be distributed (net of any permitted deductions satisfied therefrom) to the CVR holders no later than three years following the date such proceeds would otherwise have been distributed to the CVR holders.

The CVRs may not be transferred, pledged, hypothecated, encumbered, assigned or otherwise disposed of (whether by sale, merger, consolidation, liquidation, dissolution, dividend, distribution or otherwise), in whole or in part, subject to certain limited exceptions.

The CVRs will not be evidenced by a certificate or any other instrument. The CVRs will not have any voting or dividend rights, and interest will not accrue on any amounts payable in respect of the CVRs. The CVRs will not represent any equity or ownership interest in Aduro, any constituent company to the merger, or any of its respective affiliates.

Material U.S. Federal Income Tax Consequences of the Merger (see page 115)

As discussed in detail in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger,” Aduro and Chinook intend the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In general, and subject to the qualifications and limitations set forth in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger,” if the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, the material U.S. federal income tax consequences to a U.S. holder of Chinook capital stock will be as follows:

 

   

such Chinook stockholder will not recognize gain or loss upon the exchange of Chinook capital stock for Aduro common stock pursuant to the merger;

 

   

such Chinook stockholder’s aggregate tax basis for the shares of Aduro common stock received in the merger will equal the stockholder’s aggregate tax basis in the shares of Chinook capital stock surrendered in the merger; and



 

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the holding period of the shares of Aduro common stock received by such Chinook stockholder in the merger will include the holding period of the shares of Chinook capital stock surrendered in exchange therefor.

If the merger does not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, then each U.S. holder of Chinook capital stock would recognize gain or loss on the exchange of Chinook shares for Aduro common stock in the merger equal to the difference between such Chinook stockholder’s adjusted tax basis in the shares of Chinook capital stock surrendered and the fair market value of the shares of Aduro common stock received in exchange therefor. Determining the actual tax consequences of the merger to you may be complex and will depend on the facts of your own situation. You should consult your tax advisors to fully understand the tax consequences to you of the merger, including estate, gift, state, local or non-U.S. tax consequences of the merger.

Nasdaq Stock Market Listing (see page 117)

Aduro has filed an initial listing application for the combined company common stock with Nasdaq. If such application is accepted, Aduro anticipates that the common stock of the combined company will be listed on Nasdaq following the closing of the merger under the trading symbol “KDNY.”

Anticipated Accounting Treatment (see page 117)

The merger is expected to be treated by Aduro as a reverse merger and will be accounted for as a business combination in accordance with U.S. GAAP. For accounting purposes, Chinook is considered to be acquiring the assets and liabilities of Aduro in this transaction based on the terms of the Merger Agreement and other factors, including: (i) Chinook’s largest shareholder will retain the largest interest in the combined company; (ii) Chinook will designate a majority (five of seven) of the initial members of the board of directors of the combined company; (iii) Chinook’s executive management team will become the management of the combined company; and (iv) the combined company will be named Chinook Therapeutics, Inc. and be headquartered in Seattle, Washington. See “Unaudited Pro Forma Condensed Combined Financial Statements” included elsewhere in this proxy statement/prospectus for additional information.

Appraisal Rights and Dissenters Rights (see page 118)

Holders of Aduro common stock are not entitled to appraisal rights in connection with the merger under Delaware law. Holders of Chinook capital stock are entitled to appraisal rights in connection with the merger under Delaware law.

Comparison of Stockholder Rights (see page 230)

Both Aduro and Chinook are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Chinook stockholders will become Aduro stockholders, and their rights will be governed by the DGCL, the amended and restated bylaws of Aduro and the amended and restated certificate of incorporation of Aduro, as may be further amended by Proposal No. 2 if approved by the Aduro stockholders at the Aduro special meeting. The rights of Aduro stockholders contained in the amended and restated certificate of incorporation, as amended, and amended and restated bylaws, as amended, of Aduro differ from the rights of Chinook stockholders under the amended and restated certificate of incorporation and amended and restated bylaws of Chinook, as more fully described under the section titled “Comparison of Rights of Holders of Aduro Capital Stock and Chinook Capital Stock” beginning on page 230 of this proxy statement/prospectus.



 

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Risk Factors (see page 22)

Both Aduro and Chinook are subject to various risks associated with their businesses and their industries. In addition, the merger, including the possibility that the merger may not be completed, poses a number of risks to each company and its respective securityholders, including the following risks:

 

   

The exchange ratio will not be adjusted based on the market price of Aduro common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed;

 

   

Failure to complete the merger may result in Aduro or Chinook paying a termination fee to the other party which could harm the common stock price of Aduro and the future business and operations of each company;

 

   

If the conditions to the merger are not satisfied or waived, the merger may not occur;

 

   

Aduro stockholders may not receive any payment on the CVRs, and the CVRs may expire valueless;

 

   

The merger may be completed even though material adverse effects may result from the announcement of the merger, industry-wide changes and other causes;

 

   

Some Aduro and Chinook executive officers and directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests;

 

   

The market price of the combined company’s common stock following the merger may decline as a result of the merger;

 

   

Aduro’s stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger, including the conversion of Chinook common stock issued in the Chinook pre-closing financing; and

 

   

If the merger is not completed, Aduro’s stock price may decline significantly.

These risks and other risks are discussed in greater detail under the section titled “Risk Factors” beginning on page 22 of this proxy statement/prospectus. Aduro and Chinook both encourage you to read and consider all of these risks carefully.



 

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA

COMBINED FINANCIAL INFORMATION AND DATA

The following tables present summary historical financial data for Aduro and Chinook, summary unaudited pro forma condensed combined financial data for Aduro and Chinook, and comparative historical and unaudited pro forma per share data for Aduro and Chinook.

Selected Historical Consolidated Financial Data of Aduro

The selected consolidated statements of operations data for the years ended December 31, 2019, 2018, 2017, 2016 and 2015 and the selected consolidated balance sheet data as of December 31, 2019 and 2018 are derived from Aduro’s audited consolidated financial statements and the selected consolidated statements of operations data for the six months ended June 30, 2020 and 2019 and the selected consolidated balance sheet dated as of June 30, 2020 are derived from Aduro’s unaudited condensed consolidated financial statements. Aduro’s audited historical consolidated financial statements for the fiscal years ended December 31, 2019, 2018 and 2017 are contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and unaudited condensed historical consolidated financial statements for the six months ended June 30, 2020 and 2019 are contained in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which are incorporated by reference into this proxy statement/prospectus. Aduro’s audited historical consolidated financial statements for the fiscal years ended December 31, 2016 and 2015 have been derived from Aduro’s audited consolidated financial statements that are not incorporated by reference into this proxy statement/prospectus. Aduro’s historical results are not necessarily indicative of the results that may be expected in any future period and the results for the six months ended June 30, 2020 are not necessarily indicative of results to be expected for the full year ending December 31, 2020 or any other period.



 

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The selected historical consolidated financial data below should be read in conjunction with Aduro’s management’s discussion and analysis of financial condition and results of operations and Aduro’s consolidated financial statements and the notes related thereto incorporated by reference into this proxy statement/prospectus. For additional information, see the section titled “Where You Can Find More Information” beginning on page 243 of this proxy statement/prospectus.

 

    Year Ended December 31,     Six Months Ended,
June 30,
 
    2019     2018     2017     2016     2015     2020     2019  
                                  (unaudited)  
    (in thousands of U.S. dollars except share and per share data)  

Consolidated Statements of Operations Data:

             

Revenue

  $ 17,258     $ 15,087     $ 17,239     $ 50,681     $ 72,979     $ 19,524     $ 8,826  

Operating expenses:

             

Research and development

    64,351       75,836       89,382       87,718       58,649       26,936       34,151  

General and administrative

    33,482       36,035       33,751       34,277       27,805       17,103       16,056  

Loss on impairment of intangible assets

    5,006       3,992       —         —         —         —         —    

Restructuring and related expense(1)

    4,007       —         —         —         —         6,354       3,361  

Amortization of intangible assets

    554       584       559       549       89       272       279  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    107,400       116,447       123,692       122,544       86,543       50,665       53,847  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (90,142     (101,360     (106,453     (71,863     (13,564     (31,141     (45,021

Interest income, net

    5,451       5,284       3,444       2,219       494       1,333       2,968  

Other expense, net

    (93     (64     (218     (40     (161     (47     (22

Loss before income tax

    (84,784     (96,140     (103,227     (69,684     (39,308     (29,855     (42,075

Income tax benefit

    2,412       783       11,364       (21,464     00       5,665       70  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (82,372     (95,357     (91,863     (91,148     (39,209   $ (24,190   $ (42,005
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

    (1.03     (1.21     (1.26     (1.40     (0.88   $ (0.30   $ (0.53
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computing net loss per common share, basic and diluted

    80,110,711       78,812,407       72,901,215       65,200,762       44,706,393       80,810,211       79,847,960  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    December 31,     June 30,  
    2019     2018     2017     2016     2015     2020     2019  
    (in thousands)  

Consolidated Balance Sheets Data:

             

Cash and cash equivalents

  $ 59,624     $ 126,310     $ 157,614     $ 74,932     $ 150,456     $ 71,103     $ 79,561  

Working capital(2)

    196,301       252,459       308,730       324,132       393,438       160,677       226,370  

Total assets

    291,313       357,504       445,128       438,611       481,825       265,383       337,990  

Accumulated deficit

    (486,904     (404,532     (283,863     (192,000     (100,852     (511,094     (446,537

Total stockholders’ equity (deficit)

    65,595       135,311       237,473       227,220       261,622       46,616       101,050  

 

(1)

For the twelve months ended December 31, 2019 and the six months ended June 30, 2019, the Company reclassified $4.0 million and $3.4 million, respectively, of restructuring and related expense associated with the January 2019 strategic reset from research and development and general and administrative to restructuring and related expense to be consistent with the presentation of the 2020 financial statements.

(2)

Aduro defines working capital as current assets less current liabilities.



 

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Selected Historical Consolidated Financial Data of Chinook

The selected consolidated statements of operations data for the year ended December 31, 2019 and the period from November 1, 2018 (inception) to December 31, 2018 and the selected consolidated balance sheet data as of December 31, 2019 and 2018 are derived from Chinook’s audited consolidated financial statements included elsewhere in this proxy statement/prospectus. The selected consolidated statements of operations data for the six months ended June 30, 2020 and 2019 and the selected consolidated balance sheet data as of June 30, 2020 are derived from Chinook’s unaudited interim condensed consolidated financial statements included elsewhere in this proxy statement/prospectus. Chinook’s unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles on the same basis as its audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, necessary for the fair statement of those unaudited interim condensed consolidated financial statements. Chinook’s historical results are not necessarily indicative of the results that may be expected in any future period and the results for the six months ended June 30, 2020 are not necessarily indicative of results to be expected for the full year ending December 31, 2020 or any other period.

The selected historical consolidated financial data below should be read in conjunction with the sections titled “Chinook Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors—Risks Related to Chinook’s Financial Position” and Chinook’s consolidated financial statements and related notes included elsewhere in this proxy statement/prospectus.

 

     Year Ended
December 31,
    Period from
November 1,
2018 (inception) to
December 31,
    Six Months Ended
June 30,
 
     2019     2018     2020     2019  
           (Unaudited)  
     (in thousands, except share and per share amounts)  

Consolidated Statements of Operations Data:

        

Operating expenses:

        

Research and development

   $ 17,010     $ 534     $ 6,688     $ 5,403  

General and administrative

     2,956       134       5,150       1,404  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     19,966       668       11,838       6,807  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (19,966     (668     (11,838     (6,807

Interest expense-related party

     (33     (3     (10     (18

Other income (expense), net

     299       (17     125       136  

Change in fair value of redeemable convertible preferred stock tranche liability

     (26,819     —         (1,169     1,052  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (46,519   $ (688   $ (12,892   $ (5,637
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share attributable to common stockholders, basic and diluted

   $ (7.44   $ (0.56   $ (0.91   $ (1.09
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net loss per common share

     6,248,436       1,229,508       14,126,480       5,148,029  
  

 

 

   

 

 

   

 

 

   

 

 

 


 

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     As of December 31,     As of
June 30,
 
     2019     2018     2020  
                 (Unaudited)  
     (in thousands)  

Consolidated Balance Sheet Data:

      

Cash and cash equivalents

   $ 11,203     $ —       $ 17,901  

Working capital(1)

     10,104       (768     12,984  

Total assets

     15,722       268       22,052  

Redeemable convertible preferred stock tranche liability

     32,733       —         24,179  

Redeemable convertible preferred stock

     19,835       —         44,037  

Accumulated deficit

     (47,207     (688     (60,099

Total stockholders’ deficit

     (41,119     (681     (53,777

 

(1)

Chinook defines working capital as current assets less current liabilities.



 

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Selected Unaudited Pro Forma Combined Financial Data of Aduro and Chinook

 

     Year Ended
December 31,
2019
     Six Months
Ended June 30,
2020
 
     (Unaudited)      (Unaudited)  
     (in thousands except per share amount)  

Unaudited Pro Forma

     

Combined Statement of Operations Data:

     

Revenue:

     

Collaboration and license revenue

   $ 17,258      $ 19,524  
  

 

 

    

 

 

 

Operating expenses:

     

Research and development

     84,055        33,624  

General and administrative

     37,751        15,747  

Loss on impairment of intangible assets / restructuring charges

     5,006        6,354  

Amortization of intangible assets

     554        272  
  

 

 

    

 

 

 

Total operating expenses

     127,366        55,997  
  

 

 

    

 

 

 

Loss from operations

     (110,108      (36,473
  

 

 

    

 

 

 

Interest income

     5,418        1,323  

Other income, net

     206        78  

Income tax benefit

     2,412        5,665  
  

 

 

    

 

 

 

Net loss

   $ (102,072    $ (29,407
  

 

 

    

 

 

 

Basic and diluted net loss per share

   $ (0.49    $ (0.14
  

 

 

    

 

 

 

 

     As of June 30,
2020
 
    

(Unaudited)

(in thousands)

 

Unaudited Pro Forma Combined Balance Sheet Data:

  

Cash and cash equivalents

   $ 198,604  

Short-term and long-term marketable securities

     115,023  

Working capital

     273,825  

Total assets

     395,480  

Total stockholders’ equity

     306,708  


 

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Comparative Historical and Unaudited Pro Forma Per Share Data

Unless otherwise indicated, the following information and all other information contained in this proxy statement/prospectus does not give effect to the proposed reverse stock split described in Proposal No. 2 of this proxy statement/prospectus.

The information below reflects the historical net loss and book value per share of Aduro common stock and the historical net loss and book value per share of Chinook common stock in comparison with the unaudited pro forma net loss book value per share after giving effect to the merger of Aduro with Chinook on a pro forma basis. You should read the tables below in conjunction with Aduro’s audited consolidated financial statements for the year ended December 31, 2019, Aduro’s unaudited condensed consolidated financial statements for the six months ended June 30, 2020, Chinook’s audited financial statements for the year ended December 31, 2019, Chinook’s unaudited financial statements for the six months ended June 30, 2020 and the unaudited pro forma condensed combined financial information and the notes related to such financial statements included elsewhere or incorporated by reference in this proxy statement/prospectus.

 

     Year Ended
December 31,
2019
     Six Months
Ended
June 30,
2020
 

Aduro Historical Per Common Share Data:

     

Basic and diluted net loss per share

   $ (1.03    $ (0.30

Book value per share

   $ 0.81      $ 0.58  

Chinook Historical Per Common Share Data:

     

Basic and diluted net loss per share

   $ (7.44    $ (0.91

Book value per share

   $ (2.67    $ (3.52

Combined Company Pro Forma Per Common Share Data:

     

Basic and diluted net loss per share

   $ (0.49    $ (0.14

Book value per share

     N/A      $ 1.45  

Chinook Pro Forma Equivalent Data:(1)

     

Basic and diluted net loss per share

   $ (0.72    $ (0.21

Book value per share

     N/A      $ 2.14  

 

(1)

The Chinook pro forma equivalent data was calculated by multiplying the combined company pro forma data by the assumed exchange ratio of 1.47.



 

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MARKET PRICE AND DIVIDEND INFORMATION

The closing price of Aduro common stock on June 1, 2020, the last trading day prior to the public announcement of the merger, was $3.37 per share and the closing price of Aduro common stock on August 25, 2020 was $3.02 per share, in each case as reported on Nasdaq.

Because the market price of Aduro common stock is subject to fluctuation, the market value of the shares of Aduro common stock that Chinook stockholders will be entitled to receive in the merger may increase or decrease.

Chinook is a private company and its shares of common stock and preferred stock are not publicly traded.

Dividends

Aduro has never declared or paid cash dividends on its capital stock and does not anticipate paying any cash dividends in the foreseeable future. Chinook has never paid or declared any cash dividends on its capital stock. Chinook intends to retain all available funds and any future earnings for use in the operation of its business and does not anticipate paying any cash dividends on its capital stock in the foreseeable future. Notwithstanding the foregoing, any determination to pay cash dividends subsequent to the merger will be at the discretion of the combined company’s board of directors and will depend upon a number of factors, including the combined company’s results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the combined company’s board of directors deems relevant.



 

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RISK FACTORS

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained or incorporated by reference in this proxy statement/prospectus, you should carefully consider the material risks described below before deciding how to vote your shares of Aduro common stock. You should also read and consider the other information in this proxy statement/prospectus and additional information about Aduro forth in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which are filed with the Securities and Exchange Commission, or the SEC, and incorporated by reference into this proxy statement/prospectus. Please see the section titled “Where You Can Find More Information” beginning on page 243 of this proxy statement/prospectus for further information regarding the documents incorporated by reference into this proxy statement/prospectus.

Risks Related to the Merger

The exchange ratio will not be adjusted based on the market price of Aduro common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.

At the effective time of the merger, outstanding shares of Chinook capital stock will be converted into shares of Aduro common stock. Applying the exchange ratio, the former Chinook securityholders immediately before the merger, excluding shares purchased in the Chinook pre-closing financing, are expected to own approximately 40% of the aggregate number of shares of Aduro common stock following the merger on a fully-diluted basis, shares issued in the Chinook pre-closing financing are expected to be approximately 20% of the outstanding shares of Aduro common stock following the merger on a fully-diluted basis and Aduro securityholders immediately before the merger are expected to own approximately 40% of the aggregate number of shares of Aduro common stock following the merger on a fully-diluted basis, subject to certain assumptions, including, but not limited to, (a) Aduro’s net cash as of closing being equal to $145 million and (b) Chinook’s cash and cash equivalents as of closing being equal to $10 million, without giving effect to the Chinook pre-closing financing.

Any changes in the market price of Aduro stock before the completion of the merger will not affect the number of shares Chinook stockholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the merger, the market price of Aduro common stock increases from the market price on the date of the Merger Agreement, then Chinook stockholders could receive merger consideration with substantially more value for their shares of Chinook capital stock than the parties had negotiated when they established the exchange ratio. Similarly, if before the completion of the merger the market price of Aduro common stock declines from the market price on the date of the Merger Agreement, then Chinook stockholders could receive merger consideration with substantially lower value. The Merger Agreement does not include a price-based termination right.

Failure to complete the merger may result in either Aduro or Chinook paying a termination fee to the other party, which could harm the common stock price of Aduro and future business and operations of each company.

If the merger is not completed, Aduro and Chinook are subject to the following risks:

 

   

if the Merger Agreement is terminated under specified circumstances, Aduro or Chinook will be required to pay the other party a termination fee of $6,400,000 and up to $2,000,000 in expense reimbursements;

 

   

the price of Aduro common stock may decline and could fluctuate significantly; and

 

   

costs related to the merger, such as financial advisor, legal and accounting fees, which Aduro estimates will total approximately $2,000,000, $3,000,000, and $250,000, respectively, a majority of which must be paid even if the merger is not completed.

 

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If the Merger Agreement is terminated and the board of directors of Aduro or Chinook determines to seek another business combination, there can be no assurance that either Aduro or Chinook will be able to find a partner with whom a business combination would yield greater benefits than the benefits to be provided under the Merger Agreement.

If the conditions to the merger are not satisfied or waived, the merger may not occur.

Even if the merger is approved by the stockholders of Chinook and the merger proposal is approved by the Aduro stockholders, specified conditions must be satisfied or waived to complete the merger. These conditions are set forth in the Merger Agreement and described in the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 137 of this proxy statement/prospectus. Aduro and Chinook cannot assure you that all of the conditions to the consummation of the merger will be satisfied or waived. If the conditions are not satisfied or waived, the merger may not occur or the closing may be delayed, and Aduro and Chinook each may lose some or all of the intended benefits of the merger.

The merger may be completed even though a material adverse effect may result from the announcement of the merger, industry-wide changes or other causes.

In general, neither Aduro nor Chinook is obligated to complete the merger if there is a material adverse effect affecting the other party between June 1, 2020, the date of the Merger Agreement, and the closing of the merger. However, certain types of changes are excluded from the concept of a “material adverse effect.” Such exclusions include but are not limited to changes in general economic or political conditions, industry wide changes, changes resulting from the announcement of the merger, natural disasters, pandemics (including the COVID-19 pandemic), other public health events and changes in GAAP. Therefore, if any of these events were to occur impacting Aduro or Chinook, the other party would still be obliged to consummate the closing of the merger. If any such adverse changes occur and Aduro and Chinook consummate the closing of the merger, the stock price of the combined company may suffer. This in turn may reduce the value of the merger to the stockholders of Aduro, Chinook or both. For a more complete discussion of what constitutes a material adverse effect on Aduro or Chinook, see the section titled “The Merger Agreement—Representations and Warranties” beginning on page 127 of this proxy statement/prospectus.

If Aduro and Chinook complete the merger, the combined company will need to raise additional capital by issuing equity securities or additional debt or through licensing arrangements, which may cause significant dilution to the combined company’s stockholders or restrict the combined company’s operations.

In August 2020, Chinook entered into Subscription Agreements with certain investors, including existing investors of Chinook, pursuant to which the investors agreed to purchase, in the aggregate, $115 million in shares of common stock of Chinook immediately prior to the closing of the merger, referred to as the Chinook pre-closing financing. The closing of the Chinook pre-closing financing is conditioned upon the satisfaction or waiver of the conditions to the closing of the merger as well as certain other conditions. The shares of Chinook common stock issued in the Chinook pre-closing financing will result in dilution to all securityholders of the combined company (i.e., both the pre-merger Aduro securityholders and former Chinook securityholders). The Chinook pre-closing financing is more fully described under the section titled “Agreements Related to the Merger—Subscription Agreements” beginning on page 153 of this proxy statement/prospectus.

Additional financing may not be available to the combined company when it is needed or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such financing will cause additional dilution to all securityholders of the combined company, including Aduro’s pre-merger securityholders and Chinook’s former securityholders. It is also possible that the terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined

 

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company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing arrangements, it may be necessary to grant licenses on terms that are not favorable to the combined company.

Some Aduro and Chinook directors and executive officers have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests.

Directors and executive officers of Aduro and Chinook may have interests in the merger that are different from, or in addition to, the interests of other Aduro stockholders generally. These interests with respect to Aduro’s directors and executive officers may include, among others, acceleration of stock option or restricted stock unit vesting, retention bonus payments, extension of exercisability periods of previously issued stock option grants, severance payments if employment is terminated in a qualifying termination in connection with the merger and rights to continued indemnification, expense advancement and insurance coverage. Certain current members of the Aduro board of directors will continue as directors of the combined company after the effective time of the merger, and, following the closing of the merger, will be eligible to be compensated as non-employee directors of the combined company pursuant to the Aduro non-employee director compensation policy that is expected to remain in place following the effective time of the merger. These interests with respect to Chinook’s directors and executive officers may include, among others, certain of Chinook’s directors and executive officers have options, subject to vesting, to purchase shares of Chinook common stock which, after the effective time of the merger, will be converted into and become options to purchase shares of the common stock of the combined company; Chinook’s executive officers are expected to continue as executive officers of the combined company after the effective time of the merger; and all of Chinook’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement. Further, certain current members of the Chinook’s board of directors will continue as directors of the combined company after the effective time of the merger, and, following the closing of the merger, will be eligible to be compensated as non-employee directors of the combined company pursuant to the Aduro non-employee director compensation policy that is expected to remain in place following the effective time of the merger. The directors and executive officers own options and/or RSUs to purchase the shares of their respective companies.

The Aduro and Chinook boards were aware of and considered those interests, among other matters, in reaching their decisions to approve and adopt the Merger Agreement, approve the merger, and recommend the approval of the Merger Agreement to Aduro and Chinook stockholders. These interests, among other factors, may have influenced the directors and executive officers of Aduro and Chinook to support or approve the merger.

For more information regarding the interests of Aduro and Chinook directors and executive officers in the merger, please see the sections titled “The Merger—Interests of Aduro Directors and Executive Officers in the Merger” beginning on page 107 and “The Merger—Interests of Chinook Directors and Executive Officers in the Merger” beginning on page 112 of this proxy statement/prospectus.

Aduro stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger, including the conversion of Chinook common stock issued in the Chinook pre-closing financing.

If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the merger, Aduro stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the merger. The shares of Chinook common stock issued in the Chinook pre-closing financing will result in dilution to all securityholders of the combined company (i.e., both the pre-merger Aduro securityholders and former Chinook securityholders).

 

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If the merger is not completed, Aduro’s stock price may decline significantly.

The market price of Aduro common stock is subject to significant fluctuations. During the 12-month period ended August 25, 2020, the closing sales price of Aduro’s common stock on Nasdaq ranged from a high of $4.04 on February 20, 2020 to a low of $0.90 on October 25, 2019. Market prices for securities of pharmaceutical, biotechnology and other life science companies have historically been particularly volatile. In addition, the market price of Aduro common stock will likely be volatile based on whether stockholders and other investors believe that Aduro can complete the merger or otherwise raise additional capital to support Aduro’s operations if the merger is not consummated and another strategic transaction cannot be identified, negotiated and consummated in a timely manner, if at all. The volatility of the market price of Aduro common stock is exacerbated by low trading volume. Additional factors that may cause the market price of Aduro common stock to fluctuate include:

 

   

the initiation of, material developments in, or conclusion of litigation to enforce or defend its intellectual property rights or defend against claims involving the intellectual property rights of others;

 

   

the entry into, or termination of, key agreements, including commercial partner agreements;

 

   

announcements by commercial partners or competitors of new commercial products, clinical progress or lack thereof, significant contracts, commercial relationships or capital commitments;

 

   

adverse publicity relating to the combined company’s product candidates, including with respect to other products and potential products in that market;

 

   

the introduction of technological innovations or new therapies that compete with its future products;

 

   

the loss of key employees;

 

   

future sales of its common stock;

 

   

general and industry-specific economic conditions that may affect its research and development expenditures;

 

   

the failure to meet industry analyst expectations; and

 

   

period-to-period fluctuations in financial results.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of Aduro common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against such companies.

Aduro and Chinook securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the completion of the merger as compared to their current ownership and voting interests in the respective companies.

After the completion of the merger, the current stockholders of Aduro and Chinook will own a smaller percentage of the combined company than their ownership of their respective companies prior to the merger. Immediately after the merger, Aduro securityholders as of immediately prior to the merger are expected to own approximately 40% of the outstanding shares of the combined company on a fully-diluted basis, former Chinook securityholders, excluding shares purchased in the Chinook pre-closing financing are expected to own approximately 40% of the outstanding shares of the combined company on a fully-diluted basis and shares issued in the Chinook pre-closing financing are expected to be approximately 20% of the outstanding shares of the combined company on a fully-diluted basis, subject to certain assumptions, including, but not limited to, (a) Aduro’s net cash as of closing being equal to $145 million and (b) Chinook’s cash and cash equivalents as of closing being equal to $10 million, without giving effect to the Chinook pre-closing financing. The Chief Executive Officer of Chinook will serve as the Chief Executive Officer of the combined company following the completion of the merger.

 

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During the pendency of the merger, Aduro and Chinook may not be able to enter into a business combination with another party on more favorable terms because of restrictions in the Merger Agreement, which could adversely affect their respective business prospects.

Covenants in the Merger Agreement impede the ability of Aduro and Chinook to make acquisitions during the pendency of the merger, subject to specified exceptions. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, proposing, seeking or knowingly encouraging, facilitating or supporting any inquiries, indications of interest, proposals or offers that constitute or may reasonably be expected to lead to certain transactions involving a third party, including a merger, sale of assets or other business combination, subject to specified exceptions. Any such transactions could be favorable to such party’s stockholders, but the parties may be unable to pursue them. For more information, see the section titled “The Merger Agreement—Non-Solicitation.”

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

The terms of the Merger Agreement prohibit each of Aduro and Chinook from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances as described in further detail in the sections titled “The Merger Agreement—Non-Solicitation—Aduro” and “The Merger Agreement—Non-Solicitation—Chinook.” In addition, if Aduro terminates the Merger Agreement under specified circumstances, either Aduro or Chinook would be required to pay the other party a termination fee of $6,400,000 and reimburse up to $2,000,000 of expenses. This termination fee may discourage third parties from submitting competing proposals to Aduro or its stockholders, and may cause the Aduro board of directors to be less inclined to recommend a competing proposal.

Because the lack of a public market for Chinook’s capital stock makes it difficult to evaluate the fair market value of Chinook’s capital stock, Aduro may pay more than the fair market value of Chinook’s capital stock and/or the stockholders of Chinook may receive consideration in the merger that is less than the fair market value of Chinook’s capital stock.

The outstanding capital stock of Chinook is privately held and is not traded in any public market. The lack of a public market makes it difficult to determine the fair market value of Chinook’s capital stock. Because the percentage of Aduro equity to be issued to Chinook stockholders was determined based on negotiations between the parties, it is possible that the value of the Aduro common stock to be received by Chinook stockholders will be less than the fair market value of Chinook’s capital stock, or Aduro may pay more than the aggregate fair market value for Chinook’s capital stock.

Aduro stockholders may not receive any payment on the CVRs, and the CVRs may expire valueless.

The right of Aduro stockholders to receive any future payment for or derive any value from the CVRs will be contingent solely upon the occurrence of the CVR Milestones within the time periods specified in the CVR Agreement and the consideration received being greater than the amounts permitted to be withheld or deducted by Aduro under the CVR Agreement. There is no guarantee that Aduro will be able to successfully partner or sell any of the non-renal assets related to the CVR Milestones or establish a viable entity to manage the development of these assets. In the event that no CVR Milestones occur within the time periods specified in the CVR Agreement or the consideration received is not greater than the amounts permitted to be withheld or deducted by Aduro, no payments will be made under the CVR Agreement, and the CVRs will expire valueless.

Following the effective time, subject to ongoing clinical trial obligations and obligations to use commercially reasonable efforts to complete dispositions for which a sale agreement has been entered into, neither Aduro nor Chinook will have any obligation to develop the non-renal assets, or to expend any effort or resources to divest or otherwise monetize the non-renal assets.

 

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Furthermore, the CVRs will be unsecured obligations of the combined company and all payments under the CVRs, all other obligations under the CVR Agreement and the CVRs and any rights or claims relating thereto may be subordinated in right of payment to the prior payment in full of all current or future senior obligations of the combined company.

The tax treatment of the CVRs is unclear.

The U.S. federal income tax treatment of the CVRs is unclear. There is no legal authority directly addressing the U.S. federal income tax treatment of the receipt of, and payments under, the CVRs, and there can be no assurance that the IRS would not assert, or that a court would not sustain, a position that could result in adverse U.S. federal income tax consequences to holders of the CVRs.

For example, as discussed in the section titled “Agreements Related to the Merger—Contingent Value Rights Agreement—Material U.S. Federal Income Tax Consequences of the CVRs of Holders of Aduro Common Stock,” Aduro does not intend to report the issuance of the CVRs as a current distribution of property with respect to its stock, but it is possible that the IRS could assert that Aduro stockholders are treated as having received a distribution of property equal to the fair market value of the CVRs on the date the CVRs are distributed, which could be taxable to Aduro stockholders without the corresponding receipt of cash. In addition, it is possible that the IRS or a court could determine that the issuance of the CVRs (and/or any payments thereon) and the reverse stock split constitute a single “recapitalization” for U.S. federal income tax purposes with the CVRs constituting taxable “boot” received in such recapitalization exchange. In such case, the tax consequences of the CVRs and the reverse stock split would differ from those described in this proxy statement/prospectus, including with respect to the timing and character of income.

Aduro’s ability to utilize its net operating loss carryforwards and tax credit carryforwards may be subject to limitations.

Aduro’s ability to use its federal and state net operating losses to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon Aduro’s generation of future taxable income before the expiration dates of the net operating losses, and Aduro cannot predict with certainty when, or whether, Aduro will generate sufficient taxable income to use all of its net operating losses. In addition, a corporation that undergoes an “ownership change” under Section 382 of the Code is subject to limitations on its ability to utilize its pre-change net operating loss carryforwards, or NOLs, to offset future taxable income and its ability to utilize tax credit carryforwards. As of December 31, 2019, Aduro reported U.S. federal, state and foreign NOLs of approximately $153.8 million, $107.8 million and $66.5 million, respectively.

Under Section 382 of the Code, Aduro’s ability to utilize NOLs or other tax attributes, such as federal tax credits, in any taxable year may be limited if it experienced an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period. Similar rules may apply under state tax laws. Aduro believes that it has experienced an ownership change in the past, and may experience ownership changes in the future and/or subsequent shifts in its stock ownership (some of which are outside of its control). Finally, the merger, if consummated, may constitute an ownership change (within the meaning of Section 382 of the Code) which could eliminate or otherwise substantially limit Aduro’s ability to use its federal and state NOLs. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, Aduro’s existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. As a result, even if Aduro attains profitability, it may be unable to use a material portion of its NOLs and other tax attributes, which could potentially result in increased future tax liability to Aduro.

 

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Risks Related to the Proposed Reverse Stock Split

The reverse stock split may not increase the combined company’s stock price over the long-term.

The principal purpose of the reverse stock split is to increase the per-share market price of Aduro’s common stock above the minimum bid price requirement under the Nasdaq rules so that the listing of Aduro and the shares of Aduro common stock being issued in the merger on Nasdaq will be approved. It cannot be assured, however, that the reverse stock split will accomplish this objective for any meaningful period of time. While it is expected that the reduction in the number of outstanding shares of common stock will proportionally increase the market price of Aduro’s common stock, it cannot be assured that the reverse stock split will increase the market price of its common stock by a multiple of the reverse stock split ratio mutually agreed by Aduro and Chinook, or result in any permanent or sustained increase in the market price of Aduro’s common stock, which is dependent upon many factors, including Aduro’s business and financial performance, general market conditions and prospects for future success. Thus, while the stock price of Aduro might meet the listing requirements for Nasdaq initially, it cannot be assured that it will continue to do so.

The reverse stock split may decrease the liquidity of the combined company’s common stock.

Although the Aduro board believes that the anticipated increase in the market price of the combined company’s common stock resulting from the proposed reverse stock split could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for the combined company’s common stock. In addition, the reverse stock split may not result in an increase in the combined company’s stock price necessary to satisfy Nasdaq’s initial listing requirements for the combined company.

The reverse stock split may lead to a decrease in the combined company’s overall market capitalization.

Should the market price of the combined company’s common stock decline after the reverse stock split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the reverse stock split. A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in the combined company’s overall market capitalization. If the per share market price does not increase in proportion to the reverse stock split ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of the combined company’s common stock will remain the same after the reverse stock split is effected, or that the reverse stock split will not have an adverse effect on the combined company’s stock price due to the reduced number of shares outstanding after the reverse stock split.

Risks Related to the Combined Company

In determining whether you should approve the issuance of shares of Aduro common stock, the change of control resulting from the merger and other matters related to the merger, as applicable, you should carefully read the following risk factors in addition to the risks described above.

The market price of the combined company’s common stock is expected to be volatile, and the market price of the common stock may drop following the merger.

The market price of the combined company’s common stock following the merger could be subject to significant fluctuations. Some of the factors that may cause the market price of the combined company’s common stock to fluctuate include:

 

   

results of clinical trials and preclinical studies of the combined company’s product candidates, or those of the combined company’s competitors or the combined company’s existing or future collaborators;

 

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failure to meet or exceed financial and development projections the combined company may provide to the public;

 

   

failure to meet or exceed the financial and development projections of the investment community;

 

   

if the combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts;

 

   

announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by the combined company or its competitors;

 

   

actions taken by regulatory agencies with respect to the combined company’s product candidates, clinical studies, manufacturing process or sales and marketing terms;

 

   

disputes or other developments relating to proprietary rights, including patents, litigation matters, and the combined company’s ability to obtain patent protection for its technologies;

 

   

additions or departures of key personnel;

 

   

significant lawsuits, including patent or stockholder litigation;

 

   

if securities or industry analysts do not publish research or reports about the combined company’s business, or if they issue adverse or misleading opinions regarding its business and stock;

 

   

changes in the market valuations of similar companies;

 

   

general market or macroeconomic conditions or market conditions in the pharmaceutical and biotechnology sectors;

 

   

sales of securities by the combined company or its securityholders in the future;

 

   

if the combined company fails to raise an adequate amount of capital to fund its operations and continued development of its product candidates;

 

   

trading volume of the combined company’s common stock;

 

   

announcements by competitors of new commercial products, clinical progress or lack thereof, significant contracts, commercial relationships or capital commitments;

 

   

adverse publicity relating to precision medicine product candidates, including with respect to other products in such markets;

 

   

the introduction of technological innovations or new therapies that compete with the products and services of the combined company; and

 

   

period-to-period fluctuations in the combined company’s financial results.

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the combined company’s common stock. In addition, a recession, depression or other sustained adverse market event resulting from the spread of COVID-19 or otherwise could materially and adversely affect the combined company’s business and the value of its common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against such companies. Furthermore, market volatility may lead to increased shareholder activism if the combined company experiences a market valuation that activists believe is not reflective of its intrinsic value. Activist campaigns that contest or conflict with the combined company’s strategic direction or seek changes in the composition of its board of directors could have an adverse effect on its operating results and financial condition.

 

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Following the merger, the combined company may be unable to integrate successfully the businesses of Aduro and Chinook and realize the anticipated benefits of the merger.

The merger involves the combination of two companies which currently operate as independent companies. Following the merger, the combined company will be required to devote significant management attention and resources to integrating its business practices and operations. The combined company may fail to realize some or all of the anticipated benefits of the merger if the integration process takes longer than expected or is more costly than expected. Potential difficulties the combined company may encounter in the integration process include the following:

 

   

the inability to successfully combine the businesses of Aduro in a manner that permits the combined company to achieve the synergies anticipated to result from the merger, which would result in the anticipated benefits of the merger not being realized partly or wholly in the time frame currently anticipated or at all;

 

   

complexities associated with managing the combined businesses;

 

   

integrating personnel from the two companies;

 

   

creation of uniform standards, controls, procedures, policies and information systems;

 

   

potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the merger; and

 

   

performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the merger and integrating the companies’ operations.

In addition, Aduro and Chinook have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process also could result in the diversion of each company’s management’s attention, the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect the combined company’s ability to maintain relationships with customers, suppliers and employees or the ability to achieve the anticipated benefits of the merger, or could otherwise adversely affect the business and financial results of the combined company.

The combined company may need to raise additional capital in the future, and such funds may not be available on attractive terms, or at all.

The combined company expects to need to raise additional capital in the future to support its operations beyond the Chinook pre-closing financing. The combined company cannot be certain that additional capital will be available as needed or on acceptable terms, or at all. If the combined company requires additional capital at a time when an investment in the combined company, in pharmaceutical and biotechnology companies or the market in general is limited, the combined company may not be able to raise additional funds at the time that it desires, or at all. If the combined company does raise additional funds through the issuance of equity or convertible securities, the percentage ownership of holders of its stock could be significantly diluted and these newly issued securities may have rights, preferences or privileges senior to those of holders of the common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments.

If the assets subject to the CVR Agreement are not disposed of in a timely manner, the combined company may have to incur time and resources to wind down or dispose of such assets.

In connection with the merger, Aduro will declare a dividend to its common stockholders of record the right to receive one CVR for each outstanding share of Aduro common stock held by such stockholder as of such date,

 

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each representing the non-transferable contractual right to receive certain contingent payments from Aduro upon the occurrence of certain events within agreed time periods relating to the disposition by the combined company of certain non-renal assets of Aduro. See the section titled “Agreements Related to the Merger—Contingent Value Rights Agreement” beginning on page 146 of this proxy statement/prospectus. Pursuant to the terms of the CVR Agreement, if the committee appointed by the board of directors is unable to sell the assets subject to the CVR Agreement prior to the six-month anniversary of the closing date, the combined company will be responsible for any wind-down costs associated with the termination of such assets. Further, pursuant to the terms of the CVR Agreement, the holders of Aduro common stock prior to the closing, rather than the holders of the combined company’s common stock, are the primary recipients of any net proceeds of the disposition of the assets subject to the CVR Agreement. Absent such CVR Agreement, the combined company could have allocated such funds, time and resources to its core programs and the foregoing could be a distraction to the combined company’s management and employees. As a result, the combined company’s operations and financial condition may be adversely affected.

The combined company will incur additional costs and increased demands upon management as a result of complying with the laws and regulations affecting public companies.

The combined company will incur significant legal, accounting and other expenses as a public company that Chinook did not incur as a private company, including costs associated with public company reporting obligations under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The combined company’s management team will consist of the executive officers of Chinook prior to the merger, some of whom have not previously managed and operated a public company. These executive officers and other personnel will need to devote substantial time to gaining expertise related to public company reporting requirements and compliance with applicable laws and regulations to ensure that the combined company complies with all of these requirements. Any changes the combined company makes to comply with these obligations may not be sufficient to allow it to satisfy its obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for the combined company to attract and retain qualified persons to serve on the board of directors or on board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.

Once the combined company is no longer an emerging growth company, a smaller reporting company or otherwise no longer qualifies for applicable exemptions, the combined company will be subject to additional laws and regulations affecting public companies that will increase the combined company’s costs and the demands on management and could harm the combined company’s operating results.

The combined company will be subject to the reporting requirements of the Exchange Act, which requires, among other things, that the combined company file with the SEC, annual, quarterly and current reports with respect to the combined company’s business and financial condition as well as other disclosure and corporate governance requirements. However, as an emerging growth company the combined company may take advantage of exemptions from various requirements such as an exemption from the requirement to have the combined company’s independent auditors attest to the combined company’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 as well as an exemption from the “say on pay” voting requirements pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. After the combined company no longer qualifies as an emerging growth company, the combined company may still qualify as a “smaller reporting company” which may allow the combined company to take advantage of some of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in the combined company’s periodic reports and proxy statements. The combined company will cease being an emerging growth company on December 31, 2020. Even after the combined company no longer qualifies as an emerging growth company, it expects to still qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Exchange Act, in at least the near term, which will

 

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allow the combined company to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this proxy statement/prospectus and in the combined company’s periodic reports and proxy statements. Once the combined company is no longer an emerging growth company, a smaller reporting company or otherwise qualifies for these exemptions, the combined company will be required to comply with these additional legal and regulatory requirements applicable to public companies and will incur significant legal, accounting and other expenses to do so. If the combined company is not able to comply with the requirements in a timely manner or at all, the combined company’s financial condition or the market price of the combined company’s common stock may be harmed. For example, if the combined company or its independent auditor identifies deficiencies in the combined company’s internal control over financial reporting that are deemed to be material weaknesses the combined company could face additional costs to remedy those deficiencies, the market price of the combined company’s stock could decline or the combined company could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

The unaudited pro forma condensed combined financial data for Aduro and Chinook included in this proxy statement/prospectus is preliminary, and the combined company’s actual financial position and operations after the merger may differ materially from the unaudited pro forma financial data included in this proxy statement/prospectus.

The unaudited pro forma financial data for Aduro and Chinook included in this proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of the combined company’s actual financial condition or results of operations of future periods, or the financial condition or results of operations that would have been realized had the entities been combined during the periods presented. The combined company’s actual results and financial position after the merger may differ materially and adversely from the unaudited pro forma financial data included in this proxy statement/prospectus. The purchase price allocation reflected in this proxy statement/prospectus is preliminary, and final allocation of the purchase price will be determined when the combined company has determined the final consideration and completed the detailed valuations and other studies necessary. The final purchase price allocation could differ materially from the preliminary purchase price allocation used to prepare the pro forma adjustments and may include changes in allocations to intangible assets and bargain purchase gain or goodwill based on the results of certain valuations and other studies that have yet to be completed, other changes to assets and liabilities and changes to the ultimate purchase consideration. For more information see the section titled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page F-55.

Provisions in the combined company’s charter documents and under Delaware law could make an acquisition of the combined company more difficult and may discourage any takeover attempts the company stockholders may consider favorable, and may lead to entrenchment of management.

Provisions of the combined company’s amended and restated certificate of incorporation and amended and restated bylaws could delay or prevent changes in control or changes in management without the consent of the board of directors. These provisions will include the following:

 

   

a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;

 

   

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

   

a prohibition on stockholder action by written consent, which means that all stockholder action must be taken at an annual or special meeting of the stockholders;

 

   

a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the Chief Executive Officer or by a majority of the total number of authorized directors;

 

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advance notice requirements for stockholder proposals and nominations for election to the board of directors;

 

   

a requirement that no member of the board of directors may be removed from office by stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than two-thirds of all outstanding shares of voting stock then entitled to vote in the election of directors;

 

   

a requirement of approval of not less than two-thirds of all outstanding shares of voting stock to amend any bylaws by stockholder action or to amend specific provisions of the certificate of incorporation; and

 

   

the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock.

In addition, these provisions would apply even if the combined company were to receive an offer that some stockholders may consider beneficial.

The combined company will also be subject to the anti-takeover provisions contained in Section 203 of the DGCL, or Section 203. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.

The certificate of incorporation and bylaws of the combined company will provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between the combined company and its stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with the combined company or its directors, officers or other employees.

The certificate of incorporation and bylaws of the combined company will provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for any derivative action or proceeding brought on the combined company’s behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against it arising pursuant to any provisions of the DGCL, its certificate of incorporation or its bylaws, or any action asserting a claim against it that is governed by the internal affairs doctrine. The exclusive forum provision does not apply to actions arising under the Exchange Act. The amended and restated bylaws will also provide that the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act. The provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the combined company or its directors, officers or other employees, which may discourage such lawsuits against the combined company and its directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in the certificate of incorporation and bylaws to be inapplicable or unenforceable in an action, the combined company may incur additional costs associated with resolving such action in other jurisdictions, which could materially and adversely affect its business, financial condition and results of operations.

Aduro and Chinook do not anticipate that the combined company will pay any cash dividends in the foreseeable future.

The current expectation is that the combined company will retain its future earnings, if any, to fund the growth of the combined company’s business as opposed to paying dividends. As a result, capital appreciation, if any, of the common stock of the combined company will be your sole source of gain, if any, for the foreseeable future.

 

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An active trading market for the combined company’s common stock may not develop and its stockholders may not be able to resell their shares of common stock for a profit, if at all.

Prior to the merger, there had been no public market for shares of Chinook capital stock. An active trading market for the combined company’s shares of common stock may never develop or be sustained. If an active market for the combined company’s common stock does not develop or is not sustained, it may be difficult for its stockholders to sell their shares at an attractive price or at all.

Future sales of shares by existing stockholders could cause the combined company’s stock price to decline.

If existing securityholders of Aduro and Chinook sell, or indicate an intention to sell, substantial amounts of the combined company’s common stock in the public market after legal restrictions on resale discussed in this proxy statement/prospectus lapse, the trading price of the common stock of the combined company could decline. Based on shares outstanding as of July 31, 2020, the shares to be issued in the Chinook pre-closing financing and shares expected to be issued upon completion of the merger the combined company is expected to have outstanding a total of approximately 211,070,260 shares of common stock immediately following the completion of the merger. Of the shares of common stock, approximately 109,467,500 shares will be available for sale in the public market beginning 180 days after the closing of the merger as a result of the expiration of lock-up agreements between Aduro and Chinook on the one hand and certain securityholders of Aduro and Chinook on the other hand. All other outstanding shares of common stock, other than shares held by affiliates of the combined company, will be freely tradable, without restriction, in the public market. In addition, shares of common stock that are subject to outstanding options of Chinook will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements and Rules 144 and 701 under the Securities Act. If these shares are sold, the trading price of the combined company’s common stock could decline.

After completion of the merger, the combined company’s executive officers, directors and principal stockholders will have the ability to control or significantly influence all matters submitted to the combined company’s stockholders for approval.

Upon the completion of the merger, and giving effect to the issuance of the shares of common stock of Chinook prior to the closing of the merger pursuant to the Chinook pre-closing financing, it is anticipated that the combined company’s executive officers, directors and principal stockholders will, in the aggregate, beneficially own approximately 50.3% of the combined company’s outstanding shares of common stock, subject to certain assumptions, including, but not limited to, (a) Aduro’s net cash as of closing being equal to $145 million, and (b) Chinook’s cash and cash equivalents as of closing being equal to $10 million, without giving effect to the Chinook pre-closing financing. As a result, if these stockholders were to choose to act together, they would be able to control or significantly influence all matters submitted to the combined company’s stockholders for approval, as well as the combined company’s management and affairs. For example, these persons, if they choose to act together, would control or significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of the combined company’s assets. This concentration of voting power could delay or prevent an acquisition of the combined company on terms that other stockholders may desire.

If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about the combined company, its business or its market, its stock price and trading volume could decline.

The trading market for the combined company’s common stock will be influenced by the research and reports that equity research analysts publish about it and its business. Equity research analysts may elect not to provide research coverage of the combined company’s common stock after the completion of the merger, and such lack of research coverage may adversely affect the market price of its common stock. In the event it does have equity research analyst coverage, the combined company will not have any control over the analysts or the content and opinions included in their reports. The price of the combined company’s common stock could decline if one or more equity research analysts downgrade its stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of the combined company or fails to publish reports on it regularly, demand for its common stock could decrease, which in turn could cause its stock price or trading volume to decline.

 

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The combined company will have broad discretion in the use of the cash and cash equivalents of the combined company and the proceeds from the Chinook pre-closing financing and may invest or spend the proceeds in ways with which you do not agree and in ways that may not increase the value of your investment.

The combined company will have broad discretion over the use of the cash and cash equivalents of the combined company and the proceeds from the Chinook pre-closing financing. You may not agree with the combined company’s decisions, and its use of the proceeds may not yield any return on your investment. The combined company’s failure to apply these resources effectively could compromise its ability to pursue its growth strategy and the combined company might not be able to yield a significant return, if any, on its investment of these net proceeds. You will not have the opportunity to influence its decisions on how to use the combined company’s cash resources.

Risks Related to Aduro’s Business

Aduro is, and following completion of the merger Aduro will continue to be, subject to the risks described in Part I, Item 1A in Aduro’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 9, 2020, as updated by its Quarterly Reports on Form 10-Q and future filings with the SEC, in each case, incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 243 of this proxy statement/prospectus.

Risks Related to Chinook’s Financial Position

Chinook has a history of operating losses, and Chinook may not achieve or sustain profitability. Chinook anticipates that it will continue to incur losses for the foreseeable future. If Chinook fails to obtain additional funding to conduct its planned research and development efforts, Chinook could be forced to delay, reduce or eliminate Chinook’s product development programs or commercial development efforts.

Chinook is a clinical-stage biotechnology company with a limited operating history. Biotechnology product development is a highly speculative undertaking and involves a substantial degree of risk. Chinook’s operations to date have been limited primarily to organizing and staffing Chinook, business planning, raising capital, acquiring and developing product and technology rights, manufacturing, and conducting research and development activities for Chinook’s product candidates. Chinook has never generated any revenue from product sales. Chinook has not obtained regulatory approvals for any of its product candidates, and has funded its operations to date through proceeds from sales of its preferred stock and common stock.

Chinook has incurred net losses in each year since its inception. Chinook incurred net losses of $0.7 million, $46.5 million and $12.9 million for the period from November 1, 2018 (inception) through December 31, 2018, the year ended December 31, 2019 and the six months ended June 30, 2020, respectively. As of June 30, 2020, Chinook had an accumulated deficit of $60.1 million. Substantially all of Chinook’s operating losses have resulted from costs incurred in connection with Chinook’s research and development programs and from general and administrative costs associated with Chinook’s operations. Chinook expects to continue to incur significant expenses and operating losses over the next several years and for the foreseeable future as Chinook intends to continue to conduct research and development, clinical testing, regulatory compliance activities, manufacturing activities, and, if any of Chinook’s product candidates is approved, sales and marketing activities that, together with anticipated general and administrative expenses, will likely result in Chinook incurring significant losses for the foreseeable future. Chinook’s prior losses, combined with expected future losses, have had and will continue to have an adverse effect on Chinook’s stockholders’ equity and working capital.

Chinook expects that it will need to raise additional funding before Chinook can expect to become profitable from any potential future sales of atrasentan or Chinook’s other product candidates. This additional financing may not be available on acceptable terms or at all. Failure to obtain this necessary capital when needed may force Chinook to delay, limit or terminate its product development efforts or other operations.

Chinook will require substantial future capital in order to complete planned and future preclinical and clinical development for atrasentan and other product candidates and potentially commercialize these product

 

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candidates. Based upon Chinook’s current operating plan, Chinook believes that its existing cash and cash equivalents as of June 30, 2020, along with the net cash held by Aduro upon consummation of the transaction, including the expected proceeds from the Chinook pre-closing financing, will enable Chinook to fund its operating expenses and capital expenditure requirements through the first half of 2023. Chinook expects Chinook’s spending levels to increase in connection with Chinook’s preclinical studies and clinical trials of Chinook’s product candidates. In addition, if Chinook obtains marketing approval for any of Chinook’s product candidates, Chinook expects to incur significant expenses related to commercial launch, product sales, medical affairs, marketing, manufacturing and distribution. Furthermore, Chinook expects to incur additional costs associated with operating as a public company. Accordingly, Chinook will need to obtain substantial additional funding in connection with its continuing operations before any commercial revenue may occur.

Additional capital might not be available when Chinook needs it and Chinook’s actual cash requirements might be greater than anticipated. If Chinook requires additional capital at a time when investment in its industry or in the marketplace in general is limited, Chinook might not be able to raise funding on favorable terms, if at all. If Chinook is not able to obtain financing when needed or on terms favorable to Chinook, Chinook may need to delay, reduce or eliminate certain research and development programs or other operations, sell some or all of Chinook’s assets or merge with another entity.

Chinook’s operations have consumed significant amounts of cash since inception. Chinook’s future capital requirements will depend on many factors, including:

 

   

the costs associated with the scope, progress and results of discovery, preclinical development, laboratory testing and clinical trials for Chinook’s product candidates;

 

   

the costs associated with the manufacturing of Chinook’s product candidates;

 

   

the costs related to the extent to which Chinook enters into partnerships or other arrangements with third parties to further develop Chinook’s product candidates;

 

   

the costs and fees associated with the discovery, acquisition or in-license of product candidates or technologies;

 

   

Chinook’s ability to establish collaborations on favorable terms, if at all;

 

   

the costs of future commercialization activities, if any, including product sales, marketing, manufacturing and distribution, for any of Chinook’s product candidates for which Chinook receives marketing approval;

 

   

revenue, if any, received from commercial sales of Chinook’s product candidates, should any of Chinook’s product candidates receive marketing approval; and

 

   

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing Chinook’s intellectual property rights and defending intellectual property-related claims.

Chinook’s product candidates, if approved, may not achieve commercial success. Chinook’s commercial revenues, if any, will be derived from sales of product candidates that Chinook does not expect to be commercially available for many years, if at all. Accordingly, Chinook will need to continue to rely on additional financing to achieve Chinook’s business objectives, which may not be available to Chinook on acceptable terms, or at all.

Chinook has identified material weaknesses in its internal control over financial reporting. Failure to achieve and maintain effective internal control over financial reporting could harm its business and negatively impact the value of its common stock.

Chinook has identified material weaknesses in its internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that

 

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there is a reasonable possibility that a material misstatement of Chinook’s annual or interim financial statements will not be prevented or detected on a timely basis. In preparing Chinook’s consolidated financial statements as of and for the year ended December 31, 2019, and as of December 31, 2018 and for the period from November 1, 2018 (inception) through December 31, 2018, management of Chinook identified the following material weaknesses in its internal control over financial reporting: (i) Chinook did not design or maintain an effective control environment commensurate with its financial reporting requirements due to lack of sufficient accounting professionals with the appropriate level of skill, experience and training commensurate with its financial reporting requirements. Additionally, the limited personnel resulted in Chinook’s inability to consistently establish appropriate authorities and responsibilities in pursuit of its financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in its finance and accounting functions. This contributed to additional material weaknesses as: (ii) Chinook did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting reporting and disclosures, including controls over the preparation and review of account reconciliations, journal entries and period end financial reporting; and (iii) Chinook did not design and maintain controls over the operating effectiveness of information technology general controls for information systems that are relevant to the preparation of its financial statements. Specifically, Chinook did not design and maintain effective controls over program change management; user access, including segregation of duties; or computer operations.

These material weaknesses resulted in adjustments to Chinook’s consolidated financial statements. Additionally, these material weaknesses could result in a misstatement of Chinook’s accounts or disclosures that would result in a material misstatement of its annual or interim financial statements that would not be prevented or detected, and accordingly, Chinook determined that these control deficiencies constitute material weaknesses.

Chinook is actively recruiting additional accounting personnel with appropriate experience, certification, education and training as a component of its plans to remediate the material weaknesses. See “Chinook Management’s Discussion and Analysis of Financial Condition and Results of Operations—Remediation of Material Weaknesses in Internal Control over Financial Reporting.” To the extent that Chinook is not able to hire and retain such individuals, the material weaknesses identified may not be remediated and management may be required to record additional adjustments to its financial statements in the future.

The combined company’s internal control over financial reporting may not meet the standards required by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, could have a material adverse effect on the combined company’s business and share price.

As a privately held company, Chinook was not required to evaluate its internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404 of the Sarbanes-Oxley Act, or Section 404. Following the merger, the combined company’s management will be required to report on the effectiveness of the combined company’s internal control over financial reporting. The rules governing the standards that must be met for the combined company’s management to assess the combined company’s internal control over financial reporting are complex and require significant documentation, testing and possible remediation.

In preparing Chinook’s consolidated financial statements as of and for the year ended December 31, 2019, and as of December 31, 2018 and for the period from November 1, 2018 (inception) through December 2018, management of Chinook identified material weaknesses in its internal control over financial reporting. See “Chinook has identified material weaknesses in its internal control over financial reporting. Failure to achieve and maintain effective internal control over financial reporting could harm its business and negatively impact the value of its common stock.” The combined company cannot assure you that the material weaknesses identified at Chinook will be remediated by the combined company on the timelines currently anticipated by Chinook, or at all, and/or that there will not be additional material weaknesses or significant deficiencies in the combined company’s internal control over financial reporting in the future. Any failure to maintain effective internal control over financial reporting could severely inhibit the combined company’s ability to accurately

 

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report its financial condition, results of operations or cash flows. If the combined company is unable to conclude that its internal control over financial reporting is effective, or if the combined company’s independent registered public accounting firm determines the combined company has a material weakness or significant deficiency in the combined company’s internal control over financial reporting once that firm begins its reporting on internal control over financial reporting, investors may lose confidence in the accuracy and completeness of the combined company’s financial reports, the market price of the combined company’s common stock could decline, and the combined company could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in the combined company’s internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict the combined company’s future access to the capital markets.

Chinook’s limited operating history may make it difficult for you to evaluate the success of Chinook’s business to date and to assess Chinook’s future viability.

Chinook is a clinical-stage biotechnology company formed in late 2018. Chinook’s operations to date have been limited to organizing and staffing Chinook, business planning, raising capital, acquiring Chinook’s technology, identifying potential product candidates, undertaking research and preclinical studies of Chinook’s product candidates, manufacturing, and establishing licensing arrangements. Chinook has not yet demonstrated the ability to complete clinical trials of Chinook’s product candidates, obtain marketing approvals, manufacture a commercial scale product or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions you make about Chinook’s future success or viability may not be as accurate as they could be if Chinook had a longer operating history.

In addition, as a new business, Chinook may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. Chinook will need to transition from a company with a licensing and research focus to a company that is also capable of supporting clinical development and commercial activities. Chinook may not be successful in such a transition.

Risks Related to Chinook’s Product Development and Regulatory Approval

If Chinook is unable to develop, obtain regulatory approval for and commercialize atrasentan and its future product candidates, or if Chinook experiences significant delays in doing so, Chinook’s business will be materially harmed.

Chinook plans to invest a substantial amount of its efforts and financial resources in its current lead product candidate, atrasentan, an endothelin receptor antagonist, for the treatment of primary glomerular diseases. Chinook plans to initiate a phase 3 clinical trial of atrasentan, for the treatment of IgAN in early 2021, and a phase 2 clinical trial in certain primary glomerular diseases, in the first half of 2021. In addition, Chinook plans to advance its CHK-336 program in an ultra-orphan kidney disease indication towards an investigational new drug application, or IND, submission in 2021 and is advancing multiple research programs for polycystic kidney diseases and other rare, severe chronic kidney diseases. Chinook’s ability to generate product revenue will depend heavily on the successful development and eventual commercialization of atrasentan and Chinook’s other product candidates, which may never occur. Chinook currently generates no revenue from sales of any product and Chinook may never be able to develop or commercialize a marketable product.

Each of Chinook’s programs and product candidates will require further clinical and/or preclinical development, regulatory approval in multiple jurisdictions, obtaining preclinical, clinical and commercial manufacturing supply, capacity and expertise, building of a commercial organization, substantial investment and significant marketing efforts before Chinook generates any revenue from product sales. Atrasentan and Chinook’s other product candidates must be authorized for marketing by the U.S. Food and Drug Administration, or FDA, the Health Products and Food Branch of Health Canada, or HPFB, the European Medicines Agency, or EMA, and certain other foreign regulatory agencies before Chinook may commercialize any of its product candidates.

 

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The success of atrasentan and Chinook’s other product candidates depends on multiple factors, including:

 

   

successful completion of preclinical studies, including those compliant with Good Laboratory Practices, or GLP, or GLP toxicology studies, biodistribution studies and minimum effective dose studies in animals, and successful enrollment and completion of clinical trials compliant with current Good Clinical Practices, or GCPs;

 

   

effective INDs and Clinical Trial Authorizations, or CTAs, that allow commencement of Chinook’s planned clinical trials or future clinical trials for Chinook’s product candidates in relevant territories;

 

   

establishing and maintaining relationships with contract research organizations, or CROs, and clinical sites for the clinical development of Chinook’s product candidates, both in the United States and internationally;

 

   

maintenance of arrangements with third-party contract manufacturing organizations, or CMOs, for key materials used in Chinook’s manufacturing processes and to establish backup sources for clinical and large-scale commercial supply;

 

   

positive results from Chinook’s clinical programs that are supportive of safety and efficacy and provide an acceptable risk-benefit profile for Chinook’s product candidates in the intended patient populations;

 

   

receipt of regulatory approvals from applicable regulatory authorities, including those necessary for pricing and reimbursement of its product candidates;

 

   

establishment and maintenance of patent and trade secret protection and regulatory exclusivity for Chinook’s product candidates;

 

   

commercial launch of Chinook’s product candidates, if and when approved, whether alone or in collaboration with others;

 

   

acceptance of Chinook’s product candidates, if and when approved, by patients, patient advocacy groups, third-party payors and the general medical community;

 

   

Chinook’s effective competition against other therapies available in the market;

 

   

establishment and maintenance of adequate reimbursement from third-party payors for Chinook’s product candidates;

 

   

Chinook’s ability to acquire or in-license additional product candidates;

 

   

prosecution, maintenance, enforcement and defense of intellectual property rights and claims;

 

   

maintenance of a continued acceptable safety profile of Chinook’s product candidates following approval, including meeting any post-marketing commitments or requirements imposed by or agreed to with applicable regulatory authorities;

 

   

political factors surrounding the approval process, such as government shutdowns, political instability or global pandemics such as the outbreak of the novel strain of coronavirus, COVID-19; or

 

   

disruptions in enrollment of Chinook’s clinical trials due to the COVID-19 pandemic.

If Chinook does not succeed in one or more of these factors in a timely manner or at all, Chinook could experience significant delays or an inability to successfully commercialize its product candidates, which would materially harm Chinook’s business. If Chinook does not receive regulatory approvals for Chinook’s product candidates, Chinook may not be able to continue its operations.

Success in preclinical studies and earlier clinical trials for Chinook’s product candidates may not be indicative of the results that may be obtained in later clinical trials, including Chinook’s phase 3 clinical trial for atrasentan, which may delay or prevent obtaining regulatory approval.

Clinical development is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Success in preclinical studies and early

 

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clinical trials may not be predictive of results in later-stage clinical trials, and successful results from early or small clinical trials may not be replicated or show as favorable an outcome in later-stage or larger clinical trials, even if successful. Chinook will be required to demonstrate through adequate and well-controlled clinical trials that Chinook’s product candidates are safe and effective for their intended uses before Chinook can seek regulatory approvals for their commercial sale. The conduct of phase 3 trials and the submission of an NDA is a complicated process. Chinook has not previously conducted any clinical trials, has limited experience in preparing, submitting and supporting regulatory filings, and has not previously submitted an NDA. Consequently, Chinook may be unable to successfully and efficiently execute and complete necessary clinical trials and other requirements in a way that leads to NDA submission and approval of any product candidate Chinook is developing.

Chinook in-licensed atrasentan from AbbVie. Atrasentan was previously investigated in a phase 3 clinical trial evaluating the effects of atrasentan on progression of kidney disease in patients with stage 2 to 4 chronic kidney diseases and type 2 diabetes, referred to as the SONAR trial. While patients receiving atrasentan in the SONAR trial had a lower rate of primary composite renal events than patients receiving placebo, the trial accrued measurable primary endpoints at a slower rate than expected, and AbbVie decided to close the study early for corporate strategic reasons. Chinook believes the results of the SONAR trial support further evaluation of atrasentan. Although the SONAR trial was not terminated due to safety concerns, further safety issues could be discovered in Chinook’s planned phase 2 and phase 3 trials. Based on the data from the SONAR trial, Chinook believes that atrasentan, combined with current standard of care, may have benefits compared to treatment with current standard of care. However, Chinook cannot assure you that any potential advantages that Chinook believes atrasentan may have for treatment of patients with primary glomerular diseases will be substantiated by Chinook’s planned clinical trials or included in the product’s labeling should Chinook obtain approval. Without head-to-head data, Chinook will not be able to make comparative claims with respect to any other treatments. In addition, the patient populations under investigation with atrasentan have many co-morbidities that may cause severe illness or death, which may be attributed to atrasentan in a manner that negatively affects its safety profile. If the results of Chinook’s clinical trials for atrasentan are inconclusive with respect to efficacy, if Chinook does not meet its clinical endpoints with statistical significance, or if there are unanticipated safety concerns or adverse events that emerge during clinical trials, Chinook may have to conduct further preclinical studies and/or clinical trials before obtaining marketing approval, or Chinook may be prevented from or delayed in obtaining marketing approval.

Though atrasentan has been evaluated by AbbVie in clinical trials, Chinook’s other product candidates, such as CHK-336, have not been evaluated in human clinical trials, and Chinook may experience unexpected or negative results in the future if and when CHK-336 or Chinook’s other product candidates are evaluated in clinical trials. Any positive results Chinook has observed for CHK-336 in preclinical animal models may not be predictive of Chinook’s future clinical trials in humans, as animal models carry inherent limitations relevant to all preclinical studies. Chinook’s product candidates, including CHK-336, may also fail to show the desired safety and efficacy in later stages of clinical development even if they successfully advance through initial clinical trials. Even if Chinook’s clinical trials demonstrate acceptable safety and efficacy of atrasentan or CHK-336 or any other product candidates and such product candidates receive regulatory approval, the labeling Chinook obtains through negotiations with the FDA or foreign regulatory authorities may not include data on secondary endpoints and may not provide Chinook with a competitive advantage over other products approved for the same or similar indications.

Many companies in the biotechnology industry have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development, and there is a high failure rate for product candidates proceeding through clinical trials. In addition, different methodologies, assumptions and applications Chinook utilizes to assess particular safety or efficacy parameters may yield different statistical results. Even if Chinook believes the data collected from clinical trials of Chinook’s product candidates are promising, these data may not be sufficient to support approval by the FDA or foreign regulatory authorities. Preclinical and clinical data can be interpreted in different ways. Accordingly, the FDA or foreign regulatory authorities could interpret these data in

 

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different ways from Chinook or Chinook’s partners, which could delay, limit or prevent regulatory approval. If Chinook’s study data do not consistently or sufficiently demonstrate the safety or efficacy of any of Chinook’s product candidates, including atrasentan, to the satisfaction of the FDA or foreign regulatory authorities, then the regulatory approvals for such product candidates could be significantly delayed as Chinook works to meet approval requirements, or, if Chinook is not able to meet these requirements, such approvals could be withheld or withdrawn.

Even if Chinook completes the necessary preclinical studies and clinical trials, Chinook cannot predict when, or if, Chinook will obtain regulatory approval to commercialize a product candidate and the approval may be for a narrower indication than Chinook seeks.

Prior to commercialization, atrasentan and Chinook’s other product candidates must be approved by the FDA pursuant to an NDA in the United States and pursuant to similar marketing applications by the HPFB, EMA and similar regulatory authorities outside the United States. The process of obtaining marketing approvals, both in the United States and abroad, is expensive and takes many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Failure to obtain marketing approval for a product candidate will prevent Chinook from commercializing the product candidate. Chinook has not received approval to market atrasentan or any of Chinook’s other product candidates from regulatory authorities in any jurisdiction. Chinook has no experience in submitting and supporting the applications necessary to gain marketing approvals, and, in the event regulatory authorities indicate that Chinook may submit such applications, Chinook may be unable to do so as quickly and efficiently as desired. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Chinook’s product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude Chinook’s obtaining marketing approval or prevent or limit commercial use. Regulatory authorities have substantial discretion in the approval process and may refuse to accept or file any application or may decide that Chinook’s data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate.

Approval of atrasentan and Chinook’s other product candidates may be delayed or refused for many reasons, including:

 

   

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of Chinook’s clinical trials;

 

   

Chinook may be unable to demonstrate, to the satisfaction of the FDA or comparable foreign regulatory authorities, that Chinook’s product candidates are safe and effective for any of their proposed indications;

 

   

the populations studied in clinical trials may not be sufficiently broad or representative to assure efficacy and safety in the populations for which Chinook seeks approval;

 

   

the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

 

   

Chinook may be unable to demonstrate that Chinook’s product candidates’ clinical and other benefits outweigh their safety risks;

 

   

the data collected from clinical trials of Chinook’s product candidates may not be sufficient to support the submission of an NDA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;

 

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the facilities of third-party manufacturers with which Chinook contracts or procures certain service or raw materials, may not be adequate to support approval of Chinook’s product candidates; and

 

   

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering Chinook’s clinical data insufficient for approval.

Even if Chinook’s product candidates meet their pre-specified safety and efficacy endpoints in clinical trials, the regulatory authorities may not complete their review processes in a timely manner and may not consider such the clinical trial results sufficient to grant, or Chinook may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, Chinook may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials and the review process.

Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow indications, warnings, contraindications or Risk Evaluation and Mitigation Strategies, or REMS. These regulatory authorities may also grant approval subject to the performance of costly post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of Chinook’s product candidates. Any of the foregoing scenarios could materially harm the commercial prospects for Chinook’s product candidates and adversely affect Chinook’s business, financial condition, results of operations and prospects.

The outbreak of COVID-19, or similar public health crises, could have a material adverse impact on Chinook’s business, financial condition and results of operations, including the execution of Chinook’s planned clinical trials.

In December 2019, a novel strain of the coronavirus SARS-CoV-2, was identified in Wuhan, China. This virus spread globally, including within the United States and in March 2020 the World Health Organization declared the disease caused by SARS-CoV-2, COVID-19, a pandemic. The pandemic and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, facilities and production have been suspended, and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The extent to which COVID-19 impacts Chinook’s business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain the virus or treat its impact.

For instance, Chinook’s planned phase 3 clinical trial for atrasentan has been and may continue to be affected by the pandemic. Site initiation, participant recruitment and enrollment, participant dosing, distribution of clinical trial materials, study monitoring and data analysis for Chinook’s planned clinical trials may be delayed due to changes in hospital or university policies, federal, state or local regulations, prioritization of hospital resources toward pandemic efforts, or other reasons related to the pandemic. Additionally, some participants and clinical investigators may not be able to comply with clinical trial protocols. For example, quarantines or other travel limitations (whether voluntary or required) may impede participant movement, affect sponsor access to study sites, or interrupt healthcare services, and Chinook may be unable to conduct its planned clinical trials. If the global effort to control the spread of COVID-19 and treat COVID-19 patients continues on the current trajectory for an extended period of time, Chinook risks a delay in activating sites and enrolling subjects as previously projected. Any such delays to Chinook’s planned phase 3 clinical trial for atrasentan and the planned clinical trials for its other product candidates could impact the use and sufficiency of its existing cash reserves, and it may be required to raise additional capital earlier than it had previously planned. Chinook may be unable to raise additional capital if and when needed, which may result in further delays or suspension of its development plans.

 

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Further, infections and deaths related to COVID-19 are disrupting certain healthcare and healthcare regulatory systems globally. Such disruptions could divert healthcare resources away from, or materially delay review by, the FDA and comparable foreign regulatory agencies. It is unknown how long these disruptions could continue, were they to occur. Any elongation or de-prioritization of Chinook’s clinical trials or delay in regulatory review resulting from such disruptions could materially adversely affect the development and study of its product candidates.

Chinook currently utilizes third parties to, among other things, manufacture raw materials and its product candidates, components, parts, and consumables, and to perform quality testing. If either Chinook or any third-party in the supply chain for materials used in the production of its product candidates are adversely impacted by restrictions resulting from the COVID-19 pandemic, its supply chain may be disrupted, limiting Chinook’s ability to manufacture product candidates for its clinical trials.

In response to the COVID-19 pandemic, Chinook has closed its offices with its employees continuing their work outside of Chinook’s offices. Due to shelter-in-place orders or other mandated local travel restrictions, third parties conducting clinical or manufacturing activities may not be able to access laboratory or manufacturing space, and Chinook’s core activities may be significantly limited or curtailed, possibly for an extended period of time.

The spread of COVID-19, which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments, may have a material adverse effect on Chinook’s business. While the potential economic impact brought by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is likely to result in further, significant disruption of global financial markets and the trading prices of biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic, which may reduce Chinook’s ability to access capital either at all or on favorable terms. In addition, a recession, depression or other sustained adverse market event resulting from the global effort to control COVID-19 infections could materially and adversely affect Chinook’s business.

The ultimate impact of the current pandemic, or any other health epidemic, is highly uncertain and subject to change. Chinook does not yet know the full extent of potential delays or impacts on its business, its planned clinical trials, healthcare systems or the global economy as a whole. However, these effects could have a material adverse impact on Chinook’s business, financial condition and results of operations.

Atrasentan and Chinook’s other product candidates may cause undesirable and/or unforeseen side effects or be perceived by the public as unsafe, which could delay or prevent their advancement into clinical trials or regulatory approval, limit the commercial potential or result in significant negative consequences.

As is the case with pharmaceuticals generally, it is likely that there may be side effects and adverse events associated with Chinook’s product candidates’ use. Results of Chinook’s clinical trials could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. For example, in the phase 3 SONAR trial, adverse events included fluid retention, anemia and reduced spermatogenesis. ERAs as a class are known to have potential effects on spermatogenesis. If any such adverse events occur, Chinook’s clinical trials could be suspended or terminated and the FDA, the HPFB, the European Commission, the EMA or other regulatory authorities could order Chinook to cease further development of, or deny approval of, Chinook’s product candidates for any or all targeted indications. Even if Chinook can demonstrate that all future serious adverse events are not product-related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial. Moreover, if Chinook elects, or is required, to not initiate, delay, suspend or terminate any future clinical trial of any of Chinook’s product candidates, the commercial prospects of such product candidates may be harmed and Chinook’s ability to generate product revenues from any of these product candidates may be delayed or eliminated. Any of these occurrences may harm Chinook’s ability to develop other product candidates, and may adversely affect Chinook’s business, financial condition, results of operations and prospects significantly. Other treatments for kidney diseases that utilize an ETA receptor antagonist or similar

 

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mechanism of action could also generate data that could adversely affect the clinical, regulatory or commercial perception of atrasentan and Chinook’s other product candidates.

Additionally, if any of Chinook’s product candidates receives marketing approval, the FDA could require Chinook to adopt a REMS to ensure that the benefits of the product outweigh its risks, which may include, for example, a Medication Guide outlining the risks of the product for distribution to patients and a communication plan to health care practitioners, or other elements to assure safe use of the product. For example, other approved ERAs have been required to include a REMS regarding the risk of embryo-fetal toxicity. Furthermore, if Chinook or others later identify undesirable side effects caused by Chinook’s product candidates, several potentially significant negative consequences could result, including:

 

   

regulatory authorities may suspend or withdraw approvals of such product candidate;

 

   

regulatory authorities may require additional warnings in the labeling;

 

   

Chinook may be required to change the way a product candidate is administered or conduct additional clinical trials;

 

   

Chinook could be sued and held liable for harm caused to patients; and

 

   

Chinook’s reputation may suffer.

Any of these occurrences may harm Chinook’s business, financial condition, results of operations and prospects significantly.

Certain of the diseases Chinook seeks to treat have low prevalence, and it may be difficult to identify patients with these diseases, which may lead to delays in enrollment for Chinook’s trials or slower commercial revenue growth if atrasentan or Chinook’s other product candidates are approved.

While chronic kidney diseases represent a large market, primary glomerular kidney diseases, including IgAN, to which Chinook’s lead product candidate is targeted, have relatively low incidence and prevalence. Chinook estimates that IgAN affects approximately 140,000 patients in the United States, approximately 200,000 people in Europe and several million people in Asia. Chinook is also developing CHK-336 for the treatment of an ultra-orphan kidney disease. These small populations could pose obstacles to the timely recruitment and enrollment of a sufficient number of eligible patients into Chinook’s trials, or limit a product candidate’s commercial potential. Patient enrollment may be affected by other factors including:

 

   

the ability to identify and enroll patients that meet study eligibility criteria in a timely manner for clinical trials;

 

   

the severity of the disease under investigation;

 

   

design of the study protocol;

 

   

the perceived risks, benefits and convenience of administration of the product candidate being studied;

 

   

the patient referral practices of providers;

 

   

the proximity and availability of clinical trial sites to prospective patients; and

 

   

the availability of approved or investigational alternative treatment options.

Chinook’s inability to enroll a sufficient number of patients with these diseases for Chinook’s planned clinical trials would result in significant delays and could cause Chinook to not initiate or abandon one or more clinical trials altogether. Enrollment delays in Chinook’s clinical trials may result in increased time to potential approval and development costs for Chinook’s product candidates, which would cause the value of Chinook to decline and limit Chinook’s ability to obtain additional financing.

 

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Additionally, Chinook’s projections of both the number of people who have IgAN and other primary glomerular diseases, as well as the people with these diseases who have the potential to benefit from treatment with Chinook’s product candidates, are based on estimates derived from a commissioned market research study, which may not accurately identify the size of the market for Chinook’s product candidates. The total addressable market opportunity for atrasentan and Chinook’s other product candidates will ultimately depend upon, among other things, the final labeling for Chinook’s product candidates, if Chinook’s product candidates are approved for sale in Chinook’s target indications, acceptance by the medical community and patient access, drug pricing and reimbursement. The number of patients globally may turn out to be lower than expected, patients may not be otherwise amenable to treatment with Chinook’s product candidates, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect Chinook’s results of operations and Chinook’s business.

Moreover, in light of the limited number of potential patients impacted by primary glomerular diseases, Chinook’s per-patient therapy pricing of atrasentan, if approved, may need to be high in order to recover Chinook’s development and manufacturing costs, fund additional research and achieve profitability. Chinook may also need to fund patient support programs upon the marketing of a product candidate, which would negatively affect Chinook’s product revenue. Chinook may be unable to maintain or obtain sufficient therapy sales volumes at a price high enough to justify Chinook’s development efforts and Chinook’s sales, marketing and manufacturing expenses.

Chinook may not be successful in its efforts to expand its pipeline of product candidates and develop marketable products.

Because Chinook has limited financial and managerial resources, Chinook focuses on research programs and product candidates that Chinook identifies for specific indications. Chinook’s business depends on its successful development and commercialization of the limited number of internal product candidates Chinook is researching or has in preclinical development. Even if Chinook is successful in continuing to build its pipeline, development of the potential product candidates that Chinook identifies will require substantial investment in additional clinical development, management of clinical, preclinical and manufacturing activities, regulatory approval in multiple jurisdictions, obtaining manufacturing supply capability, building a commercial organization, and significant marketing efforts before Chinook generates any revenue from product sales. Furthermore, such product candidates may not be suitable for clinical development, including as a result of their harmful side effects, limited efficacy or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. If Chinook cannot develop further product candidates, Chinook may not be able to obtain product revenue in future periods, which would adversely affect Chinook’s business, prospects, financial condition and results of operations.

Although Chinook’s pipeline includes multiple programs, Chinook is primarily focused on its lead product candidates, atrasentan and CHK-336, and Chinook may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Chinook’s resource allocation decisions may cause Chinook to fail to capitalize on viable commercial products or profitable market opportunities. Chinook’s spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. Chinook’s understanding and evaluation of biological targets for the discovery and development of new product candidates may fail to identify challenges encountered in subsequent preclinical and clinical development. If Chinook does not accurately evaluate the commercial potential or target market for a particular product candidate, Chinook may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for Chinook to retain sole development and commercialization rights.

 

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Any product candidate for which Chinook obtains marketing approval will be subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and Chinook may be subject to penalties if it fails to comply with regulatory requirements or if it experiences unanticipated problems with its product candidates, when and if any of them are approved.

Chinook’s product candidates and the activities associated with their development and potential commercialization, including their testing, manufacturing, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other U.S. and international regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to manufacturing, including current Good Manufacturing Practices, or cGMPs, quality control, quality assurance and corresponding maintenance of records and documents, including periodic inspections by the FDA and other regulatory authorities and requirements regarding the distribution of samples to providers and recordkeeping. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic, unannounced inspections by the FDA and other regulatory authorities for compliance with cGMPs.

The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of any approved product. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure that they are marketed in a manner consistent with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding use of their products. If Chinook promotes its product candidates in a manner inconsistent with FDA-approved labeling or otherwise not in compliance with FDA regulations, Chinook may be subject to enforcement action. Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs may lead to investigations alleging violations of federal and state healthcare fraud and abuse laws, as well as state consumer protection laws and similar laws in international jurisdictions.

In addition, later discovery of previously unknown adverse events or other problems with Chinook’s product candidates, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

 

   

restrictions on such product candidates, manufacturers or manufacturing processes;

 

   

restrictions on the labeling or marketing of a product;

 

   

restrictions on product distribution or use;

 

   

requirements to conduct post-marketing studies or clinical trials;

 

   

warning or untitled letters;

 

   

withdrawal of any approved product from the market;

 

   

refusal to approve pending applications or supplements to approved applications that Chinook submits;

 

   

recall of product candidates;

 

   

fines, restitution or disgorgement of profits or revenues;

 

   

suspension or withdrawal of marketing approvals;

 

   

refusal to permit the import or export of Chinook’s product candidates;

 

   

product seizure; or

 

   

injunctions or the imposition of civil or criminal penalties.

The occurrence of any event or penalty described above may inhibit Chinook’s ability to commercialize its product candidates and generate revenue and could require Chinook to expend significant time and resources in

 

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response and could generate negative publicity. The FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of Chinook’s product candidates. If Chinook is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if Chinook is not able to maintain regulatory compliance, it may lose any marketing approval that it has obtained, and Chinook may not achieve or sustain profitability.

Non-compliance with Canadian and European requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with Canada’s or Europe’s requirements regarding the protection of personal information can also lead to significant penalties and sanctions.

Chinook’s failure to obtain regulatory approval in international jurisdictions would prevent Chinook from marketing its product candidates outside the United States.

To market and sell atrasentan and Chinook’s other product candidates in other jurisdictions, Chinook must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time and data required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, Chinook must secure product reimbursement approvals before regulatory authorities will approve the product for sale in that country. Failure to obtain foreign regulatory approvals or non-compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for Chinook and could delay or prevent the introduction of Chinook’s product candidates in certain countries.

If Chinook fails to comply with the regulatory requirements in international markets and receive applicable marketing approvals, Chinook’s target market will be reduced and its ability to realize the full market potential of its product candidates will be harmed and its business will be adversely affected. Chinook may not obtain foreign regulatory approvals on a timely basis, if at all. Chinook’s failure to obtain approval of any of its product candidates by regulatory authorities in another country may significantly diminish the commercial prospects of that product candidate and Chinook’s business prospects could decline.

Risks Related to Commercialization and Manufacturing

The commercial success of Chinook’s product candidates, including atrasentan, will depend upon their degree of market acceptance by providers, patients, patient advocacy groups, third-party payors and the general medical community.

Even with the requisite approvals from the FDA, the HPFB, the EMA and other regulatory authorities internationally, the commercial success of Chinook’s product candidates will depend, in part, on the acceptance of providers, patients and third-party payors of drugs designed to act as a selective blocker of the ETA receptor in general, and Chinook’s product candidates in particular, as medically necessary, cost-effective and safe. In addition, Chinook may face challenges in seeking to establish and grow sales of atrasentan or its other product candidates. Any product that Chinook commercializes may not gain acceptance by providers, patients, patient advocacy groups, third-party payors and the general medical community. If these products do not achieve an adequate level of acceptance, Chinook may not generate significant product revenue and may not become profitable. The degree of market acceptance of atrasentan and Chinook’s other product candidates, if approved for commercial sale, will depend on several factors, including:

 

   

the efficacy, durability and safety of such product candidates as demonstrated in clinical trials;

 

   

the potential and perceived advantages of product candidates over alternative treatments;

 

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the cost of treatment relative to alternative treatments;

 

   

the clinical indications for which the product candidate is approved by the FDA, the HPFB or the European Commission;

 

   

the willingness of providers to prescribe new therapies;

 

   

the willingness of the target patient population to try new therapies;

 

   

the prevalence and severity of any side effects;

 

   

product labeling or product insert requirements of the FDA, the HPFB, EMA or other regulatory authorities, including any limitations or warnings contained in a product’s approved labeling;

 

   

the strength of marketing and distribution support;

 

   

the timing of market introduction of competitive products;

 

   

the quality of Chinook’s relationships with patient advocacy groups;

 

   

publicity concerning Chinook’s product candidates or competing products and treatments; and

 

   

sufficient third-party payor coverage and adequate reimbursement.

Even if a potential product displays a favorable efficacy and safety profile in preclinical studies and clinical trials, market acceptance of the product will not be fully known until after it is launched.

The pricing, insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for Chinook’s product candidates, if approved, could limit Chinook’s ability to market those products and decrease Chinook’s ability to generate product revenue.

Chinook’s target indications, including IgAN and other primary glomerular diseases, are indications with small patient populations. For product candidates that are designed to treat smaller patient populations to be commercially viable, the reimbursement for such product candidates must be higher, on a relative basis, to account for the lack of volume. Accordingly, Chinook will need to implement a coverage and reimbursement strategy for any approved product candidate that accounts for the smaller potential market size. If Chinook is unable to establish or sustain coverage and adequate reimbursement for its product candidates from third-party payors, the adoption of those product candidates and sales revenue will be adversely affected, which, in turn, could adversely affect the ability to market or sell those product candidates, if approved.

Chinook expects that coverage and reimbursement by third-party payors will be essential for most patients to be able to afford these treatments. Accordingly, sales of atrasentan and Chinook’s other product candidates will depend substantially, both domestically and internationally, on the extent to which the costs of Chinook’s product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow Chinook to establish or maintain pricing sufficient to realize a sufficient return on Chinook’s investment.

There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs will be covered and reimbursed. The Medicare program covers certain individuals aged 65 or older, disabled or suffering from end-stage renal disease. The Medicaid program, which varies from state-to-state, covers certain individuals and families who have limited financial means. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement

 

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policies for drugs. One payor’s determination to provide coverage for a drug product, however, does not assure that other payors will also provide coverage for the drug product. Further, a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved.

In addition to government and private payors, professional organizations such as the American Medical Association, or the AMA, can influence decisions about coverage and reimbursement for new products by determining standards for care. In addition, many private payors contract with commercial vendors who sell software that provide guidelines that attempt to limit utilization of, and therefore reimbursement for, certain products deemed to provide limited benefit to existing alternatives. Such organizations may set guidelines that limit reimbursement or utilization of Chinook’s product candidates. Even if favorable coverage and reimbursement status is attained for one or more product candidates for which Chinook’s collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and Chinook believes the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of therapeutics such as Chinook’s product candidates. In many countries, particularly the countries of the EU, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, Chinook may be required to conduct a clinical trial that compares the cost-effectiveness of Chinook’s product candidate to other available therapies. In general, the prices of products under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that Chinook is able to charge for its product candidates. Accordingly, in markets outside the United States, the reimbursement for Chinook’s product candidates may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits.

Moreover, increasing efforts by governmental and third-party payors, in the United States and internationally, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate payment for Chinook’s product candidates. Chinook expects to experience pricing pressures in connection with the sale of any of Chinook’s product candidates due to the trend toward managed healthcare, the increasing influence of certain third-party payors, such as health maintenance organizations, and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products into the healthcare market. Recently there have been instances in which third-party payors have refused to reimburse treatments for patients for whom the treatment is indicated in the FDA-approved product labeling. Even if Chinook is successful in obtaining FDA approvals to commercialize Chinook’s product candidates, Chinook cannot guarantee that Chinook will be able to secure reimbursement for all patients for whom treatment with Chinook’s product candidates is indicated.

If third parties on which Chinook depends to conduct its planned preclinical studies or clinical trials, do not perform as contractually required, fail to satisfy regulatory or legal requirements or miss expected deadlines, Chinook’s development program could be delayed with adverse effects on Chinook’s business, financial condition, results of operations and prospects.

Chinook relies on third party CROs, CMOs, consultants and others to design, conduct, supervise and monitor key activities relating to, discovery, manufacturing, preclinical studies and clinical trials of Chinook’s product candidates, and Chinook intends to do the same for future activities relating to existing and future programs. Because Chinook relies on third parties and does not have the ability to conduct all required testing, discovery, manufacturing, preclinical studies or clinical trials independently, Chinook has less control over the

 

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timing, quality and other aspects of discovery, manufacturing, preclinical studies and clinical trials than Chinook would if Chinook conducted them on its own. These investigators, CROs, CMOs and consultants are not Chinook’s employees, and Chinook has limited control over the amount of time and resources that they dedicate to Chinook’s programs. These third parties may have contractual relationships with other entities, some of which may be Chinook’s competitors, which may draw time and resources from Chinook’s programs. The third parties Chinook contracts with might not be diligent, careful or timely in conducting Chinook’s discovery, manufacturing, preclinical studies or clinical trials, resulting in testing, discovery, manufacturing, preclinical studies or clinical trials being delayed or unsuccessful, in whole or in part.

If Chinook cannot contract with acceptable third parties on commercially reasonable terms, or at all, or if these third parties do not carry out their contractual duties, satisfy legal and regulatory requirements for the conduct of preclinical studies or clinical trials or meet expected deadlines, Chinook’s clinical development programs could be delayed and otherwise adversely affected. In all events, Chinook is responsible for ensuring that each of Chinook’s preclinical studies and clinical trials is conducted in accordance with the general investigational plan and protocols for the trial, as well as in accordance with GLP, GCP and other applicable laws, regulations and standards. Chinook’s reliance on third parties that it does not control does not relieve Chinook of these responsibilities and requirements. The FDA and other regulatory authorities enforce GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If Chinook or any of these third parties fails to comply with applicable GCPs, the clinical data generated in its clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require Chinook to perform additional clinical trials before approving its marketing applications. Chinook cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of Chinook’s clinical trials have complied with GCPs. In addition, Chinook’s clinical trials must be conducted with product produced in accordance with cGMPs. Chinook’s failure to comply with these regulations may require it to repeat clinical trials, which could delay or prevent the receipt of regulatory approvals. Any such event could have an adverse effect on Chinook’s business, financial condition, results of operations and prospects.

Chinook faces significant competition in an environment of rapid technological change and it is possible that Chinook’s competitors may achieve regulatory approval before Chinook or develop therapies that are more advanced or effective than Chinook’s, which may harm Chinook’s business, financial condition and Chinook’s ability to successfully market or commercialize atrasentan, CHK-336 and Chinook’s other product candidates.

The biotechnology and pharmaceutical industries are characterized by rapidly changing technologies, competition and a strong emphasis on intellectual property. Chinook is aware of several companies focused on developing primary glomerular disease treatments in various indications as well as several companies addressing other treatments for rare, severe chronic kidney diseases. Chinook may also face competition from large and specialty pharmaceutical and biotechnology companies, academic research institutions, government agencies and public and private research institutions that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing and commercialization.

Although several companies are focused on developing treatments on primary glomerular diseases, including IgAN, there are currently limited treatment options for primary glomerular diseases. To Chinook’s knowledge, there are no approved drugs for IgAN, but there are a variety of treatments utilized that include renin angiotensin inhibitors, steroids, chemotherapy drugs and immunomodulatory approaches. In addition, there are a number of competitors in clinical development for the treatment of IgAN, at a similar stage of development or more advanced than Chinook, including Calliditas Therapeutics AB, Omeros Corporation and Retrophin, Inc.

Many of Chinook’s potential competitors, alone or with their strategic partners, may have substantially greater financial, technical and other resources than Chinook does, such as larger research and development, clinical, marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of

 

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competitors. Chinook’s commercial opportunity could be reduced or eliminated if competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any product candidates that Chinook may develop. Competitors also may obtain FDA or other regulatory approval for their products more rapidly than Chinook may obtain approval for its products, which could result in Chinook’s competitors establishing a strong market position before Chinook is able to enter the market, if ever. Additionally, new or advanced technologies developed by Chinook’s competitors may render Chinook’s current or future product candidates uneconomical or obsolete, and Chinook may not be successful in marketing its product candidates against competitors.

To become and remain profitable, Chinook must develop and eventually commercialize product candidates with significant market potential, which will require Chinook to be successful in a range of challenging activities. These activities include, among other things, completing preclinical studies and initiating and completing clinical trials of Chinook’s product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those products that are approved and satisfying any post marketing requirements. Chinook may never succeed in any or all of these activities and, even if Chinook does, Chinook may never generate revenues that are significant or large enough to achieve profitability. If Chinook does achieve profitability, Chinook may not be able to sustain or increase profitability on a quarterly or annual basis. Chinook’s failure to become and remain profitable would decrease the value of the company and could impair Chinook’s ability to raise capital, maintain Chinook’s research and development efforts, expand Chinook’s business or continue operations. A decline in the value of Chinook also could cause you to lose all or part of your investment.

The manufacture of drugs is complex, and Chinook’s third-party manufacturers may encounter difficulties in production. If any of Chinook’s third-party manufacturers encounter such difficulties, Chinook’s ability to provide supply of atrasentan, CHK-336 or Chinook’s other product candidates for clinical trials, Chinook’s ability to obtain marketing approval, or Chinook’s ability to provide supply of Chinook’s product candidates for patients, if approved, could be delayed or stopped.

Chinook intends to establish manufacturing relationships with a limited number of suppliers to manufacture raw materials, the drug substance and finished product of any product candidate for which Chinook is responsible for preclinical or clinical development. Pursuant to its license agreement with AbbVie, Chinook received a substantial amount of drug product and drug substance to support initiation of its planned clinical trials of atrasentan; however, Chinook does not have an ongoing manufacturing agreement for atrasentan with AbbVie or any other CMO. Chinook will need to establish manufacturing relationships for the production of sufficient atrasentan in order to complete its planned clinical trials and for any potential commercialization. Each supplier may require licenses to manufacture such components if such processes are not owned by the supplier or in the public domain. As part of any marketing approval, a manufacturer and its processes are required to be qualified by the FDA prior to regulatory approval. If supply from the approved vendor is interrupted, there could be a significant disruption in commercial supply. An alternative vendor would need to be qualified through an NDA supplement which could result in further delay. The FDA or other regulatory agencies outside of the United States may also require additional studies if a new supplier is relied upon for commercial production. Switching vendors may involve substantial costs and is likely to result in a delay in Chinook’s desired clinical and commercial timelines.

The process of manufacturing drugs is complex, highly-regulated and subject to multiple risks. Manufacturing drugs is highly susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment, vendor or operator error, inconsistency in yields, variability in product characteristics and difficulties in scaling the production process. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered at the facilities of Chinook’s manufacturers, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical trials and adversely harm Chinook’s business. Moreover, if the FDA determines that Chinook’s CMOs are not in compliance with FDA laws and regulations, including those governing cGMPs, the

 

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FDA may deny NDA approval until the deficiencies are corrected or Chinook replaces the manufacturer in Chinook’s NDA with a manufacturer that is in compliance. In addition, approved products and the facilities at which they are manufactured are required to maintain ongoing compliance with extensive FDA requirements and the requirements of other similar agencies, including ensuring that quality control and manufacturing procedures conform to cGMP requirements. As such, Chinook’s CMOs are subject to continual review and periodic inspections to assess compliance with cGMPs. Furthermore, although Chinook does not have day-to-day control over the operations of its CMOs, it is responsible for ensuring compliance with applicable laws and regulations, including cGMPs.

In addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with good manufacturing practices, lot consistency and timely availability of raw materials. Even if Chinook’s collaborators obtain regulatory approval for any of Chinook’s product candidates, there is no assurance that manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. If Chinook’s manufacturers are unable to produce sufficient quantities for clinical trials or for commercialization, commercialization efforts would be impaired, which would have an adverse effect on Chinook’s business, financial condition, results of operations and prospects.

Chinook believes that it will rely upon on a limited number of manufacturers for its product candidates, including atrasentan, for which it has identified single-source suppliers for the various steps of manufacture. This reliance on a limited number of manufacturers and the complexity of drug manufacturing and the difficulty of scaling up a manufacturing process could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of Chinook’s product candidates, cause Chinook to incur higher costs and prevent Chinook from commercializing Chinook’s product candidates successfully. Furthermore, if Chinook’s suppliers fail to deliver the required commercial quantities of materials on a timely basis and at commercially reasonable prices, and Chinook is unable to secure one or more replacement suppliers capable of production in a timely manner at a substantially equivalent cost, Chinook’s clinical trials may be delayed or Chinook could lose potential revenue.

If Chinook is unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell atrasentan, CHK-336 and Chinook’s other product candidates, Chinook may be unable to generate any revenues.

Chinook currently does not have an organization for the sales, marketing and distribution of atrasentan, CHK-336 and Chinook’s other product candidates, and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. To market any products that may be approved, Chinook must build its sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. With respect to certain of Chinook’s current programs as well as future programs, Chinook may rely completely on an alliance partner for sales and marketing. In addition, although Chinook intends to establish a sales organization if Chinook is able to obtain approval to market any product candidates, Chinook may enter into strategic alliances with third parties to develop and commercialize atrasentan and other product candidates, including in markets outside of the United States or for other large markets that are beyond Chinook’s resources. This will reduce the revenue generated from the sales of these products.

Any future strategic alliance partners may not dedicate sufficient resources to the commercialization of Chinook’s product candidates or may otherwise fail in their commercialization due to factors beyond Chinook’s control. If Chinook is unable to establish effective alliances to enable the sale of Chinook’s product candidates to healthcare professionals and in geographical regions, including the United States, that will not be covered by Chinook’s marketing and sales force, or if Chinook’s potential future strategic alliance partners do not

 

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successfully commercialize the product candidates, Chinook’s ability to generate revenues from product sales will be adversely affected.

If Chinook is unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, Chinook may not be able to generate sufficient product revenue and may not become profitable. Chinook will be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, Chinook may be unable to compete successfully against these more established companies.

Chinook may not be successful in finding strategic collaborators for continuing development of certain of Chinook’s future product candidates or successfully commercializing or competing in the market for certain indications.

In the future, Chinook may decide to collaborate with non-profit organizations, universities and pharmaceutical and biotechnology companies for the development and potential commercialization of existing and new product candidates. Chinook faces significant competition in seeking appropriate collaborators. Whether Chinook reaches a definitive agreement for a collaboration will depend, among other things, upon Chinook’s assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing drugs, the existence of uncertainty with respect to Chinook’s ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with Chinook for Chinook’s product candidate. The terms of any additional collaborations or other arrangements that Chinook may establish may not be favorable to Chinook. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

Chinook may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If Chinook is unable to do so, Chinook may have to curtail the development of the product candidate for which Chinook is seeking to collaborate, reduce or delay its development program or one or more of Chinook’s other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase Chinook’s expenditures and undertake development or commercialization activities at Chinook’s expense. If Chinook elects to increase Chinook’s expenditures to fund development or commercialization activities on Chinook’s product candidates, Chinook may need to obtain additional capital, which may not be available to Chinook on acceptable terms or at all. If Chinook does not have sufficient funds, Chinook may not be able to further develop Chinook’s product candidates or bring them to market and generate product revenue.

The success of any potential collaboration arrangements will depend heavily on the efforts and activities of Chinook’s collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of such collaboration arrangements. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect Chinook financially and could harm Chinook’s business reputation.

 

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Risks Related to Government Regulation

A Fast Track Designation by the FDA, even if granted for atrasentan or any of Chinook’s other product candidates, may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that Chinook’s product candidates will receive marketing approval.

While Chinook does not intend to seek Fast Track Designation for atrasentan, it may seek such designation for its other product candidates. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply to the FDA for Fast Track Designation. The FDA has broad discretion whether to grant this designation. Even if Chinook believes a particular product candidate is eligible for this designation, Chinook cannot assure you that the FDA would decide to grant it. The FDA may also withdraw Fast Track Designation if it believes that the designation is no longer supported by data from Chinook’s clinical development program. Even if Chinook does receive Fast Track Designation for any of its product candidates, such product candidates may not experience faster development, review or approval processes compared to conventional FDA procedures. Many drugs that have received Fast Track Designation have failed to obtain approval.

Chinook may attempt to secure FDA approval of atrasentan and its other product candidates through the accelerated approval pathway. If Chinook is unable to obtain accelerated approval, Chinook may be required to conduct additional preclinical studies or clinical trials beyond those that Chinook currently contemplates, which could increase the expense of obtaining, and delay the receipt of, necessary marketing approvals.

Chinook is developing certain product candidates for the treatment of serious conditions, and therefore may decide to seek approval of such product candidates under the FDA’s accelerated approval pathway. A product may be eligible for accelerated approval if it is designed to treat a serious or life-threatening disease or condition and provides a meaningful therapeutic benefit over existing treatments based upon a determination that the product candidate has an effect on 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 of or lack of alternative treatments. For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit.

The accelerated approval pathway may be used in cases in which the advantage of a new drug over available therapy may not be a direct therapeutic advantage, but is a clinically important improvement from a patient and public health perspective. If granted, accelerated approval is usually contingent on the sponsor’s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verity and describe the drug’s anticipated effect on irreversible morbidity or mortality or other clinical benefit. In some cases, the FDA may require that the trial be designed, initiated, and/or fully enrolled prior to approval. If the sponsor fails to conduct such studies in a timely manner, or if such post-approval studies fail to verify the drug’s predicted clinical benefit, or if other evidence demonstrates that Chinook’s product candidate is not shown to be safe and effective under the conditions of use, the FDA may withdraw its approval of the drug on an expedited basis.

Chinook intends to use reduction in proteinuria as a surrogate endpoint in its planned phase 3 trial of atrasentan. However, there is no guarantee that atrasentan will show a sufficient treatment benefit on the expected surrogate endpoint to satisfy the FDA that the anticipated benefit on loss of renal function will be confirmed in the planned postmarketing phase of the trial. If Chinook decides to submit an NDA seeking accelerated approval or receives an expedited regulatory designation for atrasentan or any of its other product candidates, there can be no assurance that such submission or application will be accepted or that any expedited development, review or approval will be granted on a timely basis, or at all. If any of Chinook’s competitors were to receive full approval on the basis of a confirmatory trial for an indication for which Chinook is seeking accelerated approval before Chinook receives accelerated approval, the indication Chinook is seeking may no

 

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longer qualify as a condition for which there is an unmet medical need and accelerated approval of its product candidate would be more difficult or may not occur.

Failure to obtain accelerated approval or any other form of expedited development, review or approval for Chinook’s product candidates would result in a longer time period to commercialization of such product candidate, if any, and could increase the cost of development of such product candidate harm Chinook’s competitive position in the marketplace.

Chinook may be unsuccessful in obtaining Orphan Drug Designation for its product candidates or transfer of designations obtained by others for future product candidates, and, even if Chinook obtains such designation, Chinook may be unable to maintain the benefits associated with Orphan Drug Designation, including the potential for market exclusivity, for atrasentan or Chinook’s other product candidates.

Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs intended to treat relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is intended to treat a rare disease or condition, which is defined as a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 in the United States when there is no reasonable expectation that the cost of developing and making available the drug in the United States will be recovered from sales in the United States for that drug. Orphan drug designation must be requested before submitting an NDA. In the United States, Orphan Drug Designation entitles a party to financial incentives such as opportunities for tax credits for qualified clinical research costs and exemption from prescription drug user fees. Similarly, in the EU, the European Commission grants Orphan Drug Designation after receiving the opinion of the EMA’s Committee for Orphan Medicinal Products on an Orphan Drug Designation application. In the EU, Orphan Drug Designation is intended to promote the development of drugs that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the EU and for which no satisfactory method of diagnosis, prevention or treatment has been authorized (or the product would be a significant benefit to those affected). In the EU, Orphan Drug Designation entitles a party to financial incentives such as reduction of fees or fee waivers.

Generally, if a drug with an Orphan Drug Designation subsequently receives the first marketing approval for the indication for which it has such designation, the drug is entitled to a period of marketing exclusivity, which precludes the FDA or EMA from approving another marketing application for the same drug and indication for that time period, except in limited circumstances. If a competitor is able to obtain orphan drug exclusivity prior to Chinook for a product that constitutes the same active moiety and treats the same indications as Chinook’s product candidates, Chinook may not be able to obtain approval of its drug by the applicable regulatory authority for a significant period of time unless Chinook is able to show that its drug is clinically superior to the approved drug. The applicable period is seven years in the United States and ten years in the EU. The EU exclusivity period can be reduced to six years if a drug no longer meets the criteria for Orphan Drug Designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified.

As part of Chinook’s business strategy, Chinook may seek Orphan Drug Designation for atrasentan in the United States, Europe and other countries. However, Orphan Drug Designation does not guarantee future orphan drug marketing exclusivity.

Even after an orphan drug is approved, the FDA can also subsequently approve a later application for the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer in a substantial portion of the target populations, more effective or makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Moreover, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if Chinook is unable to manufacture sufficient quantities of the product to meet the needs

 

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of patients with the rare disease or condition. Orphan Drug Designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.

Enacted and future legislation may increase the difficulty and cost for Chinook to commercialize and obtain marketing approval of Chinook’s product candidates and may affect the prices Chinook may set.

Existing regulatory policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of Chinook’s product candidates. Chinook cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If Chinook is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if Chinook is not able to maintain regulatory compliance, Chinook may lose any marketing approval that Chinook may have obtained, and Chinook may not achieve or sustain profitability.

For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the Affordable Care Act, or ACA, was enacted 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 health care and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. As implementation of the ACA is ongoing, the law appears likely to continue the downward pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase Chinook’s regulatory burdens and operating costs.

The current U.S. presidential administration and U.S. Congress have sought and may continue to seek to, modify, repeal or otherwise replace certain aspects of the ACA. By way of example, the Tax Cuts and Jobs Act, or the TCJA, was enacted, effective January 1, 2019, and included, among other things, a provision repealing the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” There have been subsequent challenges to the constitutionality of the ACA following the repeal of the individual mandate. A case is currently pending before the U.S. Supreme Court, although it is unclear when a decision will be made or how the Supreme Court will rule. In addition, there may be other efforts to challenge, repeal or replace the ACA. Chinook is continuing to monitor any changes to the ACA that, in turn, may potentially impact its business in the future.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes included aggregate reductions to Medicare payments to providers of 2% per fiscal year, effective April 1, 2013, which, due to subsequent legislative amendments, will stay in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through December 31, 2020 implemented under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, which was signed into law on March 27, 2020, unless additional Congressional action is taken. In addition, in January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on customers for Chinook’s drugs, if approved, and accordingly, Chinook’s financial operations.

Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn and Matthew Bellina Right to Try Act of 2017 was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a phase I clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA authorization under an FDA expanded access program; however, manufacturers are not obligated to provide investigational new drug

 

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products under the current federal right to try law. Chinook may choose to seek an expanded access program for Chinook’s product candidates, or to utilize comparable rules in other countries that allow the use of a drug, on a named patient basis or under a compassionate use program.

Chinook expects that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that Chinook receives for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent Chinook from being able to generate revenue, attain profitability, or commercialize Chinook’s product candidates.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. Chinook cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of Chinook’s product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject Chinook to more stringent product labeling and post-marketing testing and other requirements.

The FDA’s ability to review and approve new products may be hindered by a variety of factors, including budget and funding levels, ability to hire and retain key personnel, statutory, regulatory and policy changes and global health concerns.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect Chinook’s business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical employees and stop critical activities.

The ability of the FDA and other government agencies to properly administer their functions is highly dependent on the levels of government funding and the ability to fill key leadership appointments, among various factors. Delays in filling or replacing key positions could significantly impact the ability of the FDA and other agencies to fulfill their functions, and could greatly impact healthcare and the pharmaceutical industry.

Separately, in response to the COVID-19 pandemic, on March 10, 2020, the FDA announced its intention to postpone most foreign inspections of manufacturing facilities and, subsequently, on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. Subsequently, on July 10, 2020 the FDA announced its intention to resume certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process Chinook’s regulatory submissions, which could have a material adverse effect on Chinook’s business.

 

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Chinook’s operations and relationships with future customers, providers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose Chinook to penalties including criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers and third-party payors will play a primary role in the recommendation and prescription of any product candidates for which Chinook obtains marketing approval. Chinook’s future arrangements with providers, third-party payors and customers will subject Chinook to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which Chinook markets, sells and distributes any product candidates for which Chinook obtains marketing approval.

Restrictions under applicable U.S. federal and state healthcare laws and regulations include the following:

 

   

the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation;

 

   

federal false claims laws, including the federal False Claims Act, imposes criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

 

   

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

the federal Physician Payment Sunshine Act requires applicable manufacturers of covered drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with specific exceptions, to report payments and other transfers of value provided during the previous year to physicians, as defined by such law, certain other healthcare providers starting in 2022 (for payments made in 2021), and teaching hospitals, as well as certain ownership and investment interests held by such physicians and their immediate family, which includes annual data collection and reporting obligations;

 

   

analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and

 

   

some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures.

 

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Efforts to ensure that Chinook’s business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that Chinook’s business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If Chinook’s operations are found to be in violation of any of these laws or any other governmental regulations that may apply to Chinook, Chinook may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of product candidates from government-funded healthcare programs, such as Medicare and Medicaid, disgorgement, contractual damages, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of Chinook’s operations. If any of the physicians or other healthcare providers or entities with whom Chinook expects to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programs.

Risks Related to Chinook’s Intellectual Property

Chinook’s success depends in part on its ability to obtain, maintain and protect its intellectual property. It is difficult and costly to protect Chinook’s proprietary rights and technology, and Chinook may not be able to ensure their protection.

Chinook’s commercial success will depend in large part on obtaining and maintaining patent, trademark, trade secret and other intellectual property protection of Chinook’s proprietary technologies and product candidates, which include atrasentan and the other product candidates Chinook has in development, their respective components, formulations, combination therapies, methods used to manufacture them and methods of treatment, as well as successfully defending Chinook’s patents and other intellectual property rights against third-party challenges. Chinook’s ability to stop unauthorized third parties from making, using, selling, offering to sell, importing or otherwise commercializing Chinook’s product candidates is dependent upon the extent to which Chinook has rights under valid and enforceable patents or trade secrets that cover these activities. If Chinook is unable to secure and maintain patent protection for any product or technology Chinook develops, or if the scope of the patent protection secured is not sufficiently broad, Chinook’s competitors could develop and commercialize products and technology similar or identical to Chinook’s, and Chinook’s ability to commercialize any product candidates Chinook may develop may be adversely affected.

The patenting process is expensive and time-consuming, and Chinook may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, Chinook may not pursue or obtain patent protection in all relevant markets. It is also possible that Chinook will fail to identify patentable aspects of Chinook’s research and development activities before it is too late to obtain patent protection. Moreover, in some circumstances, Chinook may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that Chinook licenses from or licenses to third parties and may be reliant on Chinook’s licensors or licensees to do so. Chinook’s pending and future patent applications may not result in issued patents. Even if patent applications Chinook licenses or owns currently or in the future issue as patents, they may not issue in a form that will provide Chinook with any meaningful protection, prevent competitors or other third parties from competing with Chinook, or otherwise provide Chinook with any competitive advantage. Any patents that Chinook holds or in-licenses may be challenged, narrowed, circumvented or invalidated by third parties. Consequently, Chinook does not know whether any of Chinook’s platform advances and product candidates will be protectable or remain protected by valid and enforceable patents. In addition, Chinook’s existing patents and any future patents Chinook obtains may not be sufficiently broad to prevent others from using Chinook’s technology or from developing competing products and technologies.

 

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Chinook depends on intellectual property licensed from third parties, and its licensors may not always act in Chinook’s best interest. If Chinook fails to comply with its obligations under its intellectual property licenses, if the licenses are terminated, or if disputes regarding these licenses arise, Chinook could lose significant rights that are important to its business.

Chinook is dependent on patents, know-how and proprietary technology licensed from others. Chinook’s licenses to such patents, know-how and proprietary technology may not provide exclusive rights in all relevant fields of use and in all territories in which Chinook may wish to develop or commercialize Chinook’s products in the future. The agreements under which Chinook licenses patents, know-how and proprietary technology from others are complex, and certain provisions in such agreements may be susceptible to multiple interpretations.

For example, Chinook is a party to a license agreement with AbbVie, pursuant to which Chinook in-licenses worldwide, exclusive rights to atrasentan, including responsibility for its development and commercialization. For more information regarding this license agreement, please see “Chinook’s Business—License Agreements.” This agreement imposes various diligence, milestone payment, royalty, insurance and other obligations on Chinook. If Chinook fails to comply with these obligations, Chinook’s licensor may have the right to terminate Chinook’s license, in which event Chinook would not be able to develop or market atrasentan or any other technology or product candidates covered by the intellectual property licensed under this agreement. In addition, Chinook may need to obtain additional licenses from Chinook’s existing licensors and others to advance Chinook’s research or allow commercialization of product candidates Chinook may develop. It is possible that Chinook may be unable to obtain any additional licenses at a reasonable cost or on reasonable terms, if at all. In either event, Chinook may be required to expend significant time and resources to redesign Chinook’s technology, product candidates, or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If Chinook is unable to do so, Chinook may be unable to develop or commercialize the affected technology or product candidates.

If Chinook’s licensors fail to adequately protect Chinook’s licensed intellectual property, Chinook’s ability to commercialize product candidates could suffer. Chinook does not have complete control over the maintenance, prosecution and litigation of Chinook’s in-licensed patents and patent applications and may have limited control over future intellectual property that may be in-licensed. For example, Chinook cannot be certain that activities such as the maintenance and prosecution by Chinook’s licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. It is possible that Chinook’s licensors’ infringement proceedings or defense activities may be less vigorous than had Chinook conducted them itself or may not be conducted in accordance with Chinook’s best interests.

In addition, the resolution of any contract interpretation disagreement that may arise could narrow what Chinook believes to be the scope of Chinook’s rights to the relevant patents, know-how and proprietary technology, or increase what Chinook believes to be Chinook’s financial or other obligations under the relevant agreement. Disputes that may arise between Chinook and Chinook’s licensors regarding intellectual property subject to a license agreement could include disputes regarding:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

whether and the extent to which Chinook’s technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

   

Chinook’s right to sublicense patent and other rights to third parties under collaborative development relationships;

 

   

Chinook’s diligence obligations with respect to the use of the licensed technology in relation to Chinook’s development and commercialization of Chinook’s product candidates and what activities satisfy those diligence obligations;

 

   

royalty, milestone or other payment obligations that may result from the advancement or commercial sale of any of Chinook’s product candidates; and

 

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the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by Chinook’s licensors and Chinook.

If disputes over intellectual property that Chinook has licensed prevent or impair Chinook’s ability to maintain Chinook’s current licensing arrangements on acceptable terms, Chinook may be unable to successfully develop and commercialize the affected technology or product candidates.

Chinook’s owned and in-licensed patents and patent applications may not provide sufficient protection of Chinook’s atrasentan product candidate and Chinook’s other product candidates or result in any competitive advantage.

Chinook has in-licensed issued U.S. patents and foreign patent applications that cover formulations and methods and certain compositions of matter of use related directly to atrasentan from AbbVie. As of the date of this proxy statement/prospectus, Chinook has applied for patent applications intended to specifically cover additional methods of treatment and combinations of atrasentan with other therapies in kidney disease. Chinook cannot be certain that any of these patent applications will issue as patents, and if they do, that such patents will cover or adequately protect atrasentan or that such patents will not be challenged, narrowed, circumvented, invalidated or held unenforceable.

In addition to claims directed toward the technology underlying atrasentan, Chinook’s owned and in-licensed patents and patent applications contain claims directed to compositions of matter on the active pharmaceutical ingredients, or APIs, in Chinook’s other product candidates, as well as methods-of-use directed to the use of an API for a specified treatment. Composition-of-matter patents on the API in prescription drug products provide protection without regard to any particular method of use of the API used. Method-of-use patents do not prevent a competitor or other third party from developing or marketing an identical product for an indication that is outside the scope of the patented method. Patents covering methods-of-use are not available in certain foreign countries, in which case Chinook may not be able to prevent competitors or third parties from marketing Chinook’s product candidates in those countries. Moreover, with respect to method-of-use patents, even if competitors or other third parties do not actively promote their product for Chinook’s targeted indications or uses for which Chinook may obtain patents, providers may recommend that patients use these products off-label, or patients may do so themselves. Although off-label use may infringe or contribute to the infringement of method-of-use patents, the practice is common, and this type of infringement is difficult to prevent or prosecute.

The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that Chinook owns or in-license may fail to result in issued patents with claims that cover Chinook’s product candidates or uses thereof in the United States or in other foreign countries. For example, while Chinook’s patent applications are pending, Chinook may be subject to a third party preissuance submission of prior art to the United States Patent and Trademark Office, or USPTO, or become involved in interference or derivation proceedings, or equivalent proceedings in foreign jurisdictions. Even if patents do successfully issue, third parties may challenge their inventorship, validity, enforceability or scope, including through opposition, revocation, reexamination, post-grant and inter partes review proceedings. An adverse determination in any such submission, proceeding or litigation may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated or held unenforceable, which could limit Chinook’s ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of Chinook’s technology and product candidates. Furthermore, even if they are unchallenged, Chinook’s patents and patent applications may not adequately protect Chinook’s intellectual property or prevent others from designing around Chinook’s claims. Moreover, some of Chinook’s owned and in-licensed patents and patent applications may be co-owned with third parties. If Chinook is unable to obtain an exclusive license to any such third-party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including Chinook’s competitors, and Chinook’s competitors could market competing products and technology. In addition, Chinook may need the

 

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cooperation of any such co-owners of Chinook’s patents in order to enforce such patents against third parties, and such cooperation may not be provided to Chinook. If the breadth or strength of protection provided by the patent applications Chinook holds with respect to Chinook’s product candidates is threatened, it could dissuade companies from collaborating with Chinook to develop, and threaten Chinook’s ability to commercialize, Chinook’s product candidates. Further, if Chinook encounters delays in development, testing, and regulatory review of new product candidates, the period of time during which Chinook could market Chinook’s product candidates under patent protection would be reduced or eliminated.

Since patent applications in the United States and other countries are confidential for a period of time after filing, at any moment in time, Chinook cannot be certain that it was in the past or will be in the future the first to file any patent application related to Chinook’s product candidates. In addition, some patent applications in the United States may be maintained in secrecy until the patents are issued. As a result, there may be prior art of which Chinook is not aware that may affect the validity or enforceability of a patent claim, and Chinook may be subject to priority disputes. Chinook may be required to disclaim part or all of the term of certain patents or all of the term of certain patent applications. There may be prior art of which Chinook is not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which Chinook is aware, but which Chinook does not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that, if challenged, Chinook’s patents would be declared by a court, patent office or other governmental authority to be valid or enforceable or that even if found valid and enforceable, a competitor’s technology or product would be found by a court to infringe Chinook’s patents. Chinook may analyze patents or patent applications of Chinook’s competitors that Chinook believes are relevant to Chinook’s activities, and consider that Chinook is free to operate in relation to Chinook’s product candidates, but Chinook’s competitors may achieve issued claims, including in patents Chinook considers to be unrelated, that block Chinook’s efforts or potentially result in Chinook’s product candidates or Chinook’s activities infringing such claims. It is possible that Chinook’s competitors may have filed, and may in the future file, patent applications covering Chinook’s products or technology similar to Chinook’s. Those patent applications may have priority over Chinook’s owned and in-licensed patent applications or patents, which could require Chinook to obtain rights to issued patents covering such technologies. The possibility also exists that others will develop products that have the same effect as Chinook’s product candidates on an independent basis that do not infringe Chinook’s patents or other intellectual property rights, or will design around the claims of patents that Chinook has had issued that cover Chinook’s product candidates or their use.

Likewise, Chinook’s currently owned and in-licensed patents and patent applications, if issued as patents, directed to Chinook’s proprietary technologies and Chinook’s product candidates are expected to expire from 2028 through 2041, without taking into account any possible patent term adjustments or extensions. Chinook’s earliest in-licensed patents may expire before, or soon after, Chinook’s first product achieves marketing approval in the United States or foreign jurisdictions. Additionally, Chinook cannot be assured that the USPTO or relevant foreign patent offices will grant any of the pending patent applications Chinook owns or in-licenses currently or in the future. Upon the expiration of Chinook’s current patents, Chinook may lose the right to exclude others from practicing these inventions. The expiration of these patents could also have a similar material adverse effect on Chinook’s business, financial condition, results of operations and prospects.

The degree of future protection for Chinook’s proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect Chinook’s rights or permit Chinook to gain or keep Chinook’s competitive advantage. For example:

 

   

others may be able to make or use compounds that are similar to the active compositions of Chinook’s product candidates but that are not covered by the claims of Chinook’s patents;

 

   

the APIs in Chinook’s current product candidates will eventually become commercially available in generic drug products, and no patent protection may be available with regard to formulation or method of use;

 

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Chinook’s licensors, as the case may be, may fail to meet Chinook’s obligations to the U.S. government regarding any in-licensed patents and patent applications funded by U.S. government grants, leading to the loss or unenforceability of patent rights;

 

   

Chinook’s licensors, as the case may be, might not have been the first to file patent applications for certain inventions;

 

   

others may independently develop similar or alternative technologies or duplicate any of Chinook’s technologies;

 

   

it is possible that Chinook’s pending patent applications will not result in issued patents;

 

   

it is possible that there are prior public disclosures that could invalidate Chinook’s owned or in-licensed patents, as the case may be, or parts of Chinook’s owned or in-licensed patents;

 

   

it is possible that others may circumvent Chinook’s owned or in-licensed patents;

 

   

it is possible that there are unpublished applications or patent applications maintained in secrecy that may later issue with claims covering Chinook’s product candidates or technology similar to Chinook’s;

 

   

the laws of foreign countries may not protect Chinook’s or Chinook’s licensors’, as the case may be, proprietary rights to the same extent as the laws of the United States;

 

   

the claims of Chinook’s owned or in-licensed issued patents or patent applications, if and when issued, may not adequately cover Chinook’s product candidates;

 

   

Chinook’s owned or in-licensed issued patents may not provide Chinook with any competitive advantages, may be narrowed in scope, or be held invalid or unenforceable as a result of legal challenges by third parties;

 

   

the inventors of Chinook’s owned or in-licensed patents or patent applications may become involved with competitors, develop products or processes that design around Chinook’s patents, or become hostile to Chinook or the patents or patent applications on which they are named as inventors;

 

   

it is possible that Chinook’s owned or in-licensed patents or patent applications omit individual(s) that should be listed as inventor(s) or include individual(s) that should not be listed as inventor(s), which may cause these patents or patents issuing from these patent applications to be held invalid or unenforceable or such omitted individuals may grant licenses to third parties;

 

   

Chinook has engaged in scientific collaborations in the past and will continue to do so in the future and Chinook’s collaborators may develop adjacent or competing products that are outside the scope of Chinook’s patents;

 

   

Chinook may not develop additional proprietary technologies for which Chinook can obtain patent protection;

 

   

it is possible that product candidates or diagnostic tests Chinook develops may be covered by third parties’ patents or other exclusive rights; or

 

   

the patents of others may have an adverse effect on Chinook’s business.

Any of the foregoing could have a material adverse effect on Chinook’s business, financial conditions, results of operations and prospects.

Chinook’s strategy of obtaining rights to key technologies through in-licenses may not be successful.

The future growth of Chinook’s business will depend in part on Chinook’s ability to in-license or otherwise acquire the rights to additional product candidates and technologies. Although Chinook has succeeded in licensing technology from AbbVie in the past, Chinook cannot assure you that Chinook will be able to in-license or acquire the rights to any product candidates or technologies from third parties on acceptable terms or at all.

 

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For example, Chinook’s agreements with certain of its third-party research partners provide that improvements developed in the course of its relationship may be owned solely by either Chinook or its third-party research partner, or jointly between Chinook and the third party. If Chinook determines that exclusive rights to such improvements owned solely by a research partner or other third party with whom Chinook collaborates are necessary to commercialize Chinook’s drug candidates or maintain Chinook’s competitive advantage, Chinook may need to obtain an exclusive license from such third party in order to use the improvements and continue developing, manufacturing or marketing Chinook’s drug candidates. Chinook may not be able to obtain such a license on an exclusive basis, on commercially reasonable terms, or at all, which could prevent Chinook from commercializing its drug candidates or allow Chinook’s competitors or others the opportunity to access technology that is important to Chinook’s business. Chinook also may need the cooperation of any co-owners of Chinook’s intellectual property in order to enforce such intellectual property against third parties, and such cooperation may not be provided to Chinook.

In addition, the in-licensing and acquisition of these technologies is a highly competitive area, and a number of more established companies are also pursuing strategies to license or acquire product candidates or technologies that Chinook may consider attractive. These established companies may have a competitive advantage over Chinook due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive Chinook to be a competitor may be unwilling to license rights to Chinook. Furthermore, Chinook may be unable to identify suitable product candidates or technologies within Chinook’s area of focus. If Chinook is unable to successfully obtain rights to suitable product candidates or technologies, Chinook’s business and prospects could be materially and adversely affected.

If Chinook is unable to protect the confidentiality of its trade secrets, Chinook’s business and competitive position would be harmed.

In addition to patent protection, Chinook relies upon know-how and trade secret protection, as well as non-disclosure agreements and invention assignment agreements with Chinook’s employees, consultants and third-parties, to protect Chinook’s confidential and proprietary information, especially where Chinook does not believe patent protection is appropriate or obtainable.

It is Chinook’s policy to require Chinook’s employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with Chinook. These agreements provide that all confidential information concerning Chinook’s business or financial affairs developed or made known to the individual or entity during the course of the party’s relationship with Chinook is to be kept confidential and not disclosed to third parties, except in certain specified circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual, and that are related to Chinook’s current or planned business or research and development or made during normal working hours, on Chinook’s premises or using Chinook’s equipment or proprietary information (or as otherwise permitted by applicable law), are Chinook’s exclusive property. In the case of consultants and other third parties, the agreements provide that all inventions conceived in connection with the services provided are Chinook’s exclusive property. However, Chinook cannot guarantee that Chinook has entered into such agreements with each party that may have or have had access to Chinook’s trade secrets or proprietary technology and processes. Chinook has also adopted policies and conducts training that provides guidance on Chinook’s expectations, and Chinook’s advice for best practices, in protecting its trade secrets. Despite these efforts, any of these parties may breach the agreements and disclose Chinook’s proprietary information, including its trade secrets, and Chinook may not be able to obtain adequate remedies for such breaches.

In addition to contractual measures, Chinooks tries to protect the confidential nature of Chinook’s proprietary information through other appropriate precautions, such as physical and technological security measures. However, trade secrets and know-how can be difficult to protect. These measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access,

 

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provide adequate protection for Chinook’s proprietary information. Chinook’s security measures may not prevent an employee or consultant from misappropriating Chinook’s trade secrets and providing them to a competitor, and any recourse Chinook might take against this type of misconduct may not provide an adequate remedy to protect Chinook’s interests fully. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, trade secrets may be independently developed by others in a manner that could prevent Chinook from receiving legal recourse. If any of Chinook’s confidential or proprietary information, such as its trade secrets, were to be disclosed or misappropriated, such as through a data breach, or if any of that information was independently developed by a competitor, Chinook’s competitive position could be harmed. Additionally, certain trade secret and proprietary information may be required to be disclosed in submissions to regulatory authorities. If such authorities do not maintain the confidential basis of such information or disclose it as part of the basis of regulatory approval, Chinook’s competitive position could be adversely affected.

In addition, courts outside the United States are sometimes less willing to protect trade secrets. If Chinook chooses to go to court to stop a third party from using any of Chinook’s trade secrets, Chinook may incur substantial costs. Even if Chinook is successful, these types of lawsuits may consume Chinook’s time and other resources. Although Chinook takes steps to protect Chinook’s proprietary information and trade secrets, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to Chinook’s trade secrets or disclose Chinook’s technology, through legal or illegal means. As a result, Chinook may not be able to meaningfully protect its trade secrets. Any of the foregoing could have a material adverse effect on Chinook’s business, financial condition, results of operations and prospects.

Third-party claims of intellectual property infringement may prevent, delay or otherwise interfere with Chinook’s product discovery and development efforts.

Chinook’s commercial success depends in part on Chinook’s ability to develop, manufacture, market and sell Chinook’s product candidates and use Chinook’s proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property or other proprietary rights of third parties. There is a substantial amount of litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation, inter partes review, post grant review, and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. Chinook may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that Chinook’s product candidates and/or proprietary technologies infringe, misappropriate or otherwise violate their intellectual property rights. Numerous U.S. and foreign issued patents and pending patent applications that are owned by third parties exist in the fields in which Chinook is developing Chinook’s product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that Chinook’s product candidates may give rise to claims of infringement of the patent rights of others. Moreover, it is not always clear to industry participants, including Chinook, which patents cover various types of drugs, products or their methods of use or manufacture. Thus, because of the large number of patents issued and patent applications filed in Chinook’s field, third parties may allege they have patent rights encompassing Chinook’s product candidates, technologies or methods.

If a third-party claims that Chinook infringes, misappropriates or otherwise violates its intellectual property rights, Chinook may face a number of issues, including, but not limited to:

 

   

infringement and other intellectual property claims that, regardless of merit, may be expensive and time-consuming to litigate and may divert Chinook’s management’s attention from its core business;

 

   

substantial damages for infringement, which Chinook may have to pay if a court decides that the product candidate or technology at issue infringes on or violates the third party’s rights, and, if the court finds that the infringement was willful, Chinook could be ordered to pay treble damages plus the patent owner’s attorneys’ fees;

 

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a court prohibiting Chinook from developing, manufacturing, marketing or selling Chinook’s product candidates, or from using Chinook’s proprietary technologies, unless the third-party licenses its product rights or proprietary technology to Chinook, which it is not required to do, on commercially reasonable terms or at all;

 

   

if a license is available from a third party, Chinook may have to pay substantial royalties, upfront fees and other amounts, and/or grant cross-licenses to intellectual property rights for Chinook’s product candidates;

 

   

the requirement that Chinook redesign its product candidates or processes so they do not infringe, which may not be possible or may require substantial monetary expenditures and time; and

 

   

there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of Chinook’s common stock.

Some of Chinook’s competitors may be able to sustain the costs of complex patent litigation more effectively than Chinook can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on Chinook’s ability to raise the funds necessary to continue Chinook’s operations or could otherwise have a material adverse effect on Chinook’s business, financial condition, results of operations and prospects.

Third parties may assert that Chinook is employing their proprietary technology without authorization, including by enforcing its patents against Chinook by filing a patent infringement lawsuit against Chinook. In this regard, patents issued in the United States by law enjoy a presumption of validity that can be rebutted only with evidence that is “clear and convincing,” a heightened standard of proof.

There may be third-party patents of which Chinook is currently unaware with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of Chinook’s product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that Chinook’s product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of Chinook’s technologies infringes upon these patents.

If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of Chinook’s product candidates, or materials used in or formed during the manufacturing process, or any final product itself, the holders of those patents may be able to block Chinook’s ability to commercialize Chinook’s product candidate unless Chinook obtains a license under the applicable patents, or until those patents were to expire or those patents are finally determined to be invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of Chinook’s formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of that patent may be able to block Chinook’s ability to develop and commercialize the product candidate unless Chinook obtains a license or until such patent expires or is finally determined to be invalid or unenforceable. In either case, a license may not be available on commercially reasonable terms, or at all, particularly if such patent is owned or controlled by one of Chinook’s primary competitors. If Chinook is unable to obtain a necessary license to a third-party patent on commercially reasonable terms, or at all, Chinook’s ability to commercialize Chinook’s product candidates may be impaired or delayed, which could significantly harm Chinook’s business. Even if Chinook obtains a license, it may be non-exclusive, thereby giving Chinook’s competitors access to the same technologies licensed to Chinook. In addition, if the breadth or strength of protection provided by Chinook’s patents and patent applications is threatened, it could dissuade companies from collaborating with Chinook to license, develop or commercialize current or future product candidates.

Parties making claims against Chinook may seek and obtain injunctive or other equitable relief, which could effectively block Chinook’s ability to further develop and commercialize Chinook’s product candidates. Defense

 

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of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee time and resources from Chinook’s business. In the event of a successful claim of infringement against Chinook, Chinook may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign Chinook’s infringing products, which may be impossible or require substantial time and monetary expenditure. Chinook cannot predict whether any license of this nature would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, Chinook may need to obtain licenses from third parties to advance Chinook’s research or allow commercialization of Chinook’s product candidates and Chinook may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, Chinook would be unable to further develop and commercialize Chinook’s product candidates, which could significantly harm Chinook’s business.

Chinook may be involved in lawsuits to protect or enforce its patents or the patents of its licensors, which could be expensive, time-consuming and unsuccessful and could result in a finding that such patents are unenforceable or invalid.

Competitors may infringe Chinook’s patents or the patents of its licensors. To counter infringement or unauthorized use, Chinook may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that one or more of Chinook’s patents is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that Chinook’s patents do not cover the technology in question.

In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace, and there are numerous grounds upon which a third party can assert invalidity or unenforceability of a patent. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. These types of mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). These types of proceedings could result in revocation or amendment to Chinook’s patents such that they no longer cover Chinook’s product candidates. The outcome for any particular patent following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, Chinook cannot be certain that there is no invalidating prior art, of which Chinook, Chinook’s patent counsel and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, or if Chinook is otherwise unable to adequately protect Chinook’s rights, Chinook would lose at least part, and perhaps all, of the patent protection on Chinook’s product candidates. Defense of these types of claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from Chinook’s business.

Conversely, Chinook may choose to challenge the patentability of claims in a third party’s U.S. patent by requesting that the USPTO review the patent claims in re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings), or Chinook may choose to challenge a third party’s patent in patent opposition proceedings in the Canadian Intellectual Property Office, or CIPO, the European Patent Office, or EPO, or another foreign patent office. Even if successful, the costs of these opposition proceedings could be substantial, and may consume Chinook’s time or other resources. If Chinook fails to obtain a favorable result at the USPTO, CIPO, EPO or other patent office then Chinook may be exposed to litigation by a third party alleging that the patent may be infringed by Chinook’s product candidates or proprietary technologies.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Chinook’s confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these

 

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results to be negative, that perception could have a substantial adverse effect on the price of Chinook’s common stock. Any of the foregoing could have a material adverse effect on Chinook’s business financial condition, results of operations and prospects.

Chinook has limited foreign intellectual property rights and may not be able to protect its intellectual property rights throughout the world.

Chinook currently has limited intellectual property rights outside the United States. Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and Chinook’s intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. For example, patents covering methods-of-use are not available in certain foreign countries. Consequently, Chinook may not be able to prevent third parties from practicing Chinook’s inventions in all countries outside the United States, or from selling or importing products made using Chinook’s inventions in and into the United States or other jurisdictions. Competitors may use Chinook’s technologies in jurisdictions where Chinook does not have or has not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where Chinook has patent protection but where enforcement is not as strong as that in the United States. These products may compete with Chinook’s product candidates in jurisdictions where Chinook does not have any issued patents and Chinook’s patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, particularly those relating to biopharmaceutical products, which could make it difficult for Chinook to stop the infringement of Chinook’s patents or marketing of competing products against third parties in violation of Chinook’s proprietary rights generally. The initiation of proceedings by third parties to challenge the scope or validity of Chinook’s patent rights in foreign jurisdictions could result in substantial cost and divert Chinook’s efforts and attention from other aspects of Chinook’s business. Proceedings to enforce Chinook’s patent rights in foreign jurisdictions could result in substantial costs and divert Chinook’s efforts and attention from other aspects of Chinook’s business, could put Chinook’s patents at risk of being invalidated or interpreted narrowly and Chinook’s patent applications at risk of not issuing and could provoke third parties to assert claims against Chinook. Chinook may not prevail in any lawsuits that Chinook initiates and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, Chinook’s efforts to enforce Chinook’s intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that Chinook develops or licenses.

Third parties may assert that Chinook’s employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.

As is common in the biotechnology and pharmaceutical industries, Chinook employs individuals who were previously employed at universities or other biopharmaceutical or pharmaceutical companies, including Chinook’s competitors or potential competitors. Although Chinook tries to ensure that Chinook’s employees and consultants do not use the proprietary information or know-how of others in their work for Chinook, Chinook may be subject to claims that Chinook’s employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third parties. Chinook may then have to pursue litigation to defend against these claims. If Chinook fails in defending any claims of this nature, in addition to paying monetary damages, Chinook may lose valuable intellectual property rights or personnel. Even if Chinook is successful in defending against these types of claims, litigation or other legal proceedings relating to intellectual property claims may cause Chinook to incur significant expenses, and could distract Chinook’s technical and management personnel from

 

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their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and, if securities analysts or investors perceive these results to be negative, that perception could have a substantial adverse effect on the price of Chinook’s common stock. This type of litigation or proceeding could substantially increase Chinook’s operating losses and reduce Chinook’s resources available for development activities, and Chinook may not have sufficient financial or other resources to adequately conduct this type of litigation or proceedings. For example, some of Chinook’s competitors may be able to sustain the costs of this type of litigation or proceedings more effectively than Chinook can because of their substantially greater financial resources. In any case, uncertainties resulting from the initiation and continuation of intellectual property litigation or other intellectual property related proceedings could adversely affect Chinook’s ability to compete in the marketplace.

Chinook may not be successful in obtaining or maintaining necessary rights to product components and processes for its development pipeline through acquisitions and in-licenses.

The growth of Chinook’s business may depend in part on its ability to acquire, in-license or use third-party proprietary rights.

For example, Chinook’s product candidates may require specific formulations to work effectively and efficiently, Chinook may develop product candidates containing Chinook’s compounds and pre-existing pharmaceutical compounds, or Chinook may be required by the FDA or comparable foreign regulatory authorities to provide a companion diagnostic test or tests with Chinook’s product candidates, any of which could require Chinook to obtain rights to use intellectual property held by third parties. In addition, with respect to any patents Chinook may co-own with third parties, Chinook may require licenses to such co-owners interest to such patents. Chinook may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that Chinook identifies as necessary or important to Chinook’s business operations. In addition, Chinook may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. Were that to happen, Chinook may need to cease use of the compositions or methods covered by those third-party intellectual property rights, and may need to seek to develop alternative approaches that do not infringe on those intellectual property rights, which may entail additional costs and development delays, even if Chinook were able to develop such alternatives, which may not be feasible. Even if Chinook is able to obtain a license, it may be non-exclusive, which means that Chinook’s competitors may also receive access to the same technologies licensed to Chinook. In that event, Chinook may be required to expend significant time and resources to develop or license replacement technology.

Additionally, Chinook sometimes collaborates with academic institutions to accelerate Chinook’s preclinical research or development under written agreements with these institutions. In certain cases, these institutions provide Chinook with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Even if Chinook holds such an option, Chinook may be unable to negotiate a license from the institution within the specified timeframe or under terms that are acceptable to Chinook. If Chinook is unable to do so, the institution may offer the intellectual property rights to others, potentially blocking Chinook’s ability to pursue its program.

The licensing and acquisition of third-party intellectual property rights is a competitive area, and companies that may be more established or have greater resources than Chinook does may also be pursuing strategies to license or acquire third-party intellectual property rights that Chinook may consider necessary or attractive in order to commercialize Chinook’s product candidates. More established companies may have a competitive advantage over Chinook due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive Chinook to be a competitor may be unwilling to assign or license rights to Chinook. There can be no assurance that Chinook will be able to successfully complete these types of negotiations and ultimately acquire the rights to the intellectual property surrounding the additional product candidates that Chinook may seek to develop or market. If Chinook is unable to successfully obtain rights to required third-party intellectual property or to maintain the existing intellectual property rights Chinook

 

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has, Chinook may have to abandon development of certain programs and Chinook’s business financial condition, results of operations and prospects could suffer.

Obtaining and maintaining Chinook’s patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and Chinook’s patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign patent agencies also require compliance with a number of procedural, documentary, fee payment and other provisions during the patent application process and following the issuance of a patent. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable laws and rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. Were a noncompliance event to occur, Chinook’s competitors might be able to enter the market, which would have a material adverse effect on Chinook’s business financial condition, results of operations and prospects.

Changes in patent law in the United States and in non-U.S. jurisdictions could diminish the value of patents in general, thereby impairing Chinook’s ability to protect its product candidates.

As is the case with other biopharmaceutical companies, Chinook’s success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain.

Past or future patent reform legislation could increase the uncertainties and costs surrounding the prosecution of Chinook’s patent applications and the enforcement or defense of Chinook’s issued patents. For example, in March 2013, under the Leahy-Smith America Invents Act, or America Invents Act, the United States moved from a “first to invent” to a “first-to-file” patent system. Under a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whether another inventor had made the invention earlier. The America Invents Act includes a number of other significant changes to U.S. patent law, including provisions that affect the way patent applications are prosecuted, redefine prior art and establish a new post-grant review system. The effects of these changes continue to evolve as the USPTO continues to promulgate new regulations and procedures in connection with the America Invents Act and many of the substantive changes to patent law, including the “first-to-file” provisions, only became effective in March 2013. In addition, the courts have yet to address many of these provisions and the applicability of the act and new regulations on the specific patents discussed in this filing have not been determined and would need to be reviewed. Moreover, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of Chinook’s patent applications and the enforcement or defense of Chinook’s issued patents.

Additionally, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to Chinook’s ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken Chinook’s ability to obtain new patents or to enforce Chinook’s existing patents and patents that Chinook might obtain in the future. For example, in the case, Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to DNA molecules are not patent-eligible.

 

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Similarly, other cases by the U.S. Supreme Court have held that certain methods of treatment or diagnosis are not patent-eligible. U.S. law regarding patent-eligibility continues to evolve. While Chinook does not believe that any of Chinook’s owned or in-licensed patents will be found invalid based on these changes to US patent law, Chinook cannot predict how future decisions by the courts, the U.S. Congress or the USPTO may impact the value of Chinook’s patents. Any similar adverse changes in the patent laws of other jurisdictions could also have a material adverse effect on Chinook’s business, financial condition, results of operations and prospects.

Patent terms may be inadequate to protect Chinook’s competitive position on its product candidates for an adequate amount of time.

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering Chinook’s product candidates are obtained, once the patent life has expired, Chinook may be open to competition from competitive products, including generics. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting Chinook’s product candidates might expire before or shortly after Chinook or Chinook’s partners commercialize those candidates. As a result, Chinook’s owned and licensed patent portfolio may not provide Chinook with sufficient rights to exclude others from commercializing products similar or identical to Chinook’s.

If Chinook does not obtain patent term extension for any product candidates it may develop, Chinook’s business may be materially harmed.

Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidates Chinook may develop, one or more of Chinook’s U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during clinical trials and the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent per product may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. U.S. and ex-U.S. law concerning patent term extensions and foreign equivalents continue to evolve. Even if Chinook were to seek a patent term extension, it may not be granted because of, for example, the failure to exercise due diligence during the testing phase or regulatory review process, the failure to apply within applicable deadlines, the failure to apply prior to expiration of relevant patents, or any other failure to satisfy applicable requirements. Moreover, the applicable time period of extension or the scope of patent protection afforded could be less than Chinook requests. If Chinook is unable to obtain patent term extension or term of any such extension is less than it requests, Chinook’s competitors may obtain approval of competing products following Chinook’s patent expiration sooner than expected, and Chinook’s business, financial condition, results of operations and prospects could be materially harmed.

Some intellectual property that Chinook has in-licensed may have been discovered through government funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies. Compliance with such regulations may limit Chinook’s exclusive rights, and limit its ability to contract with non-U.S. manufacturers.

Inventions contained within some of Chinook’s in-licensed patents and patent applications may have been made using U.S. government funding or other non-governmental funding. As a result, the U.S. government may have certain rights to intellectual property embodied in its current or future product candidates pursuant to the Bayh-Dole Act of 1980, or Bayh-Dole Act, and implementing regulations. Chinook relies on Chinook’s licensors to ensure compliance with applicable obligations arising from such funding, such as timely reporting, an obligation associated with in-licensed patents and patent applications. The failure of Chinook’s licensors to meet

 

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their obligations may lead to a loss of rights or the unenforceability of relevant patents. For example, the government could have certain rights in such in-licensed patents, including a non-exclusive license authorizing the government to use the invention or to have others use the invention on its behalf for non-commercial purposes. In addition, Chinook’s rights in such in-licensed government-funded inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. Any of the foregoing could harm Chinook’s business, financial condition, results of operations and prospects significantly.

Risks Related to Employee Matters, Managing Growth and Other Risks Related to Chinook’s Business

Chinook expects to expand its development and regulatory capabilities, and as a result, Chinook may encounter difficulties in managing its growth, which could disrupt Chinook’s operations.

Chinook expects to experience significant growth in the number of Chinook’s employees and the scope of Chinook’s operations, particularly in the areas of product candidate development, growing Chinook’s capability to conduct clinical trials, and, if approved, through commercialization of Chinook’s product candidates. To manage its anticipated future growth, Chinook must continue to implement and improve its managerial, operational and financial systems, expand its facilities and continue to recruit and train additional qualified personnel, or contract with third parties to provide these capabilities for Chinook. Due to Chinook’s limited financial resources and the limited experience of Chinook’s management team in managing a company with such anticipated growth, Chinook may not be able to effectively manage the expansion of Chinook’s operations or recruit and train additional qualified personnel. The expansion of Chinook’s operations may lead to significant costs and may divert Chinook’s management and business development resources. Any inability to manage growth could delay the execution of Chinook’s business plans or disrupt Chinook’s operations.

Chinook must attract and retain highly skilled employees to succeed.

To succeed, Chinook must recruit, retain, manage and motivate qualified clinical, scientific, technical and management personnel, and Chinook faces significant competition for experienced personnel. If Chinook does not succeed in attracting and retaining qualified personnel, particularly at the management level, it could adversely affect Chinook’s ability to execute its business plan, harm Chinook’s results of operations and increase Chinook’s capabilities to successfully commercialize atrasentan and other product candidates. In particular, Chinook believes that its future success is highly dependent upon the contributions of its senior management, particular its President and Chief Executive Officer, Eric Dobmeier. The loss of services of Mr. Dobmeier or any of Chinook’s senior management could delay or prevent the successful development of Chinook’s product pipeline, completion of Chinook’s planned clinical trials or the commercialization of Chinook’s product candidates, if approved. The competition for qualified personnel in the biotechnology field is intense and as a result, Chinook may be unable to continue to attract and retain qualified personnel necessary for the development of Chinook’s business or to recruit suitable replacement personnel.

Many of the other biotechnology companies that Chinook competes against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than Chinook does. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what Chinook has to offer. If Chinook is unable to continue to attract and retain high-quality personnel, the rate and success at which Chinook can discover and develop product candidates and Chinook’s business will be limited.

Future acquisitions or strategic alliances could disrupt Chinook’s business and harm Chinook’s financial condition and results of operations.

Chinook may acquire additional businesses or drugs, form strategic alliances or create joint ventures with third parties that Chinook believes will complement or augment Chinook’s existing business. If Chinook acquires businesses with promising markets or technologies, Chinook may not be able to realize the benefit of acquiring

 

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such businesses if Chinook is unable to successfully integrate them with Chinook’s existing operations and company culture. Chinook may encounter numerous difficulties in developing, manufacturing and marketing any new drugs resulting from a strategic alliance or acquisition that delay or prevent Chinook from realizing their expected benefits or enhancing Chinook’s business. Chinook cannot assure you that, following any such acquisition, Chinook will achieve the expected synergies to justify the transaction. The risks Chinook faces in connection with acquisitions, include:

 

   

diversion of management time and focus from operating Chinook’s business to addressing acquisition integration challenges;

 

   

coordination of research and development efforts;

 

   

retention of key employees from the acquired company;

 

   

changes in relationships with strategic partners as a result of product acquisitions or strategic positioning resulting from the acquisition;

 

   

cultural challenges associated with integrating employees from the acquired company into Chinook’s organization;

 

   

the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked sufficiently effective controls, procedures and policies;

 

   

liability for activities of the acquired company before the acquisition, including intellectual property infringement claims, violation of laws, commercial disputes, tax liabilities and other known liabilities;

 

   

unanticipated write-offs or charges; and

 

   

litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders or other third parties.

Chinook’s failure to address these risks or other problems encountered in connection with its past or future acquisitions or strategic alliances could cause Chinook to fail to realize the anticipated benefits of these transactions, cause Chinook to incur unanticipated liabilities and harm the business generally. There is also a risk that future acquisitions will result in the incurrence of debt, contingent liabilities, amortization expenses or incremental operating expenses, any of which could harm Chinook’s financial condition or results of operations.

If Chinook fails to comply with environmental, health, and safety laws and regulations, Chinook could become subject to fines or penalties or incur costs that could harm Chinook’s business.

Chinook will become subject to numerous environmental, health, and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Chinook’s operations will involve the use of hazardous and flammable materials, including chemicals and biological materials. Chinook’s operations also may produce hazardous waste products. Chinook generally anticipates contracting with third parties for the disposal of these materials and wastes. Chinook will not be able to eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from any use by Chinook of hazardous materials, Chinook could be held liable for any resulting damages, and any liability could exceed Chinook’s resources. Chinook also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations.

Although Chinook maintains workers’ compensation insurance to cover Chinook for costs and expenses Chinook may incur due to injuries to Chinook’s employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities.

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

 

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Unfavorable global economic conditions could adversely affect Chinook’s business, financial condition, stock price and results of operations.

Chinook’s results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. For example, a global economic downturn that could result from the COVID-19 pandemic could cause extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to Chinook’s business, including, weakened demand for Chinook’s product candidates and Chinook’s ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain Chinook’s suppliers, possibly resulting in supply disruption, or cause Chinook’s customers to delay making payments for Chinook’s services. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on Chinook’s growth strategy, financial performance and stock price and could require Chinook to delay or abandon clinical development plans. In addition, there is a risk that one or more of Chinook’s current service providers, manufacturers and other partners may not survive such difficult economic times, which could directly affect Chinook’s ability to attain Chinook’s operating goals on schedule and on budget. Any of the foregoing could harm Chinook’s business and Chinook cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact Chinook’s business. Furthermore, the combined company’s stock price may decline due in part to the volatility of the stock market and any general economic downturn.

Chinook or the third parties upon whom Chinook depends may be adversely affected by natural disasters and other calamities, including pandemics, such as the global outbreak of COVID-19, and Chinook’s business continuity and disaster recovery plans may not adequately protect Chinook from a serious disaster.

Natural disasters could severely disrupt Chinook’s operations and have a material adverse effect on Chinook’s business, results of operations, financial condition and prospects. If a natural disaster, fire, hurricane, power outage or other event occurred that prevented Chinook from using all or a significant portion of Chinook’s headquarters, that damaged critical infrastructure, such as Chinook’s suppliers’ manufacturing facilities, or that otherwise disrupted operations, such as data storage, it may be difficult or, in certain cases, impossible for Chinook to continue Chinook’s business for a substantial period of time.

Occurrences of epidemics or pandemics, depending on their scale, may cause different degrees of damage to the national and local economies within Chinook’s geographic focus. Global economic conditions may be disrupted by widespread outbreaks of infectious or contagious diseases, and such disruption may adversely affect clinical development plans. For example, the COVID-19 pandemic could have an adverse effect on the coordination of research and development, Chinook’s capital raising efforts, and the financial condition of Chinook’s business, as well as the ability of Chinook to retain key personnel and continue to expand product candidate development and conduct clinical trials. In addition, the impact of COVID-19 is likely to cause substantial changes in consumer behavior and has caused restrictions on business and individual activities, which are likely to lead to reduced economic activity. Extraordinary actions taken by international, federal, state and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including travel bans, quarantines, “stay-at-home” orders and similar mandates for many individuals and businesses to substantially restrict daily activities could have an adverse effect on Chinook’s financial condition and ability to raise financing.

The disaster recovery and business continuity plans Chinook has in place may prove inadequate in the event of a serious disaster or similar event. Chinook may incur substantial expenses as a result of the limited nature of Chinook’s disaster recovery and business continuity plans, which could have a material adverse effect on Chinook’s business. As a result of the COVID-19 pandemic, Chinook may experience reduction in research and development, clinical testing, regulatory compliance activities, and manufacturing activities, and is unable at this time to estimate the extent of the effect of COVID-19 on its business. The extent and duration of the economic

 

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slowdown attributable to COVID-19 remains uncertain at this time. A continued significant economic slowdown could have a substantial adverse effect on Chinook’s financial condition, liquidity, and results of operations. If these conditions persist for an extended term, it could have a material adverse effect on Chinook’s future revenue and sales.

Chinook’s internal computer and information systems, or those used by its CROs, CMOs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of Chinook’s development programs.

Despite the implementation of appropriate security measures, Chinook’s internal computer and information systems and those of Chinook’s current and any future CROs, CMOs and other contractors or consultants may become vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in Chinook’s operations, it could result in a material disruption of Chinook’s development programs and Chinook’s business operations, whether due to a loss of Chinook’s trade secrets or other proprietary information or other similar disruptions. For example, the loss of data from completed or future preclinical studies or clinical trials could result in significant delays in Chinook’s regulatory approval efforts and significantly increase Chinook’s costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, Chinook’s data or applications, or inappropriate disclosure of confidential or proprietary information, Chinook could incur liability, Chinook’s competitive position could be harmed and the further development and commercialization of Chinook’s product candidates could be significantly delayed. Chinook’s internal information technology systems and infrastructure are also vulnerable to damage from natural disasters, terrorism, war, telecommunication and electrical failures. System failures or outages, including any potential disruptions due to significantly increased global demand on certain cloud-based systems during the COVID-19 pandemic, could compromise Chinook’s ability to perform its day-to-day operations, which could harm its ability to conduct business or delay its financial reporting. Such failures could materially adversely affect Chinook’s operating results and financial condition.

Chinook is subject to a variety of privacy and data security laws, and Chinook’s failure to comply with them could harm Chinook’s business.

Chinook maintains a large quantity of sensitive information, including confidential business and patient health information in connection with Chinook’s preclinical studies, and are subject to laws and regulations governing the privacy and security of such information. In the United States, there are numerous federal and state privacy and data security laws and regulations governing the collection, use, disclosure and protection of personal information, including health information privacy laws, security breach notification laws, and consumer protection laws. Each of these laws is subject to varying interpretations and constantly evolving. In addition, Chinook may obtain health information from third parties (including research institutions from which it obtains clinical trial data) that are subject to privacy and security requirements under HIPAA. Depending on the facts and circumstances, Chinook could be subject to criminal penalties if it knowingly obtains, uses or discloses individually identifiable health information maintained by a HIPAA covered entity in a manner that is not authorized or permitted by HIPAA.

Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. For example, California enacted the California Consumer Privacy Act, or the CCPA, which took effect on January 1, 2020. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase Chinook’s compliance costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could increase Chinook’s potential liability and adversely affect Chinook’s business.

 

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In Canada, the Personal Information Protection and Electronic Documents Act, or PIPEDA, and similar provincial laws may impose obligations with respect to processing personal information, including health-related information. PIPEDA requires companies to obtain an individual’s consent when collecting, using or disclosing that individual’s personal information. Individuals have the right to access and challenge the accuracy of their personal information held by an organization, and personal information may only be used for the purposes for which it was collected. If an organization intends to use personal information for another purpose, it must again obtain that individual’s consent. Failure to comply with PIPEDA could result in significant fines and penalties.

In May 2018, the General Data Protection Regulation, or the GDPR, took effect in the European Economic Area, the EEA. The GDPR governs the collection, use, disclosure, transfer or other processing of personal data of natural persons. Among other things, the GDPR imposes strict obligations on the ability to process health-related and other personal data of data subjects in the EEA, including in relation to use, collection, analysis and transfer (including cross-border transfer) of such personal data. The GDPR includes requirements relating to the consent of the individuals to whom the personal data relates, including detailed notices for clinical trial subjects and investigators. The GDPR also includes certain requirements regarding the security of personal data and notification of data processing obligations or security incidents to appropriate data protection authorities or data subjects as well as requirements for establishing a lawful basis on which personal data can be processed. In addition, the GDPR increases the scrutiny of transfers of personal data from clinical trial sites located in the EEA to the United States and other jurisdictions that the European Commission does not recognize as having “adequate” data protection laws, and imposes substantial fines for breaches and violations (up to the greater of €20 million or 4% of Chinook’s consolidated annual worldwide gross revenue). Further, recent legal developments in Europe have created complexity and compliance uncertainty regarding certain transfers of information from the EEA to the United States. For example, on June 16, 2020, the Court of Justice of the European Union, or the CJEU, declared the EU-U.S. Privacy Shield framework, or the Privacy Shield, to be invalid. As a result, Privacy Shield is no longer a valid mechanism for transferring personal data from the EEA to the United States. Moreover, it is uncertain whether the standard contractual clauses will also be invalidated by the European courts or legislature, which seems possible given the rationale behind the CJEU’s concerns about U.S. law and practice on government surveillance. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR.

Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and Chinook may be required to put in place additional mechanisms ensuring compliance with the new data protection rules. If Chinook fails to comply with any such laws or regulations, Chinook may face significant fines and penalties that could adversely affect Chinook’s business, financial condition and results of operations.

Chinook may be unable to adequately protect its information systems from cyberattacks, which could result in the disclosure of confidential information, damage Chinook’s reputation, and subject Chinook to significant financial and legal exposure.

Cyberattacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyberattacks could include wrongful conduct by hostile foreign governments, industrial espionage, wire fraud and other forms of cyber fraud, the deployment of harmful malware, denial-of-service, social engineering fraud or other means to threaten data confidentiality, integrity and availability. A successful cyberattack could cause serious negative consequences for Chinook, including, without limitation, the disruption of operations, the misappropriation of confidential business information, including financial information, trade secrets, financial loss and the disclosure of corporate strategic plans. The COVID-19 pandemic is generally increasing the attack surface available to criminals, as more companies and individuals work online and work remotely, and as such, the risk of a cybersecurity incident potentially occurring, and Chinook’s investment in risk mitigations against such an incident, is increasing. For example, there has been an increase in phishing and spam emails as well as social engineering attempts from “hackers” hoping to use the recent COVID-19 pandemic to their advantage.

 

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Although Chinook devotes resources to protect its information systems, Chinook realizes that cyberattacks are a threat, and there can be no assurance that Chinook’s efforts will prevent information security breaches that would result in business, legal, financial or reputational harm to Chinook, or would have a material adverse effect on Chinook’s results of operations and financial condition.

In addition, the computer systems of various third parties on which Chinook relies, including its CROs, CMOs and other contractors, consultants and law and accounting firms, may sustain damage from computer viruses, unauthorized access, data breaches, phishing attacks, cybercriminals, natural disasters (including hurricanes and earthquakes), terrorism, war and telecommunication and electrical failures. Chinook relies on its third-party providers to implement effective security measures and identify and correct for any such failures, deficiencies or breaches.

Chinook’s employees, principal investigators, CROs, CMOs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

Chinook is exposed to the risk of fraud or other misconduct by Chinook’s employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with the regulations of FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to Chinook. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to Chinook’s reputation. It is not always possible to identify and deter employee misconduct, and the precautions Chinook takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting Chinook from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against Chinook, and Chinook is not successful in defending or asserting Chinook’s rights, those actions could have a significant impact on Chinook’s business, including the imposition of significant fines or other sanctions.

Chinook’s business entails a significant risk of product liability and Chinook’s ability to obtain sufficient insurance coverage could have a material and adverse effect on Chinook’s business, financial condition, results of operations and prospects.

Chinook will face an inherent risk of product liability exposure related to the testing of atrasentan and Chinook’s other product candidates in clinical trials and will face an even greater risk if Chinook commercializes any of Chinook’s product candidates. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in a product, negligence, strict liability or breach of warranty. Claims could also be asserted under U.S. state consumer protection acts. If Chinook cannot successfully defend Chinook’s against claims that Chinook’s product candidates caused injuries, Chinook could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

   

decreased demand for any product candidates that Chinook may develop;

 

   

injury to Chinook’s reputation and significant negative media attention;

 

   

withdrawal of clinical trial participants;

 

   

significant time and costs to defend the related litigation;

 

   

substantial monetary awards to trial participants or patients;

 

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loss of revenue;

 

   

termination of Chinook’s collaboration relationships or disputes with its collaborators;

 

   

voluntary product recalls, withdrawals or labeling restrictions; and

 

   

the inability to commercialize any product candidates that Chinook may develop.

While Chinook currently has insurance that Chinook believes is appropriate for Chinook’s stage of development, Chinook may need to obtain higher levels prior to clinical development or marketing atrasentan or any of Chinook’s future product candidates. Any insurance Chinook has or may obtain may not provide sufficient coverage against potential liabilities. Furthermore, clinical trial and product liability insurance is becoming increasingly expensive. As a result, Chinook may be unable to obtain sufficient insurance at a reasonable cost to protect Chinook against losses caused by product liability claims that could have a material and adverse effect on Chinook’s business, financial condition, results of operations and prospects.

Chinook’s ability to utilize its net operating loss carryforwards may be subject to limitations.

As of December 31, 2019, Chinook had net operating loss carryforwards for federal tax purposes of $7.6 million. To the extent that Chinook’s taxable income exceeds any current year operating losses, Chinook plans to use its carryforwards to offset income that would otherwise be taxable. In addition, under Section 382 of the Code, changes in its ownership may limit the amount of Chinook’s net operating loss carryforwards and tax credit carryforwards that could be utilized annually to offset its future taxable income, if any. This limitation would generally apply in the event of a cumulative change in ownership of Chinook of more than 50% within a three-year period. Chinook may have experienced ownership changes in the past and will likely experience ownership change in the future as a result of the merger. Any such limitation may significantly reduce Chinook’s ability to utilize its net operating loss carryforwards and tax credit carryforwards before they expire. Private placements and other transactions that have occurred since Chinook’s inception may also trigger such an ownership change pursuant to Section 382. Consequently, even if the combined company achieves profitability, it may not be able to utilize a material portion of Chinook, Aduro or the combined company’s net operating loss carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations. There is also a risk that due to regulatory changes, such as suspensions on the use of net operating losses, or NOLs, or other unforeseen reasons, Chinook’s existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities.

On March 27, 2020, the CARES Act was signed into law. The CARES Act changes certain provisions of the TCJA. Under the CARES Act, NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each of the five taxable years preceding the tax year of such loss, but NOLs arising in taxable years beginning after December 31, 2020 may not be carried back.

Under the TCJA, as modified by the CARES Act, NOLs and other carryforwards generated in tax years that began after December 31, 2017 may offset no more than 80% of current taxable income annually for taxable years beginning after December 31, 2020. Accordingly, if Chinook generates NOLs after the tax year ended December 31, 2017, it might have to pay more federal income taxes in a subsequent year as a result of the 80% taxable income limitation than it would have had to pay under the law in effect before the Tax Act as modified by the CARES Act.

U.S. federal income tax reform and changes in other tax laws could adversely affect Chinook.

In December 2017, the TCJA, was signed into law, significantly reforming the Code. The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of business interest, allows for the expensing of capital expenditures, puts into effect the migration from a “worldwide” system of taxation to a partial “territorial” system, and modifies or repeals many business deductions and credits.

 

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Chinook continues to examine the impact the TCJA may have on Chinook’s business. The TCJA is a far-reaching and complex revision to the U.S. federal income tax laws with disparate and, in some cases, countervailing impacts on different categories of taxpayers and industries, and will require subsequent rulemaking and interpretation in a number of areas. The long-term impact of the TCJA on the overall economy, the industries in which Chinook operates and its and its partners’ businesses cannot be reliably predicted at this early stage of the new law’s implementation. There can be no assurance that the TCJA will not negatively impact Chinook’s operating results, financial condition, and future business operations. The estimated impact of the TCJA is based on Chinook’s management’s current knowledge and assumptions, following consultation with Chinook’s tax advisors. Because of Chinook’s valuation allowance in the United States, ongoing tax effects of the Act are not expected to materially change Chinook’s effective tax rate in future periods.

In addition, new legislation or regulation which could affect Chinook’s tax burden could be enacted by any governmental authority. Chinook cannot predict the timing or extent of such tax-related developments which could have a negative impact on Chinook’s financial results. Additionally, Chinook uses its best judgment in attempting to quantify and reserve for these tax obligations. However, a challenge by a taxing authority, Chinook’s ability to utilize tax benefits such as carryforwards or tax credits, or a deviation from other tax-related assumptions could have a material adverse effect on Chinook’s business, results of operations or financial condition.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the documents incorporated by reference into this proxy statement/prospectus contain forward-looking statements relating to Aduro, Chinook, the merger and the other proposed transactions.

These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as Aduro and Chinook cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include any statements regarding the strategies, prospects, plans, expectations or objectives of management of Aduro or Chinook for future operations of the combined company, the progress, scope or timing of the development of the combined company’s product candidates, the benefits that may be derived from any future products or the commercial or market opportunity with respect to any future products of the combined company, the ability of the combined company to protect its intellectual property rights, the anticipated operations, financial position, ability to raise capital to fund operations, revenues, costs or expenses of Aduro, Chinook or the combined company, statements regarding future economic conditions or performance, statements of belief and any statement of assumptions underlying any of the foregoing. Forward-looking statements may also include any statements regarding the approval and closing of the merger, including the timing of the consummation of the merger, Aduro’s ability to solicit a sufficient number of proxies to approve the change of control resulting from the merger, satisfaction of conditions to the completion of the merger, the expected benefits of the merger, the ability of Aduro and Chinook to complete the merger, Chinook’s ability to complete the Chinook pre-closing financing immediately prior to the merger and any statement of assumptions underlying any of the foregoing.

For a discussion of the factors that may cause Aduro, Chinook or the combined company’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of Aduro and Chinook to complete the merger and the effect of the merger on the business of Aduro, Chinook and the combined company, please see the section titled “Risk Factors” beginning on page 22 of this proxy statement/prospectus. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by Aduro and incorporated by reference herein. Please see the section titled “Where You Can Find More Information” beginning on page 243 of this proxy statement/prospectus. There can be no assurance that the merger will be completed, or if it is completed, that it will be completed within the anticipated time period or that the expected benefits of the merger will be realized.

If any of these risks or uncertainties materialize or any of these assumptions prove incorrect, the results of Aduro, Chinook or the combined company could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus are current only as of the date on which the statements were made. Aduro and Chinook do not undertake any obligation to (and expressly disclaim any such obligation to) publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.

 

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THE SPECIAL MEETING OF ADURO STOCKHOLDERS

Date, Time and Place

The Aduro special meeting will be held on October 1, 2020, commencing at 9:00 a.m. Pacific Daylight Time, unless postponed or adjourned to a later date. The Aduro special meeting will be held entirely online. Aduro is sending this proxy statement/prospectus to its stockholders in connection with the solicitation of proxies by Aduro’s board of directors for use at the Aduro special meeting and any adjournments or postponements of the Aduro special meeting. This proxy statement/prospectus is first being mailed to Aduro stockholders on or about August 28, 2020.

Purposes of the Aduro Special Meeting

The purposes of the Aduro special meeting are:

 

  1.

To approve the issuance of shares of common stock of Aduro Biotech, Inc., or Aduro, to stockholders of Chinook Therapeutics U.S., Inc., or Chinook, pursuant to the terms of the Agreement and Plan of Merger and Reorganization among Aduro, Chinook and Aspire Merger Sub, Inc., or Merger Sub, dated as of June 1, 2020, as amended, a copy of which is attached as Annex A and Annex B, and the change of control resulting from the merger;

 

  2.

To approve an amendment to the amended and restated certificate of incorporation of Aduro to effect a reverse stock split of Aduro’s issued and outstanding common stock within a range, as determined by the Aduro board of directors and agreed to by Chinook, of every two to five shares (or any number in between) of outstanding Aduro common stock being combined and reclassified into one share of Aduro common stock in the form attached as Annex H. This amendment is intended to help Aduro satisfy the listing requirements of Nasdaq;

 

  3.

To consider and vote upon an adjournment of the Aduro special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 and 2; and

 

  4.

To transact such other business as may properly come before the stockholders at the Aduro special meeting or any adjournment or postponement thereof.

Proposal No. 1 is referred to herein as the merger proposal. Proposal No. 1 is a condition to completion of the merger. The issuance of Aduro common stock in connection with the merger, or Proposal No. 1, will not take place unless all approved by Aduro stockholders and the merger is consummated. Therefore, the merger cannot be consummated without the approval of Proposal No. 1.

Recommendation of Aduro’s Board of Directors

 

   

Aduro’s board of directors has determined and believes that the issuance of shares of Aduro’s common stock pursuant to the Merger Agreement is fair to, in the best interests of, and advisable to, Aduro and its stockholders and has approved such issuance. Aduro’s board of directors unanimously recommends that Aduro stockholders vote “FOR” Proposal No. 1 to approve the issuance of shares of Aduro common stock pursuant to the Merger Agreement and the change of control resulting from the merger.

 

   

Aduro’s board of directors has determined and believes that it is advisable to, and in the best interests of, Aduro and its stockholders to approve the amendment to the amended and restated certificate of incorporation of Aduro effecting the reverse stock split, as described in this proxy statement/prospectus. Aduro’s board of directors unanimously recommends that Aduro stockholders vote “FOR” Proposal No. 2 to approve the reverse stock split.

 

   

Aduro’s board of directors has determined and believes that adjourning the Aduro special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 and 2

 

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is fair to, in the best interests of, and advisable to, Aduro and its stockholders and has approved and adopted the proposal. Aduro’s board of directors unanimously recommends that Aduro stockholders vote “FOR” Proposal No. 3 to adjourn the Aduro special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 and 2.

Record Date and Voting Power

Only holders of record of Aduro common stock at the close of business on the record date August 12, 2020, are entitled to notice of, and to vote at, the Aduro special meeting. At the close of business on the record date, there were 98 holders of record of Aduro common stock and there were 81,168,129 shares of Aduro common stock issued and outstanding. Each share of Aduro common stock entitles the holder thereof to one vote on each matter submitted for stockholder approval.

Voting and Revocation of Proxies

The proxy accompanying this proxy statement/prospectus is solicited on behalf of Aduro’s board of directors for use at the Aduro special meeting.

If, as of the record date referred to above, your shares were registered directly in your name with the transfer agent for Aduro common stock, Computershare Trust Company, N.A., then you are a stockholder of record. Whether or not you plan to attend the Aduro special meeting online, Aduro urges you to fill out and return the proxy card or vote by proxy over the telephone or on the internet as instructed below to ensure your vote is counted.

The procedures for voting are as follows:

If you are a stockholder of record, you may vote at the Aduro special meeting. Alternatively, you may vote by proxy by using the accompanying proxy card, over the internet or by telephone. Whether or not you plan to attend the Aduro special meeting, Aduro encourages you to vote by proxy to ensure your vote is counted. Even if you have submitted a proxy before the Aduro special meeting, you may still attend the Aduro special meeting and vote in person. In such case, your previously submitted proxy will be disregarded.

 

   

To vote at the Aduro special meeting, attend the Aduro special meeting online and follow the instructions posted at www.virtualshareholdermeeting.com/ADRO2020SM.

 

   

To vote using the proxy card, simply complete, sign and date the accompanying proxy card and return it promptly in the envelope provided. If you return your signed proxy card before the Aduro special meeting, Aduro will vote your shares in accordance with the proxy card.

 

   

To vote by proxy over the internet, follow the instructions provided on the Notice of Internet Availability.

 

   

To vote by telephone, you may vote by proxy by calling the toll free number found on the Notice of Internet Availability.

If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a voting instruction card and voting instructions with these proxy materials from that organization rather than from us. Simply complete and mail the voting instruction card to ensure that your vote is counted. To vote in person at the Aduro special meeting, you must obtain a valid proxy from your broker, bank or other agent. Follow the instructions from your broker, bank or other agent included with these proxy materials, or contact your broker, bank or other agent to request a proxy form.

We provide internet proxy voting to allow you to vote your shares online, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your internet access, such as usage charges from internet access providers and telephone companies.

 

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If you do not give instructions to your broker, your broker can vote your Aduro shares with respect to “discretionary,” routine items but not with respect to “non-discretionary,” non-routine items. Discretionary items are proposals considered routine under Rule 452 of the New York Stock Exchange on which your broker may vote shares held in “street name” in the absence of your voting instructions. On non-routine items for which you do not give your broker instructions, Aduro shares will be treated as broker non-votes. It is anticipated that Proposal Nos. 1 and 4 will be non-routine. It is anticipated that Proposal Nos. 2 and 3 will be routine.

All properly executed proxies that are not revoked will be voted at the Aduro special meeting and at any adjournments or postponements of the Aduro special meeting in accordance with the instructions contained in the proxy. If a holder of Aduro common stock executes and returns a proxy and does not specify otherwise, the shares represented by that proxy will be voted “FOR” all of the proposals in accordance with the recommendation of Aduro’s board of directors.

If you are a stockholder of record of Aduro and you have not executed a support agreement, you may change your vote at any time before your proxy is voted at the Aduro special meeting in any one of the following ways:

 

   

You may submit another properly completed proxy with a later date by mail or via the internet.

 

   

You can provide your proxy instructions via telephone at a later date.

 

   

You may send a written notice that you are revoking your proxy to Aduro’s Corporate Secretary at 740 Heinz Avenue, Berkeley, California 94710.

 

   

You may attend the Aduro special meeting online and vote by following the instructions at www.virtualshareholdermeeting.com/ADRO2020SM. Simply attending the Aduro special meeting will not, by itself, revoke your proxy.

If your shares are held by your broker, bank or other agent, you should follow the instructions provided by them.

Required Vote

The presence, in person or represented by proxy, at the Aduro special meeting of the holders of a majority of the shares of Aduro common stock outstanding and entitled to vote at the Aduro special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. The affirmative vote of the holders of a majority of the shares present in attendance or represented by proxy at the Aduro special meeting and entitled to vote on the matter, assuming a quorum is present, is required for approval of Proposal Nos. 1, 3 and 4. The affirmative vote of the holders of a majority of the outstanding shares of Aduro common stock entitled to vote at the Aduro special meeting is required for approval of Proposal No. 2. Proposal No. 1 is a condition to the completion of the merger, and is referred to herein as the merger proposal. Therefore, the merger cannot be consummated without the approval of Proposal No. 1. The issuance of Aduro common stock in connection with the merger and the change of control resulting from the merger, or Proposal No. 1, will not take place unless approved by Aduro stockholders and the merger is consummated.

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. Abstentions and broker non-votes will also be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the special meeting. Abstentions will be counted towards the vote totals for each proposal, and will have the same effect as “AGAINST” votes. Broker non-votes will have no effect on Proposal Nos. 1, 3 and 4, and will have the same effect as “AGAINST” votes for Proposal No. 2.

As of July 31, 2020, the directors and certain executive officers of Aduro owned or controlled 0.2% of the outstanding shares of Aduro common stock entitled to vote at the Aduro special meeting. The directors and

 

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certain executive officers of Aduro owning these shares are subject to stockholder support agreements. Each stockholder that entered into a support agreement has agreed to vote all shares of Aduro common stock owned by him or her as of the record date in favor of Proposal Nos. 1, 2, 3 and 4 and against any competing “acquisition proposal” (as defined in the support agreement).

Solicitation of Proxies

In addition to solicitation by mail, the directors, officers, employees and agents of Aduro may solicit proxies from Aduro stockholders by personal interview, telephone, email, fax or otherwise. Aduro and Chinook will share equally the costs of printing and filing this proxy statement/prospectus and proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Aduro common stock for the forwarding of solicitation materials to the beneficial owners of Aduro common stock. Aduro will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out of pocket expenses they incur in connection with the forwarding of solicitation materials. Aduro has retained MacKenzie Partners, Inc. to assist it in soliciting proxies using the means referred to above. Aduro will pay the fees of MacKenzie Partners, which Aduro expects to be approximately $20,000, plus reimbursement of out-of-pocket expenses.

Other Matters

As of the date of this proxy statement/prospectus, Aduro’s board of directors does not know of any business to be presented at the Aduro special meeting other than as set forth in the notice accompanying this proxy statement/prospectus. If any other matters should properly come before the Aduro special meeting, it is intended that the shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting the proxies.

 

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THE MERGER

This section and the section titled “The Merger Agreement” beginning on page 121 of this proxy statement/prospectus describe the material aspects of the merger and the Merger Agreement. While Aduro and Chinook believe that this description covers the material terms of the merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus for a more complete understanding of the merger and the Merger Agreement and the other documents to which you are referred in this proxy statement/prospectus. See the section  titled “Where You Can Find More Information” beginning on page 243 of this proxy statement/prospectus.

Background of the Merger

In an effort to enhance stockholder value, Aduro’s board of directors and executive management regularly review and discuss Aduro’s near and long-term operating and strategic priorities. Among other things, these reviews and discussions focus on the opportunities and risks associated with Aduro’s development programs, financial condition and its strategic relationships and potential long-term strategic options.

In the fall of 2018, Aduro’s board of directors and executive management team initiated a strategic review of Aduro’s development programs for four primary reasons: general market sentiment towards immuno-oncology companies; the market’s negative reaction to the initial presentation of clinical data for STING pathway product candidates by Merck in October 2018 and Aduro in November 2018, which resulted in a significant decline in Aduro’s stock price; initial negative data generated in Aduro’s clinical trial of BION-1301, an anti-APRIL antibody, in multiple myeloma; and increased competition for both the STING and APRIL pathway product candidates. The board’s particular concern was that the combination of these events created a more difficult path to commercialization of STING or APRIL product pathway candidates by Aduro, given the possibility of lengthier development timelines and a less favorable financing environment for immuno-oncology companies. Accordingly, Aduro’s board of directors determined to evaluate alternatives whereby the company would either refocus its current development efforts on a limited set of programs in order to have a greater likelihood of reaching a suitable financeable inflection point driven by the achievement of more positive data from its STING and BION-1301 programs or alternatively, the company might pursue other options providing additional or nearer term financeable inflection points.

In December 2018, Aduro entered into a research collaboration and exclusive license agreement with Eli Lilly and Company, or Lilly, for Aduro’s cyclic GMP-AMP Synthase-STING, or cGAS-STING, inhibitor program. This agreement, which covers the research and development of inhibitor product candidates for autoimmune and other inflammatory diseases, requires Lilly to reimburse Aduro for certain research and development costs as well as to make certain payments upon the achievement of certain milestones as well as for royalties upon net sales of certain licensed products.

Based on the outcomes of its strategic review in fall 2018, Aduro’s board of directors implemented a strategic reset to prioritize Aduro’s clinical stage programs in the STING and APRIL pathways in January 2019. In connection with the strategic reset, Aduro reduced its workforce by approximately 37% and redirected its resources towards the STING and APRIL programs, thus extending its cash runway into 2022. Aduro also deprioritized the pLADD program as well as the company’s earlier stage programs, including ADU-1604 (anti-CTLA-4) and ADU-1805 (anti-SIRPα) at that time.

During the first quarter of 2019, Aduro’s board of directors and executive management team began to consider viable strategic alternatives available to the company that could enhance stockholder value. These alternatives included: remaining a stand-alone public company to pursue the company’s oncology and autoimmune/inflammatory disease programs; acquiring one or more complementary assets through purchase or in-licensing arrangements; selling Aduro to a larger company; or merging with a public or privately held company. As part of this review, and with the consent of Aduro’s board of directors, Aduro’s executive

 

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management team reached out to several experienced outside advisors to solicit their views on the company and its prospects.

In the spring of 2019, Mr. Stephen Isaacs, Aduro’s Chief Executive Officer and Chairman of Aduro’s board of directors, invited representatives of SVB Leerink, an investment bank specializing in representing healthcare and life sciences companies, to present SVB Leerink’s views on Aduro’s prospects and a possible plan for evaluating the range of strategic alternatives available to Aduro. Following this presentation at a board meeting in early May 2019, Aduro’s board of directors authorized Mr. Isaacs and the other members of Aduro’s executive management team to negotiate an engagement letter with SVB Leerink on the terms discussed at the board meeting. Following such negotiations, Aduro formally engaged SVB Leerink as the company’s financial advisor on June 3, 2019.

At a meeting of Aduro’s board of directors held on June 26 and June 27, 2019, the company’s executive management team reviewed with Aduro’s board of directors the current status of the company’s clinical programs, the company’s clinical opportunities, current corporate development activities, including the company’s efforts to pursue corporate development activities in Asia, the company’s cash position, anticipated near-term financeable inflection points and pro forma cash spending plans based on certain assumptions around the company’s development efforts pertaining to Aduro’s STING and APRIL programs, including the company’s collaboration with Novartis Pharmaceuticals Corporation, or Novartis, for the STING program in oncology. Aduro’s executive management team also presented a range of scenarios that included in-licensing assets to add clinical efficacy readouts to the company’s development programs by late 2021 or early 2022, as well as the execution of a transformational M&A transaction. Given the projected time and associated costs necessary to complete Aduro’s planned clinical trials through a significant inflection point, and the possibility that the company might not be successful in doing so on existing cash reserves, Aduro’s board of directors devoted special attention to considering the possibility of a transformational M&A transaction.

At this June 2019 board meeting, SVB Leerink also presented to Aduro’s board of directors a proposed process by which the company could pursue a transformational M&A opportunity. Following the presentation by SVB Leerink and after extensive discussion among the members of the board of directors regarding the presentations made by both the company’s executive management team and SVB Leerink, and the challenges and opportunities posed by each of the strategic alternatives, Aduro’s board of directors determined that the company should prioritize pursuing a process to explore M&A alternatives. The board of directors also established a transaction committee consisting of Aduro board members David Mack, Stephanie O’Brien and Stephen Sherwin to assist the board in evaluating potential strategic transactions involving Aduro.

Beginning in early July 2019, SVB Leerink worked with Aduro’s executive management team and Aduro’s transaction committee to identify and prioritize potential merger partners across the immuno-oncology, targeted oncology, renal, immunology and novel platform/genetic disease areas. Of an initial tranche of 39 companies presented by SVB Leerink, the transaction committee prioritized 15 companies, most of which focused on oncology, given the advanced development stage of STING relative to the company’s BION-1301 program, and directed SVB Leerink to contact such companies to gauge their interest in exploring a possible business combination with Aduro.

In August 2019, SVB Leerink contacted the 15 companies identified by the transaction committee as representing the greatest likelihood of achieving a synergistic combination with Aduro. Ten of such companies expressed an interest in exploring a possible business combination with Aduro and executed customary forms of confidentiality agreements with Aduro. During the remainder of August 2019, SVB Leerink, Aduro’s transaction committee and Aduro’s executive management team conducted a process to evaluate the desirability of a business combination with any of such companies. This process included meetings between Aduro’s executive management team and representatives of such companies and the exchange of due diligence materials.

In late August 2019 and at the direction of the transaction committee and Aduro’s executive management team, SVB Leerink invited eight of such companies to submit preliminary non-binding proposals for a potential

 

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business combination with Aduro. Five of such companies submitted proposals on September 16, 2019, and one of such companies submitted a proposal on September 23, 2019.

Based on the initial due diligence investigations conducted by Aduro’s executive management team and the relative strengths and weaknesses of the proposals received in September 2019 in comparison to one another, the transaction committee and Aduro’s executive management team recommended to Aduro’s board of directors at a board meeting on October 3, 2019 that Aduro continue to pursue further discussions with the four most promising prospects among the interested parties, referred to as Companies A, B, C and D.

Throughout October 2019, representatives of SVB Leerink and members of Aduro’s executive management team engaged in extensive mutual due diligence investigations with each of Companies A, B, C and D. Additionally, on October 14, 2019, another company with which the company and representatives of SVB Leerink had been engaged in discussions since early September, Company E, submitted a non-binding proposal for a potential business combination with Aduro.

Throughout November 2019, Aduro’s board of directors, the transaction committee and Aduro’s executive management team met with the company’s advisors frequently to review progress on the due diligence investigation of each of the companies’ remaining in the due diligence process. Furthermore, Aduro’s board of directors appointed another of its members, Ross Haghighat, to the transaction committee on November 7, 2019.

During November 2019, the company received revised non-binding proposals from Companies A, B, C and E. Based on guidance from Aduro’s transaction committee and board of directors, members of Aduro’s executive management team and representatives of SVB Leerink negotiated with each of these companies to improve the terms reflected in such revised non-binding proposals while further due diligence was conducted on each of such companies. By late November, 2019, Aduro’s board of directors had concluded that two of the companies, Company A and Company E, presented the greatest potential for achieving significant value for Aduro’s stockholders in a business combination with Aduro, and directed Aduro’s executive management team and SVB Leerink to focus on soliciting further revised proposals from each of these companies while still maintaining discussions with Companies B and C.

Company A’s revised proposal contemplated that Company A’s equityholders would hold 60% of the outstanding equity interests of the combined company immediately following the completion of the merger, and Aduro’s existing equityholders would hold the remaining 40%. Company A also proposed that the initial board of directors of the combined company would consist of three members designated by Company A, two designated by Aduro and an additional two members who would be independent from both Company A and Aduro, of which one would be the chairman of the combined company’s board of directors. Company A’s revised proposal also contemplated fulfilling Aduro’s existing obligations under its collaboration agreements with Novartis and Eli Lilly as well as completing the company’s ongoing phase 2 trial of ADU-S100 in patients with squamous cell carcinoma of the head and neck, or SCCHN trial, but stated that the allocation of additional capital to such program would be dependent upon the clinical data generated in the trial. Finally, Company A’s revised proposal also contemplated continuing to fund Aduro’s BION-1301 program while seeking a third party to which the program could be transferred through a sale or license.

Company E’s revised proposal contemplated that Company E’s equityholders would hold 75% of the outstanding equity interests of the combined company immediately following the completion of the merger, and Aduro’s existing equityholders would hold the remaining 25%. Company E’s proposal contemplated the continuation of Aduro’s STING and BION-1301 programs as well as the continuation of both the Novartis and Eli Lilly collaborations.

On December 5, 2019, Company B dropped from the process.

At a meeting of Aduro’s board of directors held on December 9, 2019, representatives of the company’s outside legal counsel, Latham & Watkins LLP, or Latham & Watkins, reviewed with Aduro’s board of directors

 

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the fiduciary duties owed by the members of the board to Aduro’s stockholders in the context of a business combination transaction. Aduro’s executive management team and representatives of SVB Leerink updated Aduro’s board of directors on the due diligence process and the revised nonbinding proposals made by Company A and Company E, and the board of directors provided guidance to SVB Leerink and Aduro’s executive management team on the proposed terms of counterproposals to each company. Following this discussion, members of Aduro’s executive management team also briefed the board of directors on a proposed corporate restructuring plan to reduce operating expenses with a goal of retaining sufficient cash reserves to fund the STING and APRIL programs to reach financeable inflection points. The proposed plan included further headcount reductions at the company’s facilities in the United States and the shutdown of the company’s European operations in the Netherlands. The board of directors took no action at this time pending the anticipated further discussions with Company A or Company E.

On December 11, 2019, Aduro received notification from Novartis that it had removed from its portfolio ADU-S100, the lead STING pathway activator product candidate and discontinued development of intratumoral STING pathway activators based on clinical data generated to date as well as the evolving treatment landscape for particular oncologic indications. Novartis notified Aduro that, going forward, Novartis intended to shift the focus of the collaboration efforts to a discovery-stage program pertaining to STING pathway activation through systemic delivery as a therapeutic strategy. This decision by Novartis also confirmed that Novartis was opting out of the planned trial of ADU-S100 in patients with non-muscle invasive bladder cancer. Novartis’ decision left Aduro to fund the program on its own, as it was already doing with the phase 2 trial of ADU-S100 in patients with SCCHN, in each case subject to an obligation of Novartis to fund and participate in any pivotal trials and reimburse certain early development costs if development of the product progresses into pivotal trials.

Throughout the remainder of December 2019, representatives of SVB Leerink and members of Aduro’s executive management team continued to meet separately with representatives of each of Company A and Company E to discuss the terms upon which each remained interested in engaging in a potential business combination with the company. In particular, Aduro’s board of directors had directed SVB Leerink and the executive management team to seek a more favorable equity split between Aduro’s stockholders, on the one hand, and each of Company A and Company E, on the other hand, as well as commitments to continue Aduro’s STING and BION-1301 programs.

On December 18, 2019, Company A delivered a further revised proposal to SVB Leerink. This proposal contemplated that Company A’s equityholders would hold 65% of the outstanding equity interests of the combined company immediately following the completion of the merger, and Aduro’s existing equityholders would hold the remaining 35%. Furthermore, Company A’s revised proposal indicated that Company A intended to terminate all development associated with Aduro’s STING program, and moreover, seek to transfer Aduro’s BION-1301 program to a third party through a sale or license.

On December 26, 2019, Company F, a company in which an entity associated with Morningside Venture (VI) Investments LTD., Aduro’s largest stockholder, had a significant equity stake, submitted to Aduro’s transaction committee a non-binding indication of Company F’s interest in pursuing a business combination with Aduro. The transaction committee shared this indication of interest with Aduro’s board of directors, which directed Aduro’s executive management team to conduct due diligence on Company F to evaluate whether it would be a desirable strategic partner for Aduro.

At a meeting of Aduro’s board of directors held on January 3, 2020, representatives of SVB Leerink informed Aduro’s board of directors that Company A and Company E had each notified SVB Leerink that it no longer desired to proceed further in merger discussions with Aduro. At this meeting, Aduro’s board of directors agreed that, based on the analysis conducted by the company’s executive management team, the company would not proceed in further negotiations with Company F regarding a potential strategic transaction with Aduro.

On January 9, 2020, Aduro implemented a corporate restructuring plan to extend operating capital and align personnel towards executing on the STING and APRIL clinical development plans. The corporate restructuring

 

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included a reduction-in-force of approximately 59% across the organization, the shutdown of Aduro’s European operations in the Netherlands and a reduction in Aduro’s facility footprint. The reduction in expenses projected to provide Aduro operating capital into 2023.

Aduro’s board of directors held meetings on January 22 and January 29, 2020 to discuss the strategic path forward for the company in light of the failure to reach an acceptable agreement with either Company A or Company E. As part of these discussions, SVB Leerink was asked to identify a broader range of potential merger partners, including potential counterparties with both oncology and non-oncology development programs, as the board of directors believed that both the company’s STING and BION-1301 programs showed promise. Aduro’s board of directors established a set of criteria for purposes of evaluating potential strategic partners for the company (and no criteria was assigned greater weight than any other):

 

   

a synergistic combination that would assign strategic value to Aduro in excess of its available cash;

 

   

a clinical stage asset with a potential inflection point within 12-18 months;

 

   

a combination that would establish a pipeline of assets that could enable a potential franchise in either oncology or renal diseases to be built;

 

   

a qualified and proven management team to run any combined company;

 

   

a well-respected stockholder base in the potential merger partner; and

 

   

a credible clinical and funding plan.

SVB Leerink and Aduro’s executive management team identified 28 companies to contact and assess their interest in pursuing a business combination with Aduro. Chinook was identified as a potential strategic merger partner, because it was viewed as likely to satisfy the major inclusion criteria established by the company’s board of directors. In particular, the transaction committee considered that a combined company focused on renal diseases that included a phase 3-ready lead program, atrasentan, together with Aduro’s BION-1301, with its potential disease-modifying characteristics, which are each designed to target a different, but meaningful portion of IgA nephropathy patients, as well as the rest of Chinook’s kidney diseases focused pipeline, would enable the formation of a combined company with the prospect of a pipeline of commercially viable products specifically targeting a significant addressable market in renal diseases. SVB Leerink first contacted Chinook as part of this process on February 11, 2020.

Aduro’s board of directors met again on February 20 and 21, 2020 to forge a consensus on the company’s strategic direction. At this meeting, representatives of SVB Leerink reported on recent outreach efforts to potential strategic partners for Aduro. It was noted at the meeting that the company’s then-current market capitalization of approximately $300 million represented a substantial premium to the company’s cash balance, which was a departure from the circumstances at the time the company first embarked upon an evaluation of potential merger partners in June 2019 when the company’s stock traded at a substantial discount to its then-current cash position. Accordingly, Aduro’s board of directors concluded that any evaluation of potential merger partners should prioritize those companies that expressed an interest in continuing to pursue one or more of Aduro’s existing development programs.

Based on these discussions, and with a consensus established among the members of the board of directors on a path forward, Aduro’s board of directors authorized the transaction committee, with the assistance of Aduro’s executive management team and SVB Leerink, to continue to evaluate potential strategic partners for the company.

Of the 28 companies identified earlier in the process, six signed customary forms of confidentiality agreements with the company and received further information on Aduro. Five companies ultimately expressed interest in exploring a potential transaction with Aduro and subsequently submitted non-binding preliminary merger proposals to Aduro. Chinook, based on publicly available information pertaining to Aduro, submitted an

 

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initial non-binding preliminary proposal on February 28, 2020. Chinook’s proposal contemplated that Chinook’s equityholders would hold 65% of the outstanding equity interests of the combined company immediately following the completion of the merger, and implied a value of approximately $170 million for Aduro and $315 million for Chinook. Furthermore, the Chinook proposal provided that designees to the combined company’s board of directors would be proportional to the proposed equity split between the two companies’ stockholder bases. This initial proposal also stipulated that Chinook would receive $14.5 million in new preferred stock financing prior to the completion of the merger and that Aduro would deliver $145 million of net available cash immediately prior to the completion of the merger. Chinook’s proposal also contemplated the continuation of Aduro’s BION-1301 program, but ascribed no value to Aduro’s non-renal assets. In fact, given the focus of Chinook on building a renal franchise, members of Chinook’s management team expressed to representatives of SVB Leerink and members of the transaction committee that Chinook was concerned that the continuation of Aduro’s non-renal programs, including STING, would create a conflict of priorities. Accordingly, Chinook indicated that it was open to Aduro seeking to identify an alternative development pathway for Aduro’s non-renal assets.

In early March 2020, the transaction committee recommended that based on the results of due diligence conducted to date and the terms of each of the companies’ non-binding preliminary proposals, Aduro and its advisors focus their further due diligence efforts and discussions regarding a potential business combination with the two companies that presented the best opportunity for synergies that could enhance value for Aduro’s stockholders, Chinook and another company, Company G. Further, Aduro would preserve the option to reengage with the other two companies, Company H and Company I, which were considered by the transaction committee as possessing less attractive synergistic opportunities with Aduro and thus less likely to deliver greater value to Aduro’s stockholders.

Throughout March 2020, the transaction committee, working with representatives of SVB Leerink and Aduro’s executive management team, conducted further mutual due diligence investigations with each of Chinook and Company G.

Company G’s preliminary non-binding proposal, which had been received on March 4, 2020, contemplated that Company G’s equityholders would hold 73% of the outstanding equity interests of the combined company immediately following the completion of the merger, and implied a value of approximately $150 million for Aduro and $410 million for Company G. Company G’s proposal also provided for a seven-member board of directors immediately following completion of any merger, with five of such members to be designated by Company G and two to be designated by Aduro. The transaction committee and Aduro’s executive management team viewed Company G as a less attractive alternative than Chinook based on, among other things, the terms proposed by Company G for a combination with Aduro, the fact that Company G’s research programs were at an earlier stage than those of Chinook and had not received any clinical validation such as atrasentan had received in the SONAR trial in diabetic nephropathy, and a view that Company G’s development timelines were not realistic.

By late March, the transaction committee and Aduro’s executive management team had reached a consensus view that Aduro should prioritize further due diligence and discussions on Chinook, while exploring possible avenues to realize value for Aduro’s non-renal assets for Aduro’s existing stockholders. At a meeting of Aduro’s board of directors on March 30, 2020, the transaction committee shared with the board an update on the status of discussions with Chinook, the scope and findings of due diligence conducted to date, the timing of the process for further evaluation of Chinook and its proposal for a merger between the two companies.

On April 2, 2020 at a meeting of Aduro’s board of directors, the transaction committee and Aduro’s executive management team provided a further update on the continuing discussions with Chinook, including areas of further inquiry to be covered in the ongoing due diligence investigation. The board of directors also appointed Messrs. Haghighat, Isaacs and another member of the board, Mr. William Greenman, to lead the further negotiations with Chinook. Following this meeting, at the direction of Aduro’s board of directors,

 

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representatives of SVB Leerink notified both Company H and Company I that Aduro was terminating discussions with each company.

The transaction committee and Aduro’s executive management team provided a further update to Aduro’s board of directors at a board meeting held on April 13, 2020. At the request of the transaction committee, representatives of Latham & Watkins described for the board of directors potential structures by which the stockholders of Aduro might receive value from the company’s non-renal assets.

On April 15, 2020, at the direction of Aduro’s transaction committee, representatives of SVB Leerink communicated to Mr. Eric Dobmeier, the Chief Executive Officer of Chinook, that Aduro was willing to consider further discussions with Chinook regarding a potential merger of Aduro and Chinook only on the basis of a 50/50 relative equity split between the equityholders of each company and a board of directors that included additional independent board members with commercial biotech experience. Additionally Aduro also proposed to deliver $145 million of net cash to the balance sheet of a combined company upon the completion of a merger, but would expect to see Chinook commit to delivering approximately $10 million of cash on its balance sheet at the closing of any merger plus an additional $44 million of new financing that would dilute Chinook’s stockholders prior to the completion of a merger. Moreover, given that Chinook was focused on developing a renal franchise and that the Chinook proposal assigned no value to Aduro’s non-renal assets in a combined company structure, Aduro indicated that any transaction would have to contemplate the disposition of such assets in a manner that could possibly generate additional value for Aduro’s existing stockholders.

On April 20, 2020, representatives of Chinook communicated a revised non-binding proposal to SVB Leerink. This revised proposal contemplated that immediately following the completion of the merger, Chinook’s equityholders would hold 55% of the outstanding equity interests of the combined company, and Aduro’s equityholders would hold 45%. Chinook further agreed to deliver $10 million in cash to the combined company at the completion of the merger and would also secure a further $25 million in new financing from its existing investors with the stipulation that the new financing would dilute the stockholders of the combined company. Chinook also proposed two alternatives to compose the initial board of directors for the combined company; either Chinook could propose four members (with one being Mr. Dobmeier) and Aduro could propose three members, or Chinook could propose three members (with one being Mr. Dobmeier), Aduro could propose two members and then an additional two members would be independent from both Chinook and Aduro. Chinook also indicated that it understood that Aduro would explore mechanisms to generate additional value for Aduro’s existing stockholders through the disposition of Aduro’s non-renal assets.

Between April 20, 2020 and April 30, 2020, additional discussions were held between Mr. Dobmeier, on the one hand, and members of the negotiating team and representatives of SVB Leerink, on the other hand, regarding the terms proposed by Chinook. During these discussions, the negotiating team reiterated that the equity split in any merger of Aduro with Chinook would need to be based on “parity” between the equityholders of Aduro and Chinook. A proposal by Mr. Dobmeier during this period to increase the equity allocated to Aduro’s equityholders from 45% to 48% was thus rejected by Aduro’s negotiating team. Accordingly, Mr. Dobmeier made a proposal to the negotiating team, which Mr. Dobmeier characterized as a “best and final” proposal that included the following terms: approximately 50/50 pro forma ownership of the combined company by each party’s equityholders, assuming Aduro delivered $145 million of net cash at closing; Chinook’s investors committing to an aggregate of $25 million of additional financing that would either be funded at closing or that could anchor a concurrent or subsequent financing by unaffiliated investors following the completion of the merger that would dilute the stockholders of the combined company; and a board of directors of the combined company consisting of seven directors, three of whom would be Chinook designees (including Mr. Dobmeier), two of whom would be Aduro designees, and the two remaining directors to be independent directors, with the chairman position to be an independently appointed position. Chinook’s proposal was also predicated on an assumption that Aduro’s non-renal assets might not be retained by the combined company following the closing, and that if they were retained, a portion of the value attributable to such assets would accrue to the benefit of Aduro’s existing stockholders through a contingent value rights structure.

 

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On May 1, 2020, Aduro’s board of directors held a meeting at which the board received an update from Aduro’s executive management team and the transaction committee on the status of the due diligence investigation of Chinook and Chinook’s latest proposal to Aduro. Following further discussion of this proposal as well as the possibility it implied for the creation of additional value for Aduro’s existing stockholders through the disposition of Aduro’s non-renal assets, Aduro’s board of directors directed the transaction committee and Aduro’s executive management team to continue its negotiations with Chinook while exploring possible alternatives to create value for Aduro’s existing stockholders through the disposition of Aduro’s non-renal assets.

On May 7, 2020, representatives of Latham & Watkins delivered a first draft of the proposed Merger Agreement for the transaction to representatives of Chinook’s outside legal counsel, Fenwick & West LLP, or Fenwick. Representatives of Latham & Watkins and Fenwick thereafter held numerous negotiations and exchanged several drafts of the proposed Merger Agreement until it was ultimately finalized.

On May 12, 2020, Aduro’s board of directors met again to receive an update from the executive management team on its views on the results of its due diligence conducted to date on Chinook. Following this briefing, the board of directors of Aduro asked questions and discussed certain issues that were identified in due diligence and then requested that the executive management team and the transaction committee conduct additional due diligence to address the questions posed by the board of directors. At this meeting, representatives of Latham & Watkins further advised the members of the board of directors on their fiduciary duties in the context of a transaction with Chinook.

On May 18, 2020, Aduro’s executive management team briefed Aduro’s board of directors on potential structures that would afford Aduro’s current stockholders the opportunity to realize value for Aduro’s non-renal assets in the event the board of directors determined to proceed with a merger with Chinook: the formation of a subsidiary into which such assets could be transferred prior to a sale of a controlling interest in such entity; or the sale or license of such assets to one or more interested third parties. Following this briefing, Aduro’s board of directors directed the negotiating team to continue negotiations with Chinook with a view to preserving for the current Aduro stockholders the possibility of realizing value for the non-renal assets pursuant to the structures described by the executive management team at the board meeting.

On May 19, 2020, Aduro’s board of directors held a follow-up meeting to the May 12 board meeting. At the May 19 meeting, the transaction committee and certain consultants and advisors to the company, including representatives of SVB Leerink, presented additional due diligence findings intended to address the questions that had arisen during the May 12 board meeting regarding certain of the preliminary due diligence findings of the executive management team.

On May 23, 2020, representatives of Latham & Watkins delivered to representatives of Fenwick a first draft of a proposed contingent value rights agreement providing a mechanism for the transfer of value received in the disposition of Aduro’s non-renal assets to Aduro’s existing stockholders. Representatives of Latham & Watkins and Fenwick thereafter held numerous negotiations and exchanged several drafts of the proposed contingent value rights agreement until it was ultimately finalized.

On May 28, 2020, Aduro’s executive management team provided an update on the status of the negotiations with Chinook to Aduro’s board of directors. As part of this discussion, representatives of Latham & Watkins summarized for and discussed with Aduro’s board of directors the material terms of the draft Merger Agreement, including structure and timing considerations; the exchange ratio and relative percentage ownership of the existing Aduro stockholders, on the one hand, and the Chinook stockholders, on the other hand, the dilutive effect of the financing to be committed by Chinook’s existing investors, as well as any financing by outside investors, Aduro’s net cash definition, the potential disposition and treatment of Aduro’s non-renal assets, the combined company’s board of director composition and executive officers, closing conditions, deal protection provisions, termination rights and termination fees. Representatives of Latham & Watkins also summarized for the board of directors the material terms of the lock-up and support agreements to be executed concurrently with

 

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the execution of the Merger Agreement by the directors and certain officers and affiliates of both Aduro and Chinook, as well as the proposed form of the contingent value rights agreement, which provided an opportunity for Aduro’s existing stockholders to realize value on the non-renal assets of Aduro.

On May 29, 2020, representatives of Fenwick delivered a first draft of a proposed note purchase agreement and form of promissory note for the $25 million additional investment by Chinook’s existing stockholders to representatives of Latham & Watkins. Representatives of Fenwick and Latham & Watkins thereafter held numerous negotiations and exchanged several drafts of the proposed note purchase agreement and form of promissory note until they were ultimately finalized.

On May 31, 2020, Aduro’s board of directors held a meeting to receive an update on the status of negotiations with Chinook on the remaining open points in the Merger Agreement, the contingent value rights agreement and the note purchase agreement as well as a briefing on the joint communications plan to be executed upon in connection with the proposed merger. Representatives of SVB Leerink reviewed for Aduro’s board of directors the process that led to the proposed transaction with Chinook and summarized for the board of directors SVB Leerink’s valuation analyses developed in connection with the proposed transaction. Following this discussion, Aduro’s board of directors directed the negotiating team to finalize negotiations with Chinook.

On June 1, 2020, Aduro’s board of directors reconvened the prior day’s board meeting with representatives of Latham & Watkins and SVB Leerink. During this meeting, representatives of Latham & Watkins presented a summary of the resolution of the remaining open points in the Merger Agreement and again reviewed with Aduro’s board of directors its fiduciary duties in considering the proposed merger with Chinook. In addition, representatives of SVB Leerink presented its financial analysis of the exchange ratio and delivered SVB Leerink’s oral opinion, which was confirmed by delivery of a written opinion dated June 1, 2020, to the effect that, as of such date and based upon and subject to the various assumptions, qualifications and limitations upon the review undertaken by SVB Leerink in preparing its opinion, the exchange ratio to be paid by Aduro pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Aduro. During the presentations, the board of directors of Aduro asked questions and discussed the provisions of the Merger Agreement and related documentation. After the presentations and discussions, the board of directors of Aduro unanimously (i) determined that the Merger Agreement, the merger, and other transactions contemplated therein, are advisable and in the best interests of Aduro and its stockholders, (ii) approved the Merger Agreement, the merger and the transactions contemplated thereby in accordance with the DGCL, (iii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, and (iv) resolved to recommend that the Aduro stockholders vote to approve the issuance of shares of Aduro common stock in the merger. Following the meeting of Aduro’s board of directors and after finalization of the remaining open points in the transaction documents, Aduro and Chinook entered into the Merger Agreement.

Aduro Reasons for the Merger

Aduro’s board of directors considered the following factors in reaching its conclusion to approve the merger and to recommend that the Aduro stockholders approve the merger and the issuance of shares of Aduro common stock in the merger, all of which the Aduro board of directors viewed as supporting its decision to approve the business combination with Chinook:

 

   

Aduro’s board of directors believes that the combined company’s focus on the discovery, development and commercialization of medicines to treat kidney diseases, represents a significant underserved market opportunity.

 

   

Aduro’s board of directors believes that the combination of the company’s promising phase 1 program, BION-1301, with Chinook’s lead phase 3-ready clinical program, atrasentan, and further pipeline of candidates for the treatment of kidney diseases would stand a greater likelihood of delivering long-term value to Aduro’s stockholders than Aduro’s current drug development pipeline.

 

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Aduro’s board of directors believes that greater long-term stockholder value is likely to be delivered by disaggregating Aduro’s renal and oncology programs, all of which are early stage programs.

 

   

Aduro’s board of directors considered the strength of the balance sheet of the combined company, estimated to be approximately $200 million at closing, including $25 million in cash from the notes to be purchased under the note purchase agreement as a condition to the closing of the merger. Aduro’s board of directors also considered the possibility that the combined company would be able to take advantage of the potential benefits resulting from the combination of the Aduro public company structure with the Chinook business to raise additional funds in the future, if necessary.

 

   

Aduro’s board of directors also reviewed with the management teams of Aduro and Chinook the current development plans for atrasentan and BION-1301 to confirm the likelihood that the combined company would possess sufficient financial resources, both in terms of existing cash reserves and likely sources of funding, to allow the combined company’s management team to focus on the continued development and anticipated commercialization of atrasentan and BION-1301.

 

   

Aduro’s board of directors concluded that the merger would provide the existing Aduro stockholders a significant opportunity to participate in the potential growth of the combined company following the merger, while the declaration of the special dividend for contingent value rights could result in additional cash proceeds being paid to Aduro stockholders in respect of Aduro’s non-renal assets.

 

   

Aduro’s board of directors also considered that the combined organization will be led by a highly experienced and accomplished senior management team and a board of directors with representation from each of the current boards of directors of Aduro and Chinook as well as two new independent directors.

 

   

Aduro’s board of directors considered the financial analyses of SVB Leerink, including its opinion to the board of directors that as of such date and based upon and subject to the various assumptions, qualifications and limitations upon the review undertaken by SVB Leerink in preparing its opinion, the exchange ratio to be paid by Aduro pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Aduro, as more fully described below under the caption “The Merger—Opinion of Aduro’s Financial Advisor.”

 

   

Aduro’s board of directors also considered the risks associated with continuing to operate Aduro on a stand-alone basis and the impact of the strategic reset in 2019 and the corporate restructuring in 2020 on the company’s ability to attract and retain a motivated workforce as well as the substantial efforts made over a significant period of time by Aduro’s senior management and financial advisors to solicit strategic alternatives for Aduro to the merger, including the discussions that Aduro management and the Aduro board of directors had in 2019 and early 2020 with other potential merger candidates.

Aduro’s board of directors also reviewed the terms of the merger and associated transactions, including:

 

   

the exchange ratio used to establish the number of shares of Aduro common stock to be issued in the merger does not fluctuate based on the price of Aduro common stock, and thus the relative percentage ownership of Aduro stockholders and Chinook stockholders immediately following the completion of the merger is similarly fixed, subject to certain adjustments related to the cash balances of Aduro and Chinook;

 

   

the financing in Chinook contemplated by the Subscription Agreements, the limited number and nature of conditions to the obligation of the proposed investors in Chinook to consummate the financing contemplated by the Subscription Agreements and the ability of Aduro to specifically enforce the obligations of the investors under the Subscription Agreements to complete the investment in Chinook if all of such conditions to the completion of the investment contemplated by the Subscription Agreements have been satisfied;

 

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the limited number and nature of the conditions to the Chinook obligation to consummate the merger and the limited risk of non-satisfaction of such conditions as well as the likelihood that the merger will be consummated on a timely basis;

 

   

the respective rights of, and limitations on, Aduro and Chinook under the Merger Agreement to consider certain unsolicited acquisition proposals under certain circumstances should Aduro or Chinook receive a superior proposal;

 

   

the reasonableness of the potential termination fee of $6.4 million and related reimbursement of certain transaction expenses of up to $2.0 million, which could become payable by either Aduro or Chinook if the Merger Agreement is terminated in certain circumstances;

 

   

the support agreements, pursuant to which certain stockholders of Chinook agreed, solely in their capacity as stockholders, to vote all of their shares of Chinook capital stock in favor of adoption of the Merger Agreement;

 

   

the agreement of Chinook to provide written consent of its stockholders necessary to adopt the Merger Agreement thereby approving the merger and related transactions within four business days of the registration statement on Form S-4, of which this proxy statement/prospectus is a part, becoming effective; and

 

   

the belief that the terms of the Merger Agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable under the circumstances.

In the course of its deliberations, the Aduro board of directors also considered a variety of risks and other countervailing factors related to entering into the merger, including:

 

   

the possibility that Aduro’s stockholders may not approve the merger proposals;

 

   

the $6.4 million termination fee and up to $2.0 million in related expenses payable to Chinook upon the occurrence of certain events and the potential effect of such termination fee in deterring other potential acquirers from proposing an alternative transaction that may be more advantageous to Aduro stockholders;

 

   

the substantial expenses to be incurred in connection with the merger;

 

   

the possible volatility, at least in the short term, of the trading price of the Aduro common stock resulting from the merger announcement;

 

   

the risk that the merger might not be consummated in a timely manner or at all and the potential adverse effect of the public announcement of the merger or on the delay or failure to complete the merger on the reputation of Aduro;

 

   

the risk to the business of Aduro and its operations and financial results in the event that the merger is not consummated;

 

   

the strategic direction of the combined company following the completion of the merger, which will be determined by a board of directors that will be comprised of a minority of the members of the current Aduro board of directors;

 

   

the possibility that Aduro’s stockholders may not receive any value for the non-renal assets of the company under the contingent value rights agreement;

 

   

the significant dilution to which Aduro’s stockholders will be subject in the event that the merger closes, as well as the additional dilution that would occur upon any subsequent financing transaction involving the combined company; and

 

   

various other risks associated with the combined organization and the merger, including those described in the section titled “Risk Factors” in this proxy statement/prospectus.

 

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The foregoing information and factors considered by Aduro’s board of directors are not intended to be exhaustive but are believed to include all of the material factors considered by Aduro’s board of directors. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, Aduro’s board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of Aduro’s board of directors may have given different weight to different factors. Aduro’s board of directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, the Aduro executive management team and the legal and financial advisors of Aduro, and considered the factors overall to be favorable to, and to support, its determination.

Chinook Reasons for the Merger

In the course of reaching its decision to approve the merger, the Chinook board of directors held numerous meetings, consulted with Chinook’s senior management, its financial advisors and legal counsel, and considered a wide variety of factors. Ultimately, Chinook’s board of directors concluded that a merger with Aduro was the best option to accelerate Chinook’s goal of building a leading kidney disease company by:

 

   

combining Chinook’s pipeline of atrasentan, CHK-336 and preclinical programs with Aduro’s promising BION-1301 program, such that the combined company expects to have three kidney disease product candidates in four ongoing clinical trials in 2021, as well as a robust research pipeline;

 

   

generating substantial capital resources for the combined company consisting of approximately $200 million of cash, cash equivalents and marketable securities expected at closing, including $25 million in additional financing committed by Chinook’s existing investors, which would provide funding to advance the combined company’s pipeline through 2022; and

 

   

adding talented employees from Aduro to continue advancing BION-1301 and to assist with transitioning Chinook into being a publicly-traded company.

Additional factors Chinook’s board of directors considered included the following:

 

   

the merger will provide Chinook’s current stockholders with greater liquidity by owning publicly-traded stock, and expanding the range of investors potentially available as a public company, compared to the investors Chinook could otherwise gain access to if it continued to operate as a privately-held company;

 

   

the historical and current information concerning Chinook’s business, including its financial performance and condition, operations, management and pre-clinical and clinical data;

 

   

the competitive nature of the industry in which Chinook operates;

 

   

the Chinook board of directors’ fiduciary duties to Chinook’s stockholders;

 

   

the board’s belief that no alternatives to the merger were reasonably likely to create greater value for Chinook’s stockholders, after reviewing the various financing and other strategic options to enhance stockholder value that were considered by the Chinook board of directors;

 

   

the projected financial position, operations, management structure, geographic locations, operating plans, cash burn rate and financial projections of the combined company, including the impact of the CVR agreement and the expected cash resources of the combined organization (including the ability to support the combined company’s current and planned clinical trials and operations);

 

   

the business, history, operations, financial resources, assets, technology and credibility of Aduro;

 

   

the availability of appraisal rights under the DGCL to holders of Chinook’s capital stock who comply with the required procedures under the DGCL, which allow such holders to seek appraisal of the fair value of their shares of Chinook capital stock as determined by the Delaware Court of Chancery;

 

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the terms and conditions of the Merger Agreement, including the following:

 

   

the determination that the expected relative percentage ownership of Aduro’s stockholders and Chinook’s stockholders in the combined organization was appropriate, based on the Chinook board of directors’ judgment and assessment of the approximate valuations of Aduro (including the potential value of the BION-1301 Program and the value of the net cash Aduro is expected to provide to the combined organization) and Chinook (including the value of the net cash Chinook is expected to provide to the combined organization);

 

   

the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes, with the result that in the merger the Chinook stockholders will generally not recognize taxable gain or less for U.S. federal income tax purposes;

 

   

the limited number and nature of the conditions of the obligation of Aduro to consummate the merger;

 

   

the rights of Chinook under the Merger Agreement to consider certain unsolicited acquisition proposals under certain circumstances should Chinook receive a superior proposal;

 

   

the conclusion of the Chinook board of directors that the potential termination fee of $6,400,000, payable by Aduro or Chinook to the other party, and the circumstances when such fee may be payable, were reasonable;

 

   

the conclusion of the Chinook board of directors that the potential expense reimbursement of up to $2,000,000, payable by Aduro to Chinook, and the circumstances when such fee may be payable, were reasonable; and

 

   

the belief that the other terms of the Merger Agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, were reasonable in light of the entire transaction;

 

   

the shares of Aduro’s common stock issued to Chinook’s stockholders will be registered on a Form S-4 registration statement and will become freely tradable for Chinook’s stockholders who are not affiliates of Chinook and who are not parties to lock-up agreements;

 

   

the support agreements, pursuant to which certain directors, officers and stockholders of Chinook and Aduro, respectively, have agreed, solely in their capacity as stockholders of Chinook and Aduro, respectively, to vote all of their shares of Chinook capital stock or Aduro common stock in favor of the adoption or approval, respectively, of the Merger Agreement;

 

   

the ability to obtain a Nasdaq listing and the change of the combined organization’s name to Chinook Therapeutics, Inc. upon the closing of the merger; and

 

   

the likelihood that the merger will be consummated on a timely basis.

The Chinook board of directors also considered a number of uncertainties and risks in its deliberations concerning the merger and the other transactions contemplated by the Merger Agreement, including the following:

 

   

the possibility that the merger might not be completed and the potential adverse effect of the public announcement of the merger on the reputation of Chinook and the ability of Chinook to obtain financing in the future in the event the merger is not completed;

 

   

the risk that future sales of common stock by existing Aduro stockholders may cause the price of Aduro common stock to fall, thus reducing the potential value of Aduro common stock received by Chinook stockholders following the merger;

 

   

the exchange ratio used to establish the number of shares of Aduro’s common stock to be issued to Chinook’s stockholders in the merger is fixed, except for adjustments due to the parties’ respective

 

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cash balances and outstanding capital stock at closing, and thus the relative percentage ownership of Aduro’s stockholders and Chinook’s stockholders in the combined organization immediately following the completion of the merger is similarly fixed;

 

   

the termination fee of $6,400,000, payable by Chinook to Aduro upon the occurrence of certain events, and the potential effect of such termination fee in deterring other potential acquirers from proposing an alternative transaction that may be more advantageous to Chinook’s stockholders;

 

   

the potential reduction of Aduro’s net cash prior to the closing;

 

   

the possibility that Aduro could, under certain circumstances, consider unsolicited acquisition proposals if superior to the merger or change its recommendation to approve the merger upon certain events;

 

   

the possibility that Aduro will not be able to successfully partner or sell any of Aduro’s non-renal assets or establish a viable entity to manage the development of the non-renal assets under the CVR Agreement;

 

   

the possibility that the merger might not be completed for a variety of reasons, such as the failure of Aduro to obtain the required stockholder vote, and the potential adverse effect on the reputation of Chinook and the ability of Chinook to obtain financing in the future in the event the merger is not completed;

 

   

the risk that the merger might not be consummated in a timely manner or at all;

 

   

the costs involved in connection with completing the merger, the time and effort of Chinook senior management required to complete the merger, the related disruptions or potential disruptions to Chinook’s business operations and future prospects, including its relationships with its employees, suppliers and partners and others that do business or may do business in the future with Chinook, and related administrative challenges associated with combining the companies;

 

   

the additional expenses and obligations to which Chinook’s business will be subject following the merger that Chinook has not previously been subject to, and the operational changes to Chinook’s business, in each case that may result from being a public company;

 

   

the fact that the representations and warranties in the Merger Agreement do not survive the closing of the merger and the potential risk of liabilities that may arise post-closing; and

 

   

various other risks associated with the combined organization and the merger, including the risks described in the section entitled “Risk Factors” in this proxy statement/prospectus.

The foregoing information is not intended to be exhaustive, but summarizes the material factors considered by the Chinook board of directors in its consideration of the Merger Agreement and the transactions contemplated. The Chinook board of directors concluded that the benefits, advantages and opportunities of a potential transaction outweighed the uncertainties and risks described above. After considering these and other factors, the Chinook board of directors unanimously approved the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement.

Opinion of Aduro’s Financial Advisor

Introduction

Aduro retained SVB Leerink as its financial advisor in connection with the merger and the other transactions contemplated by the Merger Agreement, which are referred to throughout this section, collectively, as the “Transaction.” In connection with this engagement, Aduro requested that SVB Leerink evaluate the fairness, from a financial point of view, to Aduro of the exchange ratio to be paid by Aduro pursuant to the terms of the Merger Agreement. On June 1, 2020, SVB Leerink rendered to the Aduro board its oral opinion, which

 

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was subsequently confirmed by delivery of a written opinion dated June 1, 2020 that, as of such date and based upon and subject to the various assumptions, qualifications and limitations upon the review undertaken by SVB Leerink in preparing its opinion, the exchange ratio to be paid by Aduro pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Aduro. In providing its opinion, SVB Leerink noted that the exchange ratio is intended to result in holders of Aduro common stock and Chinook capital stock immediately prior to the effective time of the merger holding, on a fully-diluted basis, approximately 50.0% and 50.0% of the outstanding Aduro common stock, respectively, on a pro forma basis immediately following the consummation of the merger and that the exchange ratio and, accordingly, such percentages, are subject to adjustments based upon the net cash and cash and cash equivalents of Aduro and Chinook as of the closing of the merger (as to which adjustments SVB Leerink expressed no opinion).

The full text of SVB Leerink’s written opinion, dated June 1, 2020, which describes the assumptions, qualifications and limitations upon the review undertaken by SVB Leerink in preparing its opinion, a copy of which is attached as Annex C and is incorporated herein by reference. The summary of SVB Leerink’s written opinion set forth below is qualified in its entirety by the full text of the written opinion, a copy of which is attached as Annex C. SVB Leerinks financial advisory services and opinion were provided for the information and assistance of the members of the Aduro board (in their capacity as directors and not in any other capacity) in connection with and for purposes of the Aduro boards consideration of the Transaction, and SVB Leerinks opinion addressed only the fairness, from a financial point of view, as of the date thereof, to Aduro of the exchange ratio to be paid by Aduro pursuant to the Merger Agreement. SVB Leerinks opinion did not address the fairness of the closing dividend to holders of record of Aduro common stock prior to the effective time of CVRs pursuant to the terms of the CVR Agreement or any other term or aspect of the Merger Agreement or the Transaction and does not constitute a recommendation to any stockholder of Aduro as to whether or how such holder should vote with respect to the merger or otherwise act with respect to the Transaction or any other matter.

The full text of SVB Leerink’s written opinion should be read carefully in its entirety for a description of the assumptions made and limitations upon the review undertaken by SVB Leerink in preparing its opinion.

In connection with rendering the opinion described above and performing its related financial analyses, SVB Leerink reviewed, among other things:

 

   

a draft, dated May 31, 2020, of the Merger Agreement;

 

   

a draft, dated May 31, 2020, of the CVR Agreement to be entered into by Aduro for the benefit of holders of record of Aduro common stock prior to the effective time of the merger;

 

   

Aduro’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed by Aduro with the SEC;

 

   

Aduro’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, as filed by Aduro with the SEC;

 

   

certain Current Reports on Form 8-K, as filed by Aduro with, or furnished by Aduro to, the SEC;

 

   

certain publicly available research analyst reports for Aduro;

 

   

certain business and historical financial information and data relating to Chinook prepared by management of Chinook and furnished to SVB Leerink by Chinook; and

 

   

certain financial forecasts and other information and data relating to each of Aduro and Chinook prepared by management of Aduro and furnished to SVB Leerink by Aduro for purposes of SVB Leerink’s analysis, which are referred to in this section as the “Forecasts.”

SVB Leerink conducted discussions with members of the senior management of Aduro, and its advisors and representatives, regarding their assessment of the Forecasts. In addition, SVB Leerink reviewed the historical

 

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trading prices and trading activity for the Aduro common stock. Furthermore, SVB Leerink reviewed (i) publicly available market capitalization data regarding companies in the biopharmaceutical industry that SVB Leerink believed to be comparable in certain respects to each of Aduro and Chinook; and (ii) publicly available financial terms of certain initial public offerings involving companies in the biopharmaceutical industry that SVB Leerink believed to be comparable in certain respects to Chinook. SVB Leerink also conducted such other financial studies and analyses and took into account such other information as it deemed appropriate.

SVB Leerink assumed, without independent verification or any responsibility therefor, the accuracy and completeness of the financial, legal, regulatory, tax, accounting and other information supplied to, discussed with, or reviewed by it for purposes of its opinion and, with the consent of the Aduro board, relied upon such information as being complete and accurate. In that regard, SVB Leerink assumed, with the consent of the Aduro board, that the Forecasts had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Aduro as to the matters covered thereby. SVB Leerink relied, at the direction of the Aduro board, on the Forecasts for purposes of its analysis and its opinion. SVB Leerink expressed no view or opinion as to the Forecasts or the assumptions on which they were based. In addition, with the consent of the Aduro board, SVB Leerink did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance-sheet or otherwise) of Aduro or Chinook, nor was SVB Leerink furnished with any such evaluation or appraisal, and SVB Leerink was not asked to conduct, and did not conduct, a physical inspection of the properties or assets of Aduro or Chinook. SVB Leerink assumed, with the consent of the Aduro board, that the final executed Merger Agreement and CVR Agreement would not differ in any respect material to its analysis or its opinion from the last drafts of the Merger Agreement and CVR Agreement reviewed by SVB Leerink. SVB Leerink also assumed, with the consent of the Aduro board, that the Transaction would be consummated on the terms set forth in the Merger Agreement and in accordance with all applicable laws and other relevant documents or requirements, without delay or the waiver, modification or amendment of any term, condition or agreement, the effect of which would be material to SVB Leerink’s analysis or its opinion and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the Transaction, no delay, limitation, restriction, condition or other change would be imposed, the effect of which would be material to such analysis or opinion. SVB Leerink did not evaluate and did not express any opinion as to the solvency or fair value of Aduro or Chinook, or their respective abilities to pay their obligations when they come due, or as to the impact of the Transaction on such matters, under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. SVB Leerink are not legal, regulatory, tax or accounting advisors, and SVB Leerink expressed no opinion as to any legal, regulatory, tax or accounting matters.

SVB Leerink expressed no view as to, and its opinion did not address, Aduro’s underlying business decision to proceed with or effect the Transaction, or the relative merits of the Transaction as compared to any alternative business strategies or transactions that might be available to Aduro or in which Aduro might engage. SVB Leerink’s opinion was limited to and addressed only the fairness, from a financial point of view, as of the date thereof, to Aduro of the exchange ratio to be paid by Aduro pursuant to the terms of the Merger Agreement. SVB Leerink was not asked to, nor did SVB Leerink, express any view on, and its opinion did not address, the fairness of the closing dividend to holders of record of Aduro common stock prior to the effective time of CVRs pursuant to the terms of the CVR Agreement. SVB Leerink was not asked to, and did not express any view on, and its opinion did not address, any other term or aspect of the Merger Agreement or the Transaction, including, without limitation, the structure or form of the Transaction, or any other agreements or arrangements contemplated by the Merger Agreement or entered into in connection with or otherwise contemplated by the Transaction, including, without limitation, the fairness of the Transaction or any other term or aspect of the Transaction to, or any consideration to be received in connection therewith by, or the impact of the Transaction on, the holders of any class of securities, creditors or other constituencies of Aduro or any other party. In addition, SVB Leerink expressed no view or opinion as to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to be paid or payable to any of the officers, directors or employees of Aduro or any other party, or class of such persons in connection with the Transaction, whether relative to the exchange ratio to be paid pursuant to the terms of the Merger Agreement or otherwise. SVB Leerink’s opinion was necessarily based

 

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on financial, economic, monetary, currency, market and other conditions and circumstances as in effect on, and the information made available to it as of, the date of its opinion, and SVB Leerink does not have any obligation or responsibility to update, revise or reaffirm its opinion based on circumstances, developments or events occurring after the date of the opinion. SVB Leerink’s opinion does not constitute a recommendation to any stockholder of Aduro as to whether or how such holder should vote with respect to the merger or otherwise act with respect to the Transaction or any other matter. SVB Leerink provided its financial advisory services and rendered its opinion for the information and assistance of the Aduro board (in their capacity as directors and not in any other capacity) in connection with and for purposes of its consideration of the Transaction. The issuance of SVB Leerink’s opinion was approved by the SVB Leerink Fairness Opinion Review Committee.

Summary of Financial Analyses

The following is a summary of the material financial analyses prepared by SVB Leerink and reviewed with the Aduro board in connection with the rendering by SVB Leerink of its opinion on June 1, 2020. The summary set forth below does not purport to be a complete description of the financial analyses performed or factors considered by, and underlying the opinion of, SVB Leerink, nor does the order of the financial analyses described represent the relative importance or weight given to those financial analyses by SVB Leerink. SVB Leerink may have deemed various assumptions more or less probable than other assumptions, so the reference ranges resulting from any particular portion of the analyses summarized below should not be taken to be the view of SVB Leerink as to the actual values of Aduro or Chinook. In performing its analyses, SVB Leerink made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Aduro or any other parties to the Transaction. None of Aduro, Chinook, Aspire Merger Sub, SVB Leerink or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of Aduro or Chinook do not purport to be appraisals or reflect the prices at which these companies may actually be sold. Accordingly, the assumptions and estimates used in, and the results derived from, the financial analyses are inherently subject to substantial uncertainty. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before June 1, 2020 and is not necessarily indicative of current market conditions.

Aduro Stand-Alone Valuation Analyses

Aduro Discounted Cash Flow Analysis

A discounted cash flow analysis is a traditional valuation methodology used to derive a valuation of an asset or set of assets by calculating the “present value” of estimated future cash flows of the asset or set of assets. “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors. SVB Leerink performed a discounted cash flow analysis to calculate the estimated present value of the stand-alone, unlevered, after-tax free cash flows that Aduro was forecasted to generate from September 30, 2020 through fiscal year 2040, which unlevered, after-tax free cash flows were derived from the Aduro management Forecasts. The cash flows were then discounted to present value as of September 30, 2020 using discount rates ranging from 9.0% to 11.0%. This range of discount rates was based on SVB Leerink’s analysis of Aduro’s weighted average cost of capital derived from analyzing the cost of capital for Aduro’s comparable companies, including bluebird bio, Inc., Ultragenyx Pharmaceutical Inc., Agios Pharmaceuticals, Inc., Blueprint Medicines Corp., Deciphera Pharmaceuticals, Inc., Amicus Therapeutics, Inc., PTC Therapeutics, Inc., Insmed Incorporated, Corcept Therapeutics Incorporated, Zealand Pharma A/S, Stemline Therapeutics Inc. and Clovis Oncology, Inc., and taking into account certain metrics including the comparable companies’ levered and unlevered betas, a historical equity risk premium and yields for U.S. treasury notes. In performing its discounted cash flow analysis, SVB

 

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Leerink adjusted for (i) cash balances, including cash and cash equivalents, estimated by Aduro management to equal approximately $145.0 million as of September 30, 2020, and (ii) the estimated cash flow impact of Aduro’s available net operating loss carryforwards and other tax attributes.

This analysis resulted in an implied equity value for Aduro of approximately $262 million to $322 million, and an implied per share equity value for the Aduro common stock of approximately $3.13 to $3.82 as compared to the closing price of the Aduro common stock of $3.37 as of June 1, 2020.

Aduro 52-Week Trading Range

SVB Leerink noted for the information of the Aduro board the historical intraday high and low trading prices of the Aduro common stock during the 52-week period ended May 29, 2020 (the last trading day prior to the rendering of SVB Leerink’s fairness opinion), which reflected low and high intraday trading prices for the Aduro common stock during such period of approximately $0.90 to $4.04 per share.

Aduro Discounted Wall Street Research Analyst Price Targets

SVB Leerink noted for the information of the Aduro board one year forward stock price targets for the Aduro common stock in publicly available Wall Street research analyst reports, which indicated low and high stock price targets for Aduro ranging from $4.00 to $10.00 per share, as of May 29, 2020. The price targets were then discounted from the one-year forward date of the last published report to present value as of September 30, 2020 using a discount rate of 10.0%. This analysis resulted in an implied per share equity value for the Aduro common stock of approximately $3.78 to $9.45 per share.

Illustrative Adjusted Aduro Discounted Cash Flow Analysis

For illustrative purposes, SVB Leerink performed a discounted cash flow analysis of Aduro assuming the disposition by Aduro of all of its oncology assets, with Aduro retaining solely its BION-1301 product candidate. SVB Leerink calculated the estimated present value of the stand-alone, unlevered, after-tax free cash flows that BION-1301 was forecasted to generate from September 30, 2020 through fiscal year 2040, which unlevered, after-tax free cash flows were derived from the Aduro management Forecasts. The cash flows were then discounted to present value as of September 30, 2020 using discount rates ranging from 9.0% to 11.0%. This range of discount rates was based on SVB Leerink’s analysis of Aduro’s weighted average cost of capital derived from analyzing the cost of capital for adjusted Aduro’s comparable companies and taking into account certain metrics including the comparable companies’ levered and unlevered betas, a historical equity risk premium and yields for U.S. treasury notes. In performing its discounted cash flow analysis, SVB Leerink adjusted for (i) net cash estimated by Aduro management to equal approximately $145.0 million as of September 30, 2020, and (ii) the estimated cash flow impact of Aduro’s available net operating loss carryforwards and other tax attributes.

This analysis resulted in an implied equity value for adjusted Aduro of approximately $157 million to $184 million, and an implied per share equity value for the adjusted Aduro common stock of approximately $1.90 to $2.22.

Chinook Stand-Alone Valuation Analyses

Discounted Cash Flow Analysis

SVB Leerink performed a discounted cash flow analysis to calculate the estimated present value of the stand-alone, unlevered, after-tax free cash flows that Chinook was forecasted to generate from September 30, 2020 through fiscal year 2040, which unlevered, after-tax free cash flows were derived from the Aduro management Forecasts. The cash flows were then discounted to present value as of September 30, 2020 using

 

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discount rates ranging from 9.0% to 11.0%. This range of discount rates was based on SVB Leerink’s analysis of Chinook’s weighted average cost of capital derived from analyzing the cost of capital for Chinook’s comparable companies including Ultragenyx Pharmaceutical Inc., Amicus Therapeutics, Inc., PTC Therapeutics, Inc., Insmed Incorporated, Corcept Therapeutics Incorporated and Zealand Pharma A/S and taking into account certain metrics including the comparable companies’ levered and unlevered betas, a historical equity risk premium and yields for U.S. treasury notes. In performing its discounted cash flow analysis, SVB Leerink adjusted for (i) cash balances, including cash and cash equivalents, estimated by Chinook management to equal approximately $10.0 million as of September 30, 2020, and (ii) the estimated cash flow impact of Chinook’s net operating loss carryforwards and other tax attributes generated during the forecasted period.

This analysis resulted in an implied equity value for Chinook of approximately $372 million to $454 million.

Exchange Ratio Analysis

Discounted Cash Flow Analysis of Aduro and Chinook

SVB Leerink compared the results for Aduro to the results for Chinook with respect to the discounted cash flow analyses described above and compared these results to the exchange ratio. For the purposes of this comparison, SVB Leerink used the exchange ratio of 1.4696x per share of Chinook capital stock, which is the exchange ratio resulting from the allocation of the outstanding Aduro common stock between holders of Aduro common stock and Chinook capital stock on a fully-diluted basis in the proportions of 50.0% and 50.0%, respectively, on a pro forma basis immediately following the consummation of the Merger.

SVB Leerink compared the lowest equity value for Chinook to the highest equity value for Aduro to derive the lowest Chinook exchange ratio implied by each pair of results. SVB Leerink also compared the highest equity value for Chinook to the lowest equity value for Aduro to derive the highest Chinook exchange ratio implied by each pair of results. The lowest and highest implied Chinook exchange ratios resulting from this analysis were 1.6964x and 2.5461x, respectively, compared to the exchange ratio of 1.4696x.

Illustrative Discounted Cash Flow Analysis of Adjusted Aduro and Chinook

For illustrative purposes, SVB Leerink compared the results for adjusted Aduro to the results for Chinook with respect to the discounted cash flow analyses described above and compared these results to the exchange ratio of 1.4696x per share of Chinook capital stock.

SVB Leerink compared the lowest equity value for Chinook to the highest equity value for adjusted Aduro to derive the lowest Chinook exchange ratio implied by each pair of results. SVB Leerink also compared the highest equity value for Chinook to the lowest equity value for adjusted Aduro to derive the highest Chinook exchange ratio implied by each pair of results. The lowest and highest implied Chinook exchange ratios resulting from this analysis were 2.9683x and 4.2510x, respectively, compared to the exchange ratio of 1.4696x.

General

The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a fairness opinion is not readily susceptible to summary description. In arriving at its opinion, SVB Leerink did not draw, in isolation, conclusions from or with regard to any factor or analysis that it considered. Rather, SVB Leerink made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.

SVB Leerink’s financial analyses and opinion were only one of many factors taken into consideration by the Aduro board in its evaluation of the Transaction. Consequently, the analyses described above should not be

 

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viewed as determinative of the views of the Aduro board or management of Aduro with respect to the exchange ratio or as to whether the Aduro board would have been willing to determine that a different exchange ratio was fair. The exchange ratio was determined through arm’s-length negotiations between Aduro and Chinook and was approved by the Aduro board. SVB Leerink provided advice to Aduro during these negotiations. However, SVB Leerink did not recommend any specific exchange ratio or other financial terms to Aduro or the Aduro board or that any specific exchange ratio or other financial terms constituted the only appropriate consideration for the Transaction.

SVB Leerink LLC is a full-service securities firm engaged in securities trading and brokerage activities as well as investment banking and financial advisory services. SVB Leerink has provided certain investment banking services to Aduro from time to time, for which it has received compensation. In the ordinary course of business, SVB Leerink and its affiliates may, in the future, provide commercial and investment banking services to Aduro, Chinook or their respective affiliates and would expect to receive customary fees for the rendering of such services. In the ordinary course of their trading and brokerage activities, SVB Leerink or its affiliates have in the past and may in the future hold positions, for their own account or the accounts of their customers, in equity, debt or other securities of Aduro, Chinook or their respective affiliates.

Consistent with applicable legal and regulatory requirements, SVB Leerink has adopted policies and procedures to establish and maintain the independence of its research departments and personnel. As a result, SVB Leerink’s research analysts may hold views, make statements or investment recommendations and/or publish research reports with respect to Aduro and the Transaction and other participants in the Transaction that differ from the views of SVB Leerink’s investment banking personnel.

The Aduro board selected SVB Leerink to act as Aduro’s financial advisor based on SVB Leerink’s qualifications, reputation, experience and expertise in the biopharmaceutical industry, its knowledge of and involvement in recent transactions in the biopharmaceutical industry and its relationship and familiarity with Aduro and its business. SVB Leerink is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Transaction.

In connection with SVB Leerink’s services as a financial advisor to Aduro, Aduro has agreed to pay SVB Leerink an aggregate fee of $2.0 million, $1.0 million of which became payable upon the rendering by SVB Leerink of its opinion on June 1, 2020 and the remainder of which is payable contingent upon consummation of the Transaction. In addition, Aduro has agreed to reimburse certain of SVB Leerink’s expenses arising, and to indemnify SVB Leerink against certain liabilities that may arise, out of SVB Leerink’s engagement. The terms of the fee arrangement between SVB Leerink and Aduro, which are customary in transactions of this nature, were negotiated at arm’s length between SVB Leerink and Aduro, and the Aduro board was aware of the arrangement, including the fact that a significant portion of the fee payable to SVB Leerink is contingent upon the completion of the Transaction.

Subsequent to the execution of the Merger Agreement, Chinook requested, and after obtaining the consent of the Aduro board, SVB Leerink agreed to, act as a placement agent to Chinook in the financing contemplated by the Subscription Agreements. SVB Leerink was engaged as the lead placement agent for the financing, and Chinook has agreed to pay SVB Leerink an aggregate fee of $2.7 million. The terms of the fee arrangement between SVB Leerink and Chinook are customary in transactions of this nature, were negotiated at arm’s length between SVB Leerink and Chinook, and were disclosed to the Aduro board, including the fact that the fee payable to SVB Leerink is contingent upon the completion of the Transaction.

Financial Forecasts

Aduro does not, as a matter of course, publicly disclose long-term forecasts or internal projections as to future performance, earnings or other results, and Aduro is particularly concerned with making such forecasts and projections due to the unpredictability of the underlying assumptions and estimates. At the direction of Aduro’s board of directors, including its evaluation of the proposed merger with Chinook and the other

 

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transactions contemplated by the Merger Agreement, Aduro’s management prepared risk-adjusted financial forecasts regarding each of Aduro and Chinook for the fiscal years from 2020 to 2040, referred to herein as the Financial Forecasts. The Financial Forecasts were developed for use only by Aduro’s board of directors and SVB Leerink.

The Financial Forecasts were necessarily based on a variety of assumptions and estimates. The assumptions and estimates underlying the Financial Forecasts may not be realized and are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the control of either Aduro or Chinook. The assumptions and estimates used to create the Financial Forecasts involve judgments made with respect to, among other things, sales growth rates, market size and growth rates, market share, future pricing, levels of operating expenses, revenues, development of additional future opportunities, pipeline products, milestone payments and probability of success, all of which are difficult to predict. The Financial Forecasts also reflect assumptions that do not reflect any of the effects of the merger, or any other changes or business decisions that may in the future affect Aduro or Chinook, or the respective assets, business, operations, properties, policies, corporate structure, capitalization and management of each company as a result of the completion of the merger or otherwise. Accordingly, there can be no assurance that the assumptions and estimates used to prepare the Financial Forecasts will prove to be accurate, and actual results may materially differ. The Financial Forecasts are forward-looking statements and should not be relied upon as necessarily predictive of actual future results. For information on factors that may cause future financial results to materially vary, see “Cautionary Statement Concerning Forward-Looking Statements” on page 80 of this proxy statement/prospectus.

As a result of the foregoing, there can be no assurance that the Financial Forecasts accurately reflect future trends or accurately estimate the future market for the product candidates of Aduro or Chinook. There can be no assurance of the approval, or timing of such approval, of such product candidates. Important factors that may affect actual results and result in the Financial Forecasts not being achieved include, but are not limited to, the timing of regulatory approvals and introductions of new products, market acceptance of new products, success of clinical testing, availability of third-party reimbursement, impact of competitive products and pricing, the effect of regulatory actions, the effect of global economic conditions, the cost and effect of changes in tax and other legislations and other risk factors described in Aduro’s Annual Report on Form 10-K for the year ended December 31, 2019, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. In addition, the Financial Forecasts may be affected by Aduro and Chinook’s ability to achieve strategic goals, objectives and targets over the applicable periods. Further, the Financial Forecasts cover multiple years and, by their nature, become subject to greater uncertainty with each successive year. Accordingly, there can be no assurance that the Financial Forecasts will be realized, and actual results may vary materially from those shown.

The inclusion of the Financial Forecasts in this proxy statement/prospectus should not be regarded as an indication that Aduro or any of its representatives considered or consider the Financial Forecasts to be necessarily predictive of actual future events, and the Financial Forecasts should not be relied upon as such.

The Financial Forecasts are not being included in this proxy statement/prospectus to influence a stockholder’s decision whether to vote in favor of the merger proposals, but because the Financial Forecasts were made available by Aduro’s management to Aduro’s board of directors and to SVB Leerink, in connection with the evaluation of the proposed merger with Chinook and the other transactions contemplated by the Merger Agreement.

A summary of the material projected financial information that was included in the risk-adjusted Financial Forecasts is set forth below.

 

    Aduro Projected Financial Information on a risk-adjusted basis  

($ in millions)

  2020E     2021E     2022E     2023E     2024E     2025E     2026E     2027E     2028E     2029E     2030E     2031E     2032E     2033E     2034E     2035E     2036E     2037E     2038E     2039E     2040E  

Total Adj. Net Revenues

  $ 10.0       —       $ 20.0       —       $ 6.5       —       $ 28.8     $ 20.1     $ 89.0     $ 144.0     $ 200.5     $ 240.1     $ 250.1     $ 249.3     $ 239.8     $ 162.3     $ 100.7     $ 62.7     $ 52.0     $ 38.1     $ 34.6  

Gross Margin

  $ 10.0       —       $ 20.0       —       $ 6.5       —       $ 27.0     $ 17.0     $ 82.6     $ 133.1     $ 185.0     $ 222.3     $ 232.0     $ 230.9     $ 222.6     $ 150.2     $ 92.6     $ 57.3     $ 47.6     $ 35.1     $ 31.6  

Total Adj. EBIT

  ($ 44.6   ($ 70.1   ($ 14.5   ($ 34.8   ($ 25.8   ($ 35.5   ($ 11.3   ($ 11.8   $ 45.4     $ 84.4     $ 119.6     $ 144.5     $ 153.2     $ 151.1     $ 146.7     $ 98.9     $ 59.8     $ 36.8     $ 30.3     $ 22.2     $ 18.6  

Taxable Income

    —         —         —         —         —         —         —         —         —         —         —         —         —       $ 121.7     $ 146.7     $ 98.9     $ 59.8     $ 36.8     $ 30.3     $ 22.2     $ 18.6  

Cash Flows

  ($ 44.6   ($ 70.1   ($ 14.5   ($ 34.8   ($ 25.8   ($ 35.5   ($ 11.3   ($ 13.8   $ 39.5     $ 78.5     $ 113.5     $ 140.6     $ 152.9     $ 124.1     $ 115.7     $ 84.9     $ 52.4     $ 32.6     $ 24.6     $ 18.7     $ 14.5  

 

105


Table of Contents
    Chinook Projected Financial Information  

($ in millions)

  2020E     2021E     2022E     2023E     2024E     2025E     2026E     2027E