PETX Aratana Therapeutics, Inc.

N otes   to   C onsolidated   Financial  S tatements (Unaudited)

(A mounts in thousands, except share and per share data)

1. Summary of Significant Accounting Policies

Business Overview

Aratana Therapeutics, Inc., including its subsidiaries (the “Company” or “Aratana”) was incorporated on December 1, 2010 under the laws of the State of Delaware. T he Company is a pet therapeutics company focused on licensing, developing and commercializing innovative therapeutics for dogs and cats. The Company has one operating segment: pet therapeutics.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2016 and the notes thereto in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2017. In the opinion of management, all adjustments, consisting of a normal and recurring nature, considered necessary for a fair presentation, have been included.

The Company has incurred recurring losses and negative cash flows from operations and has an accumulated deficit of $198,418 as of March 31, 2017 . The Company expects to continue to generate operating losses for the foreseeable future. The Company believes that its cash, cash equivalents and short-term investments , together with the proceeds from the registered direct offering (Note 10), will be sufficient to fund operations and debt obligations for at least one year from the issuance of the consolidated financial statements .  

The Company expects to continue to incur operating losses for the next several years as it work s to develop and commercialize its therapeutics and therapeutic candida tes. If the Company cannot generate sufficient cash from operations in the future, it may seek to fund its operations through collaborations and licensing arrangements, as well as public or private equity offerings or further debt (re)financings. If the Company is not able to raise additional capital on terms acceptable to it, or at all, as and when needed, it may be required to curtail its operations which could include delaying the commercial launch of its therapeutics, discontinuing therapeutic development programs, or granting rights to develop and market therapeutics or therapeutic candidates that it would otherwise prefer to develop and market itself .   As disclosed in Note 7 t o the consolidated financial statements, the Company has a term loan and a revolving credit facility with an aggregate principal balance of $40,000 as of March 31, 2017 . The loan agreement requires that the Company maintain certain minimum liquidity at all times   (the greater of cash equal to fifty percent ( 50% ) of outstanding balance or remaining months’ liquidity, which is calculated on an average trailing three (3) month basis, equal to six (6) months or greater) ,   which as of March 31, 2017 , was approximately $42,880 . If the minimum liquidity covenant is not met, the Company may be required to repay the loans prior to their scheduled maturity dates.   At March 31, 2017, the Company was in compliance with all financial covenants.

Consolidation

The Company’s consolidated financial statements include its financial statements and those of its wholly-owned subsidiaries and a consolidated variable interest entity (“VIE”)   through the deconsolidation date in December 2016. Intercompany balances and transactions are eliminated in consolidation.

To determine if the Company holds a controlling financial interest in an entity, the Company first evaluates if it is required to apply the VIE model to the entity. Where the Company holds current or potential rights that give it the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance combined with a variable interest that gives it the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, the Company is the primary beneficiary of that VIE. When changes occur to the design of an entity, the Company reconsiders whether it is subject to the VIE model. The Company continuously evaluates whether it is the primary beneficiary of a consolidated VIE and upon determination that the Company no longer remains the primary beneficiary, the Company deconsolidates the entity and a gain or loss is recognized upon deconsolidation.  

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from those estimates.

Property and Equipment, net

Property and equipment is recorded at historical cost, net of accumulated depreciation and amortization of $1,251 and $920 as of March 31, 2017, and December 31, 2016, respectively.

New Accounting Standards  

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on recognizing revenue in contracts with customers. The guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This guidance will supersede the revenue recognition requirements in topic, Revenue Recognition , and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In July 2015, the FASB approved a one-year delay in the effective date of the new revenue standard. These changes become effective for the Company on January 1, 2018. Early adoption is permitted but not before the original effective date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently assessing the method of adoption and the impact this new guidance will have on its consolidated financial statements. The timing of revenue recognition for variable consideration under the Company’s licensing and collaboration agreements may be different as a result of this new guidance. The Company is reviewing its licensing and collaboration agreements for variable consideration, and if any such consideration exists , whether it should be estimated and recognized earlier than under the current revenue guidance.  

Inventory

In July 2015, the FASB issued guidance that requires entities to measure most inventory “at lower of cost and net realizable value” thereby simplifying the current guidance under which an entity must measure inventory at the lower of cost or market. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted and is to be applied using a prospective basis. The Company adopted this guidance  o n January 1, 2017,   and the adoption did not have a material impact on its consolidated financial statements.

Leases

In February 2016, the FASB issued guidance that requires, for operating leases, a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted and is to be applied using a modified retrospective method. The Company is currently assessing the effect that adoption of this guidance will have on its consolidated financial statements.

Compensation – Stock Compensation

In March 2016, the FASB issued guidance that simplifies several aspects of the accounting for employee share-based payment transactions including accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitte d. The Company adopted this guidance on January 1, 2017, and the adoption did not have a material impact on its consolidated financial statements.

Statement of Cash Flows

In August 2016, the FASB issued guidance on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company adopted this guidance on January 1, 2017, and the adoption did not have a material impact on its consolidated financial statements.

Intangibles—Goodwill and Other

In January 2017, the FASB issued guidance on simplifying the subsequent measurement of goodwill by eliminating Step 2 ( measuring a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill) from the goodwill impairment test. Under the amendments in this guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The guidance requires application using a prospective method. The Company adopted this guidance on January 1, 2017, and the adoption did not have a material impact on its consolidated financial statements.





2. Fair Value of Financial Assets and Liabilities

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following financial assets are measured at fair value on a recurring basis using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).









Certain estimates and judgments are required to develop the fair value amounts shown above. The fair value amounts shown above are not necessarily indicative of the amounts that the Company would realize upon disposition, nor do they indicate the Company’s intent or ability to dispose of the financial instrument.

The following methods and assumptions were used to estimate the fair value of each material class of financial instrument:

Financial Assets and Liabilities that are not Measured at Fair Value on a Recurring Basis

The carrying amounts and estimated fair value of the Company’s financial liabilities which are not measured at fair value on a recurring basis was as follows:







Loans payable values above include both the current and the long-term loans balances as of March 31, 2017 and December 31, 2016.

Certain estimates and judgments were required to develop the fair value amounts. The fair value amount shown above is not necessarily indicative of the amounts that the Company would realize upon disposition, nor does it indicate the Company’s intent or ability to dispose of the financial instrument.

The fair value of loans payable was estimated using discounted cash flow analysis discounted at current rates.

3. Investments

The change in the net book value of goodwill for the three months ended March 31, 2017 , was as follows:





6 . Intangible Assets, Net  

The change in the net book value of intangible assets for the three months ended March 31, 2017 , was as follows:



The Company recognized amortization expense of $ 64  a nd $ 95   for the three months ended March 31, 2017 and 2016,   respectively.

Unamortized Intangible Assets

Unamortized intangible assets as of March 31, 2017 , were as follows:



The net carrying value above includes asset impairment charges to date of $16,765 .

Accumulated amortization includes both amortization expense and asset impairment charges . Asset impairment charges to date are $34,575 .   Unfavorable outcomes of the Company’s developm ent activities or the Company’s estimates of the market opportunities for the therapeutic candidates could result in additional impairment charges in future periods.  







7 . Debt

Loan and Security Agreements

Effective as of Oct ober 16, 2015, the Company and Vet Therapeutics, Inc., (the “ Borrowers ”), entered into a Loan and Security Agreement , as amended on February 24, 2017, (“Loan Agreement”), with Pacific Western Bank, or Pacific Western, as a collateral agent and Oxford Finance, LLC, (the “Lenders”). The loan is secured by substantially all of the Borrowers’ personal property other than intellectual property   and certain other customary exclusion s. Subject to customary exceptions, the Company is not permitted to encumber its intellectual property . The outstanding principal balance under the Loan Agreement was $35,000 under the term loan facility and $5,000 under the revolving credit facility at March 31, 2017 .   The Company is required to make interest-only payments on the term loan for 18 months, and beginning on May 1, 2017, is required to make payments of principal and accrued interest on the term loan in equal monthly installments over a term of 30 months. The Company is required to make interest-only payments on the revolving credit facility until October 1 6 , 2017, when all principal and accrued interest are due. The term loan and revolving credit facility bear interest per annum at the greater of (i) 6.91% or (ii) 3.66% plus the prime rate, which is customarily defined. As of March 31, 2017 ,   the interest rate for the term loan and the revolving credit facility was 7. 66 % . D uring the three mon ths ended March 31, 2017 and 2016, the Company recognized interest expense o f   $860  a nd $ 843 ,   respectively.

The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, limits or restrictions on the B orrowers’ ability to incur liens, incur indebtedness, make certain restricted payments, make certain investments, merge, consolidate, make an acquisition, enter into certain licensing arrangements and dispose of certain assets. In addition, the Loan Agreement contains customary events of default that entitle the Lenders to cause the B orrowers’ indebtedness under the Loan Agreement to become immediately due and payable. The events of default, some of which are subject to cure periods, include, among others, a non-payment default, a covenant default, the occurrence of a material adverse change, the occurrence of an insolvency, a material judgment default, defaults regarding other indebtedness and certain actions by governmental authorities. Upon the occurrence and for the duration of an event of default, an additional default interest rate equal to 4% per annum will apply to all obligations owed under the Loan Agreement.

T he Loan Agreement requires that the Company maintain certain minimum liquidity at all times   (the greater of cash equal to fifty percent ( 50% ) of outstandi ng credit extensions   or remain ing months’ liquidity, which is calculated on an average trailing three (3) month basis, equal to six (6) months or greater) , which as of March 31, 2017 ,   was approximately $ 42,880 .   If the minimum liquidity covenant is not met , the Company may be required to repay the term loan and the revolving credit facility prior to their scheduled maturity date s .   At March 31, 2017 , the Company was in compliance with all financial covenants.

The Company’s l oans payable balance as of March 31, 2017 ,   w as   as follows:



As of March 31, 2017 , $ 12,833 and $5,105 rela ted to the term loan and the revolving credit facility , respectively,   w ere   classified as Current portion – loans payable.



8 . Accrued Expenses

Accrued expenses consisted of the following:





9 . Agreements  

RaQualia Pharma Inc. (“RaQualia”)

On December 27, 2010, the Company entered into two Exclusive License Agreements with RaQualia ( as amended, the “RaQualia Agreements”) that granted the Company global rights, subject to certain exceptions for injectables in Japan, Korea, China and Taiwan for development and commercialization of licensed animal health products for compounds RQ-00000005 (ENTYCE   ® , also known as AT-002) and RQ-00000007 (GALLIPRANT ® , also known as AT-001). The Company will be required to pay RaQualia milestone payments associated with GALLIPRANT and ENTYCE of up t o   $4,000 and $6,000 , respectivel y, upon the Company’s achievement of certain development, regulatory and commercial milestones, as well as mid-single digit royalties on the Company’s or the Company’s sublicensee’s product sales.

T he Company achieved a $3,000 milestone during the three months ended March 31, 2017, which   was paid and capitalized as an intangible asset. As of March 31, 2017 , the Company had p aid $ 8 , 5 00 in m ilestone payments and no   royalty payments since execution of the RaQualia Agreements .   As of March 31, 2017, the Company had accrued royalties related to GALLIPRANT sales .   It is possible that multiple additional milestones related to the RaQualia Agreements are achieved within the next 12 months totaling $5,000 .

Elanco

GALLIPRANT

On April 22, 2016, the Company entered into a Collaboration, License, Development and Commercialization Agreement (the “Collaboration Agreement”) with Eli Lilly and Company, acting on behalf of its Elanco Animal Health Division (“Elanco”) pursuant to which the Company granted Elanco rights to develop, manufacture, market and commercialize the Company’s products based on licensed grapiprant rights an d technology , including GALLIPRANT (collectively, “Grapiprant Products”) . Pursuant to the Collaboration Agreement, Elanco will have exclusive rights globally outside the United States and co-exclusive rights with the Company in the United States during the term of the Collaboration Agreement.

Under the terms of the Collaboration Agreement, the Company received a non-refundable, non-creditable upfront payment of $45,000 .   The Company is entitled to a   $4,000 milestone payment   upon European approval of a   Grapiprant Product   for the treatment of pain and inflammation ,   a nother   $4,000   payment u pon achievement of a development milestone related to the manufacturing of a Grapiprant Product, and payments up to $75,000 upon the achievement of certain sales milestones. The sales milestone payments are subject to a one -third reduction for each year the occurrence of the milestone is not achieved beyond December 31, 2021, with any non-occurrence beyond December 31, 2023 , cancelling out the applicable milestone payment obligation entirely.

The Collaboration Agreement also provides that Elanco will pay the Company royalty payments on a percentage of net sales in the mid-single to low-double digits. The Company is responsible f or all development activities required to obtain the first registration or regulatory approval for a Grapiprant Product for use in dogs in each of the European Union (“the EU Product Regist ration”) and the United States, and Elanco is responsible for all other development activities. First r egistration for a Grapiprant Product in the United States was achieved before the completion of the Collaboration Agreement.   In addition, the Company and Elanco have agreed to pay 25% and 75% , respectively, of all third-party development fees and expenses through December 31, 2018 , in connection with preclinical and clinical trials necessary for any additional registration or regulatory approval of the Grapiprant Products, provided that the Company’s contribution to such development fees and expenses is capped at $7,000 (“R&D Cap”), which was recorded as licensing and collaboration commitment liability in the consolidated b alance sheet at March 31, 2017 . The Company classified the licensing and collaboration commitment liability as a current liability due to the Company having no control over when R&D Cap expenses will be incurred and the expected timing of R&D Cap expenses being unknown as of March 31, 2017 .   The licensing and collaboration commitment liability will be reduced in future periods as the related expenses are incurred by Elanco and paid for by the Company. Any remaining balance not paid to Elanco will be recognized as licensing and collaboration revenue on December 31, 2018 , when the Company’s obligation to fund 25% of Elanco’s development efforts expires.  

Commencing on the effective date of the Collaboration Agreement, the Company is responsible for the manufacture and supply of all of Elanco’s reasonable requirements of   active pharmaceutical ingredient (“API”) and/or finished Grapiprant Products   under the supply terms agreed upon pursuant to the Collaboration Agreement . However, Elanco retains the ability to assume all or a portion of the manufacturing responsibility during the term of the Collaboration Agreement. On April 28, 2017, the Company and Elanco entered into an amendment (the “Amendment”) to the Collaboration Agreement. Under the Amendment, Elanco has agreed to submit binding purchase orders to the Company, within 15 days of the effective date of the Amendment, for certain finished Grapiprant Products to be produced from certain batches of API the Company has agreed to purchase from its third - party manufacturer (the “API Batches”). In addition, Elanco has agreed to pay the Company for the API Batches within 30 days after the Company provides Elanco with proof of payment to the manufacturer for such API Batches. The Amendment provides that, in the event Elanco provides notice of its intent to assume responsibility for manufacturing, Elanco would assume all responsibilities of the Company with respect to any undelivered API, including paying the third - party manufacturer for such undelivered API.

On April 22, 2016, in connection with the Collaboration Agreement, the Company entered into a Co-Promotion Agreement (the “Co-Promotion Agreement”) with Elanco to co-promote Grapiprant Products in the United States.

Under the terms of the Co-Promotion Agreement, Elanco has agreed to pay the Company, as a fee for promotional services performed and expenses incurred by the Company under the Co-Promotion Agreement, (i) 25% of the gross margin on net sales of Grapiprant Product sold in the United States under the Collaboration Agreement prior to December 31, 2018 (unless extended by mutual agreement), and (ii) a mid-single digit percentage of net sales of the Grapiprant Product in the United States after December 31, 2018 through 2028 (unless extended by mutual agreement).

1 0 . Common Stock

As of March 31, 2017 , there were 36,974,456 shares of the Company’s common stock outstanding, net of 630,702 shares of unvested restricted common stock.

At-the-Market Offering

On October 16, 2015, the Company entered into a Sales Agreement (“Sales Agreement”) with Barclays Capital Inc. (“Barclays”) pursuant to which the Company could   sell from time to time, at its option, up to an aggregate of $52,000 of shares of its common stock (the “Shares”) through Barclays, as sales agent (“ATM Program”) . Sales of the Shares were made under the Company’s previously filed and currently effective Registration Statement on Form S-3 (Reg. No. 333-197414), by means of ordinary brokers’ transactions on the NASDAQ Global Market or otherwise. Additionally, under the terms of the Sales Agreement, the Shares could   be sold at market prices, at negotiated prices or at prices related to the prevailing market price. The Company paid Barclays a commission of 2.75% of the gross proceeds from the sale of the Shares.

During the quarter ended March 31, 2017, the Company sold 241,554 Shares for aggregate net proceeds of $1,223 .   In April 2017, the Company sold 305,372 Shares for aggregate net proceeds of $1,565 .

On April 28, 2017, the Company terminated its Sales Agreement. Prior to termination, the Company sold approximately $18 ,000 of the $52 ,00 0 available to be sold under the Sales Agreement. The Company terminated the Sales Agreement because it does not intend to raise additional capital through the ATM Program, and no additional shares of the Company’s common stock will be sold pursuant to the Sales Agreement. The Company did not incur any termination penalties as a result of its termination of the Sales Agreement.

Registered Direct Offering

On May 3, 2017, the Company entered into a Placement Agency Agreement (“PAA”) with Barclays, pursuant to which Barclays agreed to serve as placement agent for an offering of shares of common stock . In conjunction with the PAA,   o n May 3, 2017, the Company also entered into a Securities Purchase Agreement with certain investors for the sale by the Company of 5,000,000   shares of common stock at a purchase price of $5.25 per share (the “Offering”). The shares of common stock were offered and sold pursuant to an effective registration statement on Form S-3 (File No. 333-197414) and a related prospectus supplement. The Company agreed to pay Barclays an aggregate fee equal to 6.0% of the gross proceeds received by the Company from the Offering .   The Offering closed on May 9, 2017 .   The Company expects to receive net proceeds from the Offering of approximately $24 , 4 00 , after deducting placement agent fees of $1,575 and estimated offering expenses of approximately $300 .  

1 1 . Stock-Based Awards

No stock options have been granted under the 2010 Plan since the effective date of the   2013 Incentive Award Plan (the “2013 Plan”) .   For the three months ended March 31, 2017, the total intrinsic value of options exercised was $53 and the total received from stock option exercises was $3 .

2013 Incentive Award Plan

On January 1, 2017, the number of shares available for issuance under the   2013 Plan   was determined to be 1,203,369 shares in accordance with the automatic annual increase provisions of the 2013 Plan . As of March 31, 2017, there were 1,685,445 shares available for future grant under the 2013 Plan .

Activity related to stock options under the 2013 Plan for the three months ended March 31, 2017 , was as follows:



For the three mo nths ended March 31, 2017, the weighted average grant date fair value of stock options granted was $5.30 . For the three months ended March 31, 2017, the total intrinsic value of options exercised was $2 and the total received from stock option exercises was $2 .

Activity related to restricted stock under the 2013 Plan for the three months ended March 31, 2017 , was as follows:



For the three months ended March 31, 2017 , the total fair value of restricted common stock vested was $ 918 . The Company did not receive cash proceeds for any of the restricted common stock issued during the three months ended March 31, 2017 .

Stock-Based Compensation

Upon adoption of ASU 2016-09 ( Compensation – Stock Compensation )   on January 1 , 2017 , the Company elected to change its accounting policy to account for forfeitures as they occur.   The change was applied on a modified retrospective basis with a cumulative-effect adjustment to accumulated deficit  o f   $213 (which increased   the accumulated deficit) as of January 1, 201 7 . Prior to adoption of this guidance, the Company estimated forfeitures .

The Company recorded stock-based compensation expense related to stock options and restricted stock as follows:



A s o f   March 31, 2017 ,  t he Company had an aggre gate of $ 7,683 and $ 4,013 of unrecognized stock-based compensation expense for options outstandin g and restricted stock awards, respectively, which is expected to be recognized over a weighted average period of 2.45 years and 2.16   yea rs, respectively.

1 2 . Net Loss Per Share

Basic and diluted net loss per share was calculated as follows:

S tock options for the purchase of 2,653,163 and 2,329,468 shares of common stock were excluded from the computation of diluted net loss per share attributable to common stockholders for the three months ended March 31, 2017 and 2016, respectively,   b ecause those options had an anti-dilutive impact due to the net loss attributable to common stockholders incurred for the period.

1 3 . Income Taxes

The Company recorded no income tax expense or benefit during the three months ended March 31, 2017 and 2016, due to a full valuation allowance recognized against its deferred tax assets.

1 4 . Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss ,   net of their related tax effects, were as follows:



1 5 .   Legal Contingencies

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business, including those related to patents, product liability and government investigations. Except as described below, the Company is not presently a party to any litigation which it believes to be material, and is not aware of any pending or threatened litigation against the Company which it believes could have a material effect on its financial statements. The Company accrues contingent liabilities when it is probable that a future liability has been incurred and such liability can be reasonably estimated.

On February 6, 2017, a purported class action lawsuit was filed in the United States District Court for the Southern District of New York against the Company and two of its current officers, Yanbing Min v. Aratana Therapeutics, Inc., et al., Case No. 1:17-cv-00880. On February 27, 2017, a second purported class action lawsuit was filed in the United States District Court for the Southern District of New York against the Company and two of its current officers, Dezi v. Aratana Therapeutics, Inc., et al., Case No. 1:17-cv-01446. Both lawsuits assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and are premised on allegedly false and/or misleading statements, and alleged non-disclosure of material facts, regarding the Company’s business, operations, prospects and performance during the proposed class period of March 16, 2015 to February 3, 2017. The Company intends to vigorously defend all claims asserted. Given the early stage of the litigation, at this time a loss is not probable or reasonably estimable.